Drivers renewing their auto insurance policies are feeling sticker shock. The October consumer price index found that motor vehicle insurance rates were up 12.9% compared with a year earlier. But this is only an average, so some drivers are facing even steeper hikes.
The auto insurance market, like the rest of the economy, is dealing with the aftermath of a global pandemic and soaring inflation. “Insurers went from record profits in 2020 to record unprofitability,” says Adam Pichon, vice president and general manager of auto insurance at LexisNexis, a data analytics firm. “Many insurers were caught flat-footed and are raising rates to get profitable again.”
There are a few reasons insurers are feeling a squeeze. “In 2020, people were driving less, which led to fewer accidents. Insurers were then able to charge less,” says Laura Longero, executive editor for CarInsurance.com, an auto insurance information and quote website. “Those savings have now gone away.” Accidents have also increased. “The crash rate is higher now versus pre-COVID,” says Longero, though she notes the difference is not astronomical. Also, inflation, supply-chain issues and shortages increased the cost of parts and materials needed for repairs.
When insurers face higher costs, they pass those on to customers through higher rates. But drivers are not taking these rate increases sitting down. Pichon says that in the past two to three months, the steep increase in rates has motivated them to shop for lower-price policies again.
IS IT TIME TO SHOP?
This story is from the February 2023 edition of Kiplinger's Personal Finance.
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This story is from the February 2023 edition of Kiplinger's Personal Finance.
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