Does Inflation Affect Car Insurance Rates?

Did your car insurance rates mysteriously go up? Learn how inflation may impact your auto insurance premium here.
Picture of graph going up, symbolizing inflation in today's market.

Have you noticed an increase in your car insurance rates? Like the cost to buy a jug of milk or a carton of eggs, your auto insurance rates will go up due to inflation. There are many reasons for this, but it ultimately comes down to the cost of goods and services relating to auto claims constantly being on the rise.

In this article, we’ll explore how inflation affects your auto insurance rates. This includes a look at specific expenses that inflation impacts, which may result in a higher premium. Of course, this is an uncontrollable issue. However, we’ll lay out some ways you can combat these increased costs and lower your rates as much as possible.

Inflation’s Effect on Car Insurance

It’s an unfortunate reality, but car insurance isn’t immune to inflation. Any time you file a legitimate claim, your insurer pays for certain expenses. Often, these expenses include auto repair costs, medical bills, or even building materials, if property damage occurs. As inflation rises, so do costs that relate to claims.

Auto Repair Costs

As you might expect, the cost of auto repairs is a major expense that impacts car insurance prices. And unfortunately, costs have gone way up in the past couple of years. According to the US Bureau of Labor Statistics (BLS), the cost of auto repair parts saw a 15% increase in June 2022.

As claims become more expensive for carriers due to rising repair costs, so will your rates. And, as claims increase in your area, your premium may go up even more. If you live in a city, it’s likely you’ll these effects even more because there are generally more accidents.

Medical Bills

Accidents often result in injury, even if minor. And because most people must have liability coverage, medical costs are directly tied to your premium. Per BLS data, medical care services and medical care commodities costs rose 4.8% and 3.2% respectively in June 2022.

Like with auto repair costs, your rates will increase as the price of medical bills goes up. More liability claims (especially expensive ones) in your city will also result in a higher premium.

Building Materials

The cost of building materials may also raise your auto rates as it goes up due to inflation. If you run into a building or another structure, such as a fence, your property damage liability (PDL) will pay for the repairs.

In early 2022, the Producer Price Index (PPI) saw an increase that was 2.5 times higher than the Consumer Price Index (CPI). For perspective, the cost of lumber increased by a whopping 45%. This is sure to impact repair costs to buildings and other structures, which, in turn, could raise your auto rates.

You should also expect the cost increase for building materials to impact your homeowners insurance rates. If a disaster struck your home, it would cost your insurer much more to repair it than in the past.

Should You Raise Your Limits to Match Inflation?

As inflation increases, it becomes more expensive for insurers to pay for auto claims. Repair costs, medical bills, and more go up. In light of this fact, it may make sense to raise your auto insurance limits to keep up with inflation.

It’s a smart idea to pay attention to inflation trends and raise your coverage limits along with it. This is especially true if you own a car that’s already expensive to repair or replace. Keep in mind that you can always lower your limits at any time to avoid being over-insured or paying too much. And, at the end of the day, it’s wise to have as much coverage as possible. The state minimum is typically not enough to protect you from expensive accidents.

What Else Impacts Your Rates?

Inflation is just one element that impacts your rates. Insurers consider plenty of other factors to determine your premium. These are mainly facts about you that indicate your level of risk to your insurer, including:

  • Where you live. Your ZIP code plays a massive role in how high your premium is. For instance, you can expect higher rates if you live in a big city where crime and accidents are the norm.
  • Driving record. Your driving record is a major factor in your rates. This tells insurers, in a very clear way, how risky of a driver you are.
  • Age. Depending on your age, you could see higher or lower costs. For example, drivers under the age of 25 or over the age of 65 often see higher rates.
  • Car make and model. The car you drive affects your monthly premium. If your car lacks safety features or has a large engine, it could receive higher rates.
  • Yearly mileage. Driving more or less can impact your premium. The more you drive, the higher risk of getting into accidents and costing your carrier money.

How to Lower Your Auto Insurance Rates

Even though inflation is out of your control, there are still ways to lower your rates. Here are some simple steps you can take to get cheaper coverage:

  • Get discounts. Qualifying for auto insurance discounts can save you a ton of money. Discounts like bundling, multi-car, and telematics are easy to get and can slash a big percentage off of your costs.
  • Shop around. Your current insurance company may not be giving you the best deal. It’s always a good idea to periodically compare car insurance quotes from various insurers to see what’s out there.
  • Maintain a safe driving record. Driving safely can lower your rates. Carriers often reward drivers for consecutive years of safe driving with discounts and other perks, such as accident forgiveness.
  • Drive fewer miles. By having less mileage, you’ll save money on coverage. Insurers see you as less of a risk and, as a result, won’t charge as much.

Frequently Asked Questions

Q: Is car insurance going up due to inflation?

A: Yes, car insurance prices are rising because of inflation. As the cost of auto repairs, medical bills, and other goods and services go up, so will your rates. If you live in an area with more claims, you can expect your rates to go up even higher. This is because your area is costing your provider even more money, which it will compensate for by raising everyone’s prices.

Q: Will inflation go down?

A: As time goes on, inflation may go down. According to Kiplinger, inflation is expected to go down by 3.5% to 4% by mid-2023. However, don’t expect any sharp car insurance rate decreases because of this. Accidents are ever-increasing and the cost of goods and services will still be very high, even if the inflation rate goes down.

Q: How can I save on car insurance as inflation rises?

A: There are a few ways you can save on car insurance while inflation goes up. First, you should try to get as many discounts as possible. Many are easy to obtain, such as bundling, multi-car, and safe driving rewards. If you qualify for enough, you could save a massive amount of money each year.

You should also try testing the market for cheaper insurance. Often, your current provider isn’t offering the best deal, even if you’ve been with them for years. It’s a good idea to compare different companies to find the lowest rates at the best possible company.

Q: Is inflation why my car insurance doubled?

A: It might be a contributing factor, but it probably isn’t the only reason. Be aware that your provider considers several factors all at once to calculate your costs. These include things like your driving record, age, and ZIP code. If you just saw a huge rate increase, it’s a good idea to speak with an agent or company representative about it to gain some clarity.


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