If you’ve watched the news lately then you’ve seen all the talk around inflation. With the feds recently announcing the first hike in interest rates, gas prices going above $4.00 a gallon, and the backlog of inventory it is a lot to take in. The cost of living has hiked exponentially over the past couple of years putting a burden on each of us.
With inflation hitting just about every segment of the economy, insurance is not that much different, though there are some positives to the insurance industry. We’ll get into that later. Right now, as our customers are trying to pinch every penny in order to afford a tank of gas, the question of whether insurance rates will skyrocket like everything else is an everyday question throughout our office.
Why Are Auto Insurance Rates Increasing?
The effects of the COVID-19 pandemic on the economic systems underpinning common industries like auto insurance are resulting in noticeable inflation in the economy overall and within many economic sectors. Inflation in auto insurance rates is due at least in part to the seven following factors:
General inflationary pressures: With inflation hitting 7.5% on consumer goods, general cost increases are affecting multiple components of car insurance, from repairs to replacement costs.
- Chip shortages: A perfect storm of industry pressures and COVID-19 disruptions have caused a global shortage of the semiconductor chips needed for new vehicles.
- Low vehicle inventory: Several factors have contributed to the vehicle inventory crunch, including chip shortages.
Low vehicle inventory inflates the cost of new cars, which in turn can impact insurance premiums. Low inventory also translates to fewer and more expensive rental cars, increasing insurance companies’ costs as they pay for customers’ rentals.
- Replacement costs: For policies that stipulate comparable replacement costs, insurance companies are forking over more to buy comparable cars in this market when a car is totaled.
- Worker shortages: The auto industry is experiencing a technician shortage, right as many industries are offering higher pay to recruit and maintain staffing, potentially upping prices.
- Repair costs: Due to factors like inflation on part prices, supply chain issues and worker shortages, repair costs have increased.
- COVID-19 cleaning costs: Auto repair shops may be required to engage in COVID-19 cleaning processes. They bill insurance companies for the time and cost of this process, raising the cost of a typical repair job.
Positives to Inflation Within the Car Insurance Industry
With so much discussion around prices increasing drastically, there are some guarantees that may be helpful to know.
- Rates are Regulated: This is a great positive when it comes to what to expect with your personal auto or commercial vehicle insurance policies. Most companies must report to their state insurance department what new rates will be for the upcoming year. The insurance department will verify that the rate is necessary. These rates are usually set for the future and lock in for the upcoming year. While this can change and rate adjustments can occur mid-year, this is still true for many companies.
- Competition: This can be a positive when it comes to new markets entering the industry. While some insurance companies have been competitive in the past, that may not be the case anymore allowing new insurance competitors to enter the market. Free enterprise is always good.
- Independent Agents: While captive agents like State Farm, Farmers, or All State only have one option when it comes to shopping insurance rates, Independent Agents have multiple options. For example, our agency has over 14 companies to compare your auto or home insurance with, making sure you’re with the best company with the most competitive rate.
Inflation will keep rising but figuring out how to get the best coverage with the most competitive price will continue to be a priority. In order to make sure you’re getting the best deal text or call us at 405-373-2977 or email us at email@example.com to get a quote.