Insurance premiums are on the rise, and this has left many consumers trying to find out what factors increase their insurance costs. As with most things, this answer comes in two parts: the macro and the micro, or the big picture and the little picture, of the overall effect of the economy and those factors unique to you as an individual consumer. Companies use both elements to calculate the cost to insure you and your car.
On the macro level, you’ve probably noticed that the cost of nearly everything has risen. In fact, the economy’s current state of inflation is at 9.1%. Unfortunately for all drivers, auto insurance has not escaped the effects of this. The Covid-19 pandemic led to supply chain shortages, material shortages, and labor shortages that have spread across nearly every industry, raising costs for consumers. Additionally, more drivers returned to the roads after the vaccine was available and lockdowns were lifted, which inevitably led to a sudden surge in accidents, boosting insurance rates up. Due to supply chain inefficiencies, surging gas costs, and material deficits, the cost of new cars increased by 11.4% in 2021, which not only made them more expensive to insure and replace, but it also drove consumers to turn to the used car market. That market then saw a 7.1% increase in cost and it had the same effect on insurance costs and rates. Modern cars are often expensive to insure and the parts are often expensive to replace, so the cost of insurance rose again. In response to the pandemic, the cost and need for healthcare also skyrocketed, due to labor shortages and an extreme demand on workers in the field. Therefore, if someone is injured in a car accident, it is more costly to the insurance company to cover their healthcare costs as well, so this is yet another factor increasing insurance rates.
And then we come to the micro level – the factors that are unique to your own specific costs to insure, regardless of what’s going on in the economy. These include things like your driving record (if you’ve had any accidents or driving offenses), and the type of car itself – some cars are simply more expensive to insure/replace than others. There are also factors that insurance companies use to decide your premium rates that you might not even be aware of. These include things like:
The type of coverage you choose can also be a factor in why your insurance costs are increasing. Some types of coverage (collision or comprehensive for example) will cost more. Limits and deductibles can also be a factor in your overall insurance premium costs.
So, are you left with a million thoughts running through your head about how to understand this all and calculate your own cost to insure, to make sure you’re getting the best possible rate? Don’t worry – we got you! The Woop app not only tells you which insurance company offers you the best possible rates and coverage, our new consumer dashboard creates a free, individualized profile for each and every customer, explaining exactly what factors have determined your personal insurance rates.