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Why are car insurance rates rising faster than the rate of inflation?

Written by Katie Dee

Edited by Alyssa DiCrasto

Published on 2023-10-18
Woman driving

In 2023, car insurance rates have risen faster than the overall rate of inflation, leaving drivers wondering at the cause and looking for ways to save money on their own annual premiums. With costs rising rapidly, you may find yourself struggling to control the amount you are paying for your premium. The good news is that you are not alone in feeling this way.

While nobody can fully put a stop to this price increase, understanding the reasons behind it may help to ensure you are not overpaying for your car insurance.

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Why have car insurance rates risen so quickly?

One of the reasons behind these rate increases is the fact that insurance rates tend to lag behind inflation. This is because companies do not realize that claim payouts are higher until they actually start paying out the claims. Additionally, states need to approve the proposed rate hikes from insurance companies, so it takes a bit longer for these increased prices to go into effect.

Another contributing factor is the growing price of buying and maintaining a vehicle. Inflation has caused a spike in the cost of both new and used cars as well as the cost of their replacement parts and the labor involved in making repairs. 

With these inflated prices, insurance companies have increased their rates to ensure that they are able to cover any necessary claim payouts.

There have also been several supply chain shortages in the automotive industry. This is because certain manufacturers have stopped the production of specific parts, making them tougher for repair shops to get their hands on. This scarcity of parts in combination with increased demand for them has resulted in rate hikes.

Next, the influx of drivers that have returned to the roads in the aftermath of the pandemic could be influencing the increased rate of insurance.

When COVID-19 was at its peak, states had issued lockdowns, workplaces had either shut down completely or operated remotely, and bars and restaurants closed their doors. With this, the number of drivers on the road decreased significantly, which may have decreased car insurance premiums due to less risk of an accident.

Now, in the post-pandemic world, drivers are back on the road and the likelihood of being in an accident has risen – along with the price of car insurance coverage.  

Furthermore, the theft rate for cars has risen in the last few years, resulting in heightened risk for car insurance companies. Rate hikes related to theft are more likely in larger cities with higher crime rates, as the likelihood of a theft occurring is greater.

Lastly, the recent increase of natural disasters has left insurance companies needing to pay out more claims than expected to cover any resulting damage. A higher volume of claim payouts results in increased rates overall.

How to control your car insurance prices

There is no one size fits all when it comes to car insurance rates. The amount you pay depends on your unique driver profile which considers the make, model, and year of your car as well as personal details like where you live and your age. However, even if none of these factors have changed, your car insurance rates may still be rising.

No matter the reason behind the price increase, there are still methods available to help you control the amount you are paying for your car insurance.

Depending on your state’s insurance laws, improving your credit score could help to ensure that you are getting the lowest rate possible. While insurance companies cannot take your credit score into account in some states, there are still several states without these regulations in place.

New York, for example, is currently the most expensive state for car insurance. However, according to Rate Retriever’s quarterly insurance rates report, a New York driver with good credit will pay around 127% less than one with poor credit. That is a difference of almost $4,000 per year.

Additionally, taking a drivers safety course can also help you to reduce your car insurance rates. Several insurance companies such as State Farm and Allstate offer discounts for drivers that have completed defensive driving courses. These courses are designed to make sure your driver safety knowledge is up to par so that you have a smaller chance of being involved in an at-fault accident.

The last and most effective way to be sure you are getting the cheapest car insurance rate possible is to select the insurance company that is best suited to your needs. Take our quick quiz to compare personalized rates from car insurance companies in your area and find the cheapest option for you.

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