Auto insurance

Why are car insurance prices going up?

By ALLEN MCQUISTON
Jemez Insurance Agency
Serving Los Alamos since 1963

I came across this article in Bankrate and thought you might find it useful.

Auto insurance rates are calculated based on a number of underlying factors. Individually, your age (in all states except Hawaii and Massachusetts), gender (in most states), driving history, vehicle type, and coverage choices affect your premium. Additionally, broader factors also impact rates, such as whether states pass revised insurance laws, the likelihood of claims occurring in certain areas, or if vehicle repair costs increase.

Inflation

Perhaps the main driver of rising auto insurance premiums in 2022 is the same thing driving up costs across the board: inflation. Between June 2021 and June 2022, the consumer price index (CPI) increased by 9.1%. This means that, on average, we are spending 9.1% more than a year ago on the same goods and services. While auto insurance is certainly not the most drastic increase – fuel, energy products and air fares take the top spots – the increase still has the potential to further strain consumers’ wallets.

Inflation has hit the new and used vehicle markets in 2021, and while these numbers have started to stabilize, they are nowhere near the level they were before our current inflationary situation. The price of new cars and trucks increased by 11.4% between June 2021 and June 2022, while the market for used cars and trucks saw an increase of 7.1%. Vehicles are also much more complex than before, increasing the overall cost of ownership. Even small accidents can cause hundreds or thousands of dollars in damage to delicate electronics that require specialized repairs.

Vehicle costs aren’t the only thing affected by inflation. The cost of health care is also rising. The Centers for Medicare & Medicaid Services reports that healthcare spending rose 9.7% in 2020, the most recent year for which data is available. This means that when someone is injured in a car accident, the resulting medical costs are higher than they were in previous years.

Because auto insurance is designed to pay for costs after an accident — including property damage and medical expenses — anything that increases those costs is likely to increase rates. Insurers need to make sure they have enough funds to pay claims, so when inflation hits, car insurance rates are affected.

You may be tempted to reduce your coverage to save money, but insurance professionals advise against this strategy. Auto insurance is designed to protect your finances following an accident, and reducing your coverage could result in higher costs. In an inflationary economy where almost everything costs more, good car insurance could help you keep more of your hard-earned money if you file a claim.

Supply chain disruptions

The past few years have created a perfect storm to disrupt supply chains. COVID-19 shutdowns have led to lower demand in some industries in 2020. With fewer people on the road and cars generally being used less, there has been a reduced need for vehicle parts. Then an ice storm in February 2021 destroyed factories and factories all over the South, the Suez Canal was blocked for six days in March 2021 and people started to return to a more normal level of driving, this which resulted in an increase in demand but a decrease in supply. The automotive industry has been one of the hardest hit sectors. “Parts are more expensive, labor is more expensive, and repair costs are more expensive overall,” Ellis said.

The difficulty of obtaining semiconductors is perhaps the most obvious of these vehicle-related supply chain disruptions. Semiconductors, often referred to as “chips”, are used in a wide range of automotive applications, including driver assistance systems, entertainment systems and electronic mechanisms. In December 2021, more than 50 business leaders — including executives from American Honda Company, Ford Motor Company, General Motors and Toyota Motor North America — sent a letter to Congress urging governing bodies to encourage the United States to create their own semiconductor research, design and development. production methods, to increase the supply of semiconductors and the jobs available.

Labor shortages

In addition to supply chain issues making parts harder to find, labor shortages have also made skilled workers harder to find. The Bureau of Labor Statistics reports that unemployment was 3.6% in June 2022, almost back to the pre-pandemic level of 3.5%. However, many companies are still struggling to find workers. The “big quit” has caused workers to reconsider their career paths, with many labor shortages caused not by unemployment, but by workers changing jobs.

Fewer workers may contribute to higher insurance costs. When fewer people are doing a given job, including vehicle repair and health care work, pay rates often increase as an incentive. For example, maybe a mechanic repaired bumpers for $100. Now that same mechanic is working longer days and taking less time off to compensate for a reduced workforce. To compensate, the mechanic is now charging $300 to cover the same repair. Since repair costs more, insurance companies may raise rates to prepare for higher claims expenses.

We at The Jemez Insurance Agency wish you all a Happy Thanksgiving.