If you’ve recently been hit with a more expensive car insurance bill, you’re not alone.
Auto insurance costs rose about 15 percent in March from a year earlier, well above the latest headline inflation reading of 5 percent. The average annual premium is about $2,000, according to personal finance website Bankrate.
And car insurance prices are expected to continue to rise. This week, the CEO of insurer Progressive said in a letter to shareholders that the company plans to be “aggressive with raising rates for the rest of the year.” Allstate said it expects to pursue additional increases in 2023 “to improve the profitability of auto insurance.”
Higher costs for repairs, including both auto parts and labor, along with higher rental car costs as labor shortages lead to longer repair times, contribute to more expensive claims and -high premiums, industry analysts say. “Everything related to repairs is going up,” said Stephen Crewdson, senior director of insurance business intelligence at consumer research firm JD Power.
As the pandemic eases, more drivers have returned to the road, whether for work or pleasure, increasing the risk of accidents, said Robert Passmore, vice president of the personal lines division at the Accident Insurance Association of America, an industry group. Bad habits acquired during the pandemic, such as driving at higher speeds, have remained, he added.
Doug Heller, director of insurance for the Consumer Federation of America, said many good drivers are penalized with rates based on factors that have little to do with their driving. In most states, you may pay higher premiums if you have bad to fair credit, even if you have a clean driving record. Insurers use variations in consumer credit ratings — similar to what lenders use to determine a borrower’s risk of defaulting on a debt — as one of several factors to assess the likelihood of a driver making an insurance claim.
A recent Consumer Federation of America report on insurance premiums in New York found that drivers with a perfect driving record and excellent credit pay an average of $730 a year for basic insurance, while drivers with the same driving record but bad credit average almost $2,100 . The federation supports eliminating the use of credit score in insurance scoring, saying it particularly hurts lower-income customers and people who live in minority neighborhoods. (At least three states—California, Hawaii, and Massachusetts—ban the use of a credit score in determining these premiums, and several others restrict its use.)
Insurers defend giving better rates to drivers with good credit, saying it makes sense because those customers are less likely to make insurance claims. “The majority of customers get a better price because we use credit scoring,” Mr Passmore said.
Car insurance is hard to avoid because basic coverage is mandatory in most states. So what can you do to lower your bill? Chuck Bell, program director of advocacy at Consumer Reports, recommends getting three or four quotes from different insurers to see if they can offer lower rates. Many consumers stay with the same insurer for decades, he said, but it’s smart to check rates every now and then. “We think you should shop every year,” he said.
While many people “would rather get a root canal,” he said, getting auto insurance quotes isn’t difficult. He suggests calling insurers on the phone, but you can also get quotes directly on insurers’ websites. (Site sites that aggregate information can give you a general idea, he said. But for specific quotes, it’s best to contact insurers directly or independent agents who represent multiple carriers.) Keep your current policy handy to you can easily compare coverage.
Higher premiums are actually driving drivers to look for lower rates, according to recent findings from JD Power. “They are actively looking for a better deal,” Mr Crewdson said.
The share of households shopping for car insurance in the previous month averaged 13 percent in March, the highest level since mid-2021, according to JD Power, which based its findings on daily online surveys of up to 1,000 consumers. The average switching rate — households that switched insurers in the previous month — topped 4 percent in March, compared with an average of 3.6 percent for all of 2022 and 3.4 percent for 2021.
If you’re looking to buy a car, you can help reduce insurance costs from the start when you’re car shopping by focusing on models that are cheaper to insure, Mr Bell said. Instead of a large pickup truck or SUV, consider crossover vehicles, he said, which tend to be cheaper to insure.
If your car is an older model with a lower value, you could lower your premium by reducing collision coverage, which pays to repair or replace your car when it’s damaged in a crash with another car or an object like a fence. and comprehensive coverage, which covers theft of your vehicle and damage from things like branches falling on it.
Insurers also offer usage-based insurance, which involves having a device in your car that monitors your mileage and driving habits. The insurer then includes the data in your premium. If you’re a safe driver and comfortable sharing data with your insurer, or if you drive less, you could benefit. “For some people, it’s a way to save money,” Mr. Bell said.
Here are some questions and answers about how to lower your car insurance premiums:
Will improving my credit score help?
Improving your credit score can help lower your premium. Paying your bills on time and avoiding running up on your credit cards — keeping what the credit bureaus call “utilization” low — can help boost your score. You should also limit the number of new credit card accounts you open and loans you take out. You can check the accuracy of your credit report for free by visiting www.annualcreditreport.com.
Some insurers don’t use a credit score when setting premiums — CURE Auto Insurance, for example, says it doesn’t — so it’s worth asking when you’re shopping for coverage.
Can raising the deductible lower my premium?
yes Choosing a higher deductible – the portion of the claim bill you’re responsible for before the insurance policy pays – can lower your premium. Going from a $500 to $1,000 deductible can save an average of about 10 percent on your premium, Mr. Bell said. If you can, set aside the savings from your premium to help pay the deductible if you need to file a claim.
Where can I find information about insurers in my country?
State insurance departments may have information to help you compare rates as well as levels of service at different insurers. Texas, for example, has a detailed tool for getting quotes, and Massachusetts offers a spreadsheet to help you make comparisons. The National Association of Insurance Commissioners offers a map of state insurance departments and maintains a complaint index that consumers can use to see if their insurance company is above or below average.