Does Inflation Affect Car Insurance Rates?

Explore the impact of inflation on car insurance costs. Navigate rising premiums with smart strategies for budget-friendly coverage decisions.
Picture of graph going up, symbolizing inflation in today's market.

Have you noticed an increase in your car insurance premium? Like the cost to buy a jug of milk or a carton of eggs, your 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 insurance coverage costs. This includes a look at specific expenses that it 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 prices 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.

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 coverage 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 required 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 provider, including:

  • Your Zip code. Your location 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 premium. 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.
  • Annual 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.
  • Your coverages and limits. How much insurance you buy affects your premium. If you buy additional coverages, it costs more. The same goes for limits. If you want them higher, your insurer will charge you more for the extra protection.

How to Lower Your Premium

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 these can save you a ton of money. Discounts like bundling, multi-car, and paid-in-full are easy to get and can slash a big percentage off of your costs.
  • Maintain a safe driving record. Driving safely can lower your rates. Carriers often reward careful driving for consecutive years with safe driver discounts and other perks, such as accident forgiveness.
  • Drive fewer miles. By driving less, you’ll save money on coverage. Insurers see you as less of a risk and, as a result, won’t charge as much. Reducing your driving could get you a discount for low mileage.

Frequently Asked Questions

Are premiums going up due to inflation?

Yes, car insurance prices are going up because of inflation. As the cost of auto repairs, medical bills, and other goods and services rise, so will your rates. If you live in a neighborhood where drivers file higher-than-average claims, you can expect prices to increase further. When a Zip code costs your provider more than expected, it compensates by raising everyone’s premium.

Will inflationary pressures ease and prices increases slow down?

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

How can I save on coverage as costs rise?

There are a few ways to fight inflation and keep rates low. First, you should try to get as many discounts as possible. Many are easy to obtain, such as bundling, multi-car, and claims-free 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.

Is inflation why my premium doubled?

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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