Tired of opening up your renewal or bank statement and seeing your car insurance rate(s) increase yet again?
Yeah, me too.
But why is this happening? I’m a good driver. I haven’t changed anything. I didn’t buy a new car. I didn’t get a ticket. I didn’t have an accident. Why?
You’re not alone. And it’s not your insurance company raising rates for the sake of a buck.
Throughout the pandemic, insurance companies recorded good profits with respect to auto insurance. After all, more people were staying home and driving much less. Driving less equates to less accidents, claims, and payouts, which go hand in hand with profitability for auto insurance companies.
When has your insurance company ever given you money back because you drove less? In 2020, many auto insurance companies did just that.
But, let’s face it. The times are different now.
We live in an economy where the price of gas has gotten to $4-5/gallon. The price of a gallon of milk is $5. Inflation is rising. Stocks are unstable. Our retirement accounts have fallen tremendously. Recession is looming.
Well, what does that have to do with my auto insurance?
It does.
During the pandemic, costs for goods increased.
Wait a minute….you just said that the insurance company gave me money back during 2020?
That’s true. But, the cost of goods such as auto parts, lumber, etc. increased. The price of homes increased as well. The price of contractors increased. The price of materials (in general) increased. The price of cars increased.
Again, what does that have to do my auto insurance?
Since the pandemic has settled down, more people are driving again. More people driving equates to more people having accidents.
In an economy where the cost of goods has increased, mixed with a supply shortage of parts, microchips, etc., mixed with the increased prices of labor, mixed with the increased cost of new and used cars, and mixed with increased medical payouts for people injured in accidents….that’s a recipe for disaster.
According to the Bureau of Labor Statistics, auto parts were 15% more expensive in June 2022 than earlier in the year. Auto repairs were up 8%. Medical charges at clinics and hospitals rose 5%.
Bloomberg Intelligence writes “Parts costs…could stay high if chip delays last into 2024. Medical-care expenses climbed 4.8%, above historical averages as more severe accidents increased the need for visits to doctor offices and hospitals.”
The pandemic helped insurance companies with profitability. Less accidents means less payouts and more profit.
Now, we are in nearly the polar opposite economy.
People are driving more. People are having more accidents. The cost to repair or replace the damaged property is substantially higher. The cost of medical bills are higher.
Now, let’s add that to market prices for insurance indexes plummeting.
You definitely have a recipe for disaster for insurance companies.
If you own a business and your cost increases, do you keep charging the same to your customers? Or do you have to pass that on because in time it will bankrupt you?
You get the point.
And until inflation, cost of goods, labor, medical, and index prices rebound, we may be looking at a new norm. Only time will tell.
A lot of insurers have tightened up underwriting requirements as well. That means that higher risk drivers (multiple accidents) may be in danger from being insured by a major carrier.
What can I do?
The worst thing you can do is lower your liability and property damage coverage.
I just spent all this time telling you how prices have increased and you want to lower your coverage? That’s an easy way to get sued and lose everything you own. That’s not the answer. In fact, we’ve see more people increase their coverage during this time.
If you have an accident and you’re paying for insurance, you need to know that you’re going to have enough coverage to prevent you from losing everything you worked your entire life for.
There isn’t a one-size-fits-all plan for insurance. But, if we are all going to pay increased prices for the foreseeable future, we need to make sure our insurance coverage works like it’s supposed to.
– Brad Berry
Agency Owner – Brad Berry Agency
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