By ALLEN MCQUISTON
Jemez Insurance Agency
Serving Los Alamos Since 1963

I came across this article in Bankrate and thought you might find it helpful.

Car insurance rates are calculated based on a number of underlying factors. Individually, your age (in all states except Hawaii and Massachusetts), gender (in most states), driving history, vehicle type and coverage choices impact your premium. Additionally, broader factors also impact rates, such as if states pass revised insurance laws, the likelihood of claims occurring in certain areas or if vehicle repair costs increase.

Inflation

Perhaps the biggest driver of higher 2022 car insurance premiums is the same thing that is driving up costs across the board — inflation. Between June 2021 and June 2022, the Consumer Price Index (CPI) rose 9.1 percent. This means that, on average, we are spending 9.1 percent more than we were a year ago for the same goods and services. While auto insurance is certainly not the most drastic increase — fuel, energy commodities and airline fares take the top spots — the increase still has the potential to further strain consumers’ wallets.

Inflation pounded the new and used vehicle markets in 2021, and while these numbers have begun to stabilize, they’re nowhere near the level they were prior to our current inflationary situation. The price for new cars and trucks rose by 11.4 percent between June 2021 and June 2022, while the used car and truck market saw a 7.1 percent increase. Vehicles are also much more complex than they used to be, which adds to the overall cost of ownership. Even small accidents can cause hundreds or thousands of dollars worth of damage to delicate electronics that require specialized repairs.

Vehicle costs aren’t the only thing struck by inflation. The cost of healthcare is also on the rise. The Centers for Medicare & Medicaid Services reports that healthcare spending increased 9.7 percent in 2020, the most recent year with available data. This means that when someone is injured in a car accident, the resulting medical costs are greater than what they were in previous years.

Because car insurance is designed to pay for the costs after an accident — including both property damage and medical costs — anything that raises these costs is likely to raise rates. Insurers need to make sure they have enough funds to pay claims, so when inflation hits, car insurance rates are affected.

You may be tempted to lower your coverage to save money, but insurance professionals advise against this strategy. Car insurance is designed to protect your finances in the aftermath of accidents, and lowering your coverage could leave you with higher out-of-pocket bills. In an inflationary economy where nearly everything costs more, proper car insurance could help you hang on to more of your hard-earned dollars if you file a claim.

Supply chain disruptions 

The last few years have created a perfect storm to disrupt supply chains. COVID-19 shutdowns caused decreasing demand in certain industries in 2020. With fewer people on the road and cars generally getting less use, there was a decrease in the need for vehicle parts. Then, an ice storm in February 2021 knocked out plants and factories across the South, the Suez Canal was blocked for six days in March 2021 and people began to return to a more normal level of driving, which caused increased demand but decreased supply. The auto industry has been one of the hardest-hit sectors. “Parts are more expensive, labor is more expensive and repair costs overall are more expensive,” Ellis said.

Perhaps the most evident of these vehicle-related supply chain disruptions was the difficulty in obtaining semiconductors. Semiconductors, often called “chips,” are used in a wide array of vehicle applications, including driver assistance systems, entertainment systems and electronic mechanisms. In December 2021, over 50 business leaders — including executives from American Honda Company, Ford Motor Company, General Motors and Toyota Motor North America — sent a letter to Congress urging the governing bodies to encourage the U.S. to create its own semiconductor research, design and production methods, to increase the supply of semiconductors and available jobs.

Labor shortages

Along with supply chain issues making parts harder to find, labor shortages have made skilled workers harder to find as well. The Bureau of Labor Statistics reports that unemployment is at 3.6 percent as of June 2022 — nearly back to the pre-pandemic level of 3.5 percent. However, many companies are still struggling to find workers. The “Great Resignation” has pushed workers to reconsider their career paths, with many labor shortages caused not by unemployment but by workers switching jobs.

Fewer workers can contribute to rising insurance costs. When fewer people do any given job, including vehicle repair and healthcare jobs, pay rates often increase as an incentive. For example, perhaps a mechanic used to repair bumpers for $100. Now, that same mechanic is working longer days and taking less time off to make up for a reduced workforce. To compensate, the mechanic now charges $300 to cover the same repair. Because the repair costs more, insurance companies may increase rates to prepare for higher claims expenses.

We at The Jemez Insurance Agency wish you all a Happy Thanksgiving.