Do men really pay more than women for auto insurance? Learn what is being done to level the playing field.
Find Cheap Auto Insurance in Your Area
We have all felt the effects of inflation within the past few years, and auto insurance is no exception. You may have noticed your auto insurance premiums increase with each policy term year over year, and while this is not atypical, the increase is more significant now than in years past. Why? There are a few reasons why auto insurers have increased their prices in 2022, and we’ll explore each of these below.
To truly understand why auto insurance prices are increasing, you’ll need to recognize what your premiums are based on. Auto insurance companies use several different factors to determine what you pay. Some of these factors include what you would typically think of affecting your price, such as the type of car you drive, your driving record, and the area you live in. But many auto insurers also base the cost of their policies on their overall loss experience. For example, if a company has a year where they pay out more in claims than they collect in premiums, they will have to recoup their losses by increasing prices across the board. Although, this can vary by state, region, and even individual policies themselves.
However, you may be thinking, “This isn’t fair. I haven’t had any accidents, so why should my rate be affected?” Remember, insurance companies are a business as well. In the same way that a retail store will increase their prices if their supplier increases theirs, an insurance company will need to price adjust as well if their costs are growing. Without doing so, they risk not pricing adequately, which could cause insolvency. This is not new. An insurer’s loss experience has always been considered when pricing policies. But the past few years have seen more significant increases than previously, and many can be attributed to outside factors.
It shouldn’t be surprising that auto insurers are dealing with inflationary pressures alongside every other industry. Vehicles are costing more to repair after accidents due to the increased labor rates and shortage of parts. In fact, the consumer price index from March of 2022 shows that car maintenance and repair costs have increased 5% annually. In addition, medical costs are rising, and insurers are paying out more for bodily injury claims. Both of these things are forcing auto insurance companies to increase their prices to offset these costs.
Inflation may be a part of the reason why vehicle repair costs are on the rise, but it’s not the only one. New cars coming onto the market are generally outfitted with the latest technology and safety features. Understandably, these features are more expensive to repair or replace if damaged. It’s also taking longer to get the parts needed to make these repairs. The longer a car has to sit at a mechanic or body shop, the more money the insurance company has to pay for storage and/or rental car expenses for the customer. All of these result in higher claim payouts which ultimately cause the price of your policy to increase in the long run.
Related to the increase in vehicle repair costs is that most insurance companies are seeing higher claim severity or accidents being more costly and causing more damage. The pandemic forced many drivers to shelter in place and not travel outside the home; as a result, insurers saw a decrease in vehicle usage. With fewer cars on the road, one might expect that there would be fewer accidents. While that may be true, the severity of these accidents significantly increased. The reason for the higher severity is unclear. Still, the National Highway Traffic Safety Administration estimates over 8,000 accident-related fatalities in the first quarter of 2021, which is an increase of 10.5% from the prior year. If this trend continues, insurers may be forced to increase prices even more than they already have.
Even if you do not have a newer car with all the bells and whistles, your insurance company may still be paying out more for damages than in previous years. S&P Global states the price of used cars has increased 40% since December of 2019. This is due to the pandemic slowing down the production of newer cars and causing those with wanderlust to use other means of transportation, such as used vehicles. The increase in demand for used cars, combined with the increased costs for parts, means that used cars have higher values, thereby making them more costly to repair or replace in a loss.
If auto insurance prices are going to continue to rise, then what should you do? Luckily, you have some options. As mentioned previously, the price you pay for your insurance depends on a few things. Some of these are outside your control, such as inflation, your insurer’s loss experience, and car costs. But here are some things within your control that can help you save a little money on your insurance.
Easier said than done, I know. But if you can improve your credit score, you may see a reduction in your car insurance premium. Many car insurance companies use a credit-based insurance score to determine how likely you are to file a claim. This score then influences the rate you are charged. By improving your credit score, you can potentially get a better rate if you switch carriers. If you have been with your insurance company for a while, you can ask them to re-score your policy once you have made changes to your credit score. Typically, companies allow you to request this once every three years. Even if your score hasn’t improved, insurance companies are barred from increasing your price because of it, so asking for a re-score can only help you. This isn’t something that insurance companies will do automatically, though. So be sure to speak to your insurance agent or insurance company on how to request one formally.
Another way to help reduce the price of your policy is to review your coverages periodically. Perhaps your car is older and is not worth much. In this case, you could potentially remove comprehensive and collision coverages. Or maybe you don’t need rental car coverage since you have a car you can borrow if you’re in an accident. The goal is not to sacrifice coverage but to be intentional with what you carry. A licensed insurance agent is the best person to help you with this and advise you on precisely what you may need.
This may seem obvious but look for additional discounts you are eligible for. Some standard discounts include a multi-policy discount for bundling your car insurance with your home or renters policies or a defensive driving discount for taking a driver safety course. Keeping your car in a garage while it’s not being used is another discount many companies offer, as well as low annual mileage.
An excellent option for those who don’t drive much is to look for a company that offers usage-based insurance or UBI. These companies will price your policy specifically on how often you drive. This is perfect for those who work remotely and perhaps drive very little. Many of these companies will also offer a telematics program, where you are rewarded for driving well and avoiding dangerous activities such as using your cell phone, speeding, or braking hard.
Lastly, shop around for different companies. Since policy pricing is partially based on an insurer’s loss experience, it’s possible to find a company charging less for the same coverage. Before renewing your policy with your current company, talk to an independent agent who can quote you with a few companies or call around and get quotes yourself. You may find you’re able to save money despite the rising costs of insurance overall.