If you recently received a higher car insurance bill, you are not alone.
The price of car insurance rose about 15% in March compared to the previous year, significantly above the latest overall inflation reading of 5%. The average annual premium is around $2,000, according to personal finance website Bankrate.
And the bad news is that car insurance prices are expected to keep rising. This week, the CEO of Progressive Insurance stated in a letter to shareholders that the company planned to be “aggressive with rate increases for the remainder of the year.” Allstate said it expects to seek additional increases in 2023 “to improve car insurance profitability.”
Higher repair costs, including automotive parts and labor, along with higher car rental costs, are the main factors contributing to the higher premiums, industry analysts say.
Doug Heller, insurance director at the Consumer Federation of America, told The New York Times that many good drivers are being penalized with high prices based on factors that have little to do with their driving. In most states, you can pay higher premiums if you have poor or fair credit, even if you have a spotless driving record.
Insurers use a variation of consumer credit scoring—similar to those used by lenders to determine the risk of a borrower defaulting on a debt—as one of several factors to assess the likelihood of a driver filing an insurance claim.
A recent report from the Consumer Federation of America on insurance premiums in New York found that drivers with a perfect driving record and excellent credit pay an average of $730 per year for basic insurance, while drivers with the same driving record but poor credit can pay nearly $2,100.
The federation supports eliminating the use of credit scoring in insurance rating, saying it particularly harms low-income customers and people living in minority neighborhoods. (At least three states—California, Hawaii, and Massachusetts—prohibit the use of credit scoring in setting these premiums, and some others limit its use).
Car insurance is one of those unavoidable expenses because basic coverage is mandatory in most states. So, what can you do to lower your bill?
• Shop for three or four quotes from different insurers to see if they can offer lower rates. Many consumers stay with the same insurer for decades, but it’s smart to check prices from time to time, ideally once a year.
• Improving your credit score can help lower your premium. Paying your bills on time and avoiding maxing out your credit cards—keeping what credit agencies call “credit utilization” low—can help boost your score. You should also limit the number of new credit card accounts you open and the loans you take out. You can check your credit for free by visiting www.annualcreditreport.com.
• Choosing a higher deductible—the portion of a claim you are responsible for before the insurance policy pays—can reduce your premium. Moving from a $500 deductible to a $1,000 deductible can save you about 10% on your premium on average.
• 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 insurer is offering prices above or below average.
Source: The New York Times