These days, everyone is looking to save — understandably so. With inflation hitting 6.8% in 2021, prices across a variety of sectors have soared, leaving many Americans with nothing but emptier bank accounts and a grimace at the gas pump and grocery store.
It’s not surprising then that personal and commercial auto insurance rates have also been inching upwards. And it looks like premiums for 2022 will continue to climb.
To understand why auto insurance premiums are rising, here are four trends to note. Unfortunately, it’s a perfect storm of supply and demand issues, a global parts shortage, labor deficits, and changes in the legal landscape.
1. Supply and demand issues
A shortage of chips and raw materials (such as steel, glass, and aluminum) has lowered new vehicle production, sending demand and prices for quality used vehicles soaring. In fact, 2021 saw a 50% rise in used car prices and a 57% rise in Class 8 heavy truck prices.
The demand for used cars presents the most immediate impact on commercial auto insurance claim costs. Why? Because when a car is reported a total loss after a collision, insurance carriers pay claims based on the current value of the used car or truck, known as the actual cash value. With used vehicle prices climbing, carrier payouts have been forced to follow.
2. Parts and technology
The parts required to build new cars are the same ones needed to repair them after an accident. However, as the world faces a global parts shortage, parts are harder for repair shops to get. In addition, advanced auto technology has increased the overall cost of parts and repairs. As a result of those two factors, the average part increased in price by 6% during the first ten months of 2021.
3. Labor shortages and costs
Similar to other industries, auto repair shops have struggled to recruit, train, and retain qualified technicians. Once again, this sets off a chain reaction of lengthier repair times, forcing vehicle-dependent businesses to use rental cars longer — a cost usually paid for by the insurance company.
4. Costly legal settlements
Escalating legal judgments and claim-related payouts are also contributing to rising insurance rates. Some of the issues contributing to these higher verdicts against companies include:
Distrust of corporations: More and more people believe companies are unlikely to “do the right thing.” This change in thinking has led to more lawsuits and favor from juries towards plaintiffs.
Increased television and social media marketing tactics by law firms to reach consumers and boost their clientele.
An increase in the use of policy-limit demands by plaintiff attorneys, which pushes insurers to make difficult decisions about settlements, even if accurate information is not yet available.
Changes in the legal environment. The trend of juries placing expansive responsibility on businesses beyond what is stated in contracts has resulted in excessive verdicts for plaintiffs.
Combined, these costs are passed on to insurance companies, contributing to increased premiums for consumers.
How to Offset Rising Rates
While it may appear impossible to do anything about the unprecedented number of shortages and other factors contributing to rising insurance costs, it is possible to counteract them in several ways:
Adopt workplace safety practices to encourage safe driving and reduce your claims.
Bundle your business coverages to take advantage of available discounts.
Maintain your fleet and consider telematic monitoring to survey employee driving habits.
Call our office at (516) 277-0812 or send us an email at info@thesarricagroup.com to schedule a time for one of our team members to review your coverage to secure the right coverage for the best value.
No matter what the new year holds, we’re here to help you weather the highs and lows. If we can be of any assistance as you look to the year ahead, please don’t hesitate to reach out. That’s why we’re here.