It turns out there’s a financial downside to cheap gas and solid job growth. As Americans drive more miles, car insurance claims are rising and so is the average insurance payout. Insurance companies are reacting by hiking premiums.
According to the U.S. Bureau of Labor Statistics car insurance rates rose more than 5% in the 12 months through March, a stretch when the overall inflation rate was less than 1%. In another study, Your Driving Costs, released in April, AAA reports that the premium for a married middle age man with a good driving record rose nearly 10% over the past year, to more than $1,200.
Car insurers say they have little choice but to raise rates. Berkshire Hathaway, the parent of GEICO, the second largest personal auto insurer, noted in its recent annual report that “we continue to implement premium rate increases where necessary” to combat recent cost headwinds. Allstate announced in April that it plans to raise premiums an average of 25% in the state of Georgia. The announcement led the insurance commissioner there to issue a consumer alert.
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If you’ve yet to be hit with a rate hike, buckle up.
“Even if you haven’t had any changes in your record, there’s a pretty good chance your premium is going to be higher at the next renewal” says James Lynch, chief actuary at the Insurance Information Institute.
Consider how much insurers are paying out in claims. While the long-term trend shows that the number of accidents is declining, the average payout on the accidents that do occur is rising. From 2005 to 2013 (the latest data available), the number of claims for bodily injury fell 14.5%, according to the Insurance Research Council, yet the average cost per payout rose 32%, to more than $15,500. During that period the general inflation rate rose 19%.
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Those high payouts are likely to continue. Auto fatalities rose an estimated 8% last year, according to the National Safety Council. That was the largest annual increase in 50 years and suggests that insurance companies will continue to struggle to offset their costs. The same low interest rates that have made it hard for consumers to earn much on their bank savings accounts is also making it hard for insurers to earn much on their invested premiums.
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Navigating Rising Insurance Premiums
Don’t presume a sparkling driving record immunizes you from a rate hike. As Consumer Reports documented in a special report, “The Truth About Car Insurance,” many non-driving factors come into play, such as what your credit profile looks like and where you live.
Here’s how to make sure you drive the best possible car insurance deal.
- Shop Around. In a 2014 survey, Consumer Reports found that 68% of respondents said they had not comparison shopped for auto insurance and 53% had been with the same insurer for at least 15 years. But you can save money—possibly hundreds of dollars—by switching. And there’s no reason to wait until you get your next renewal notice to make a change. You can cancel an expensive policy at any time and you will be refunded the prorated premium for the remaining time on your policy. (Just wait until your new policy is active.)
- Don’t Be Blindly Loyal. While it’s true that some insurers offer discounts for long-term policyholders, and for bundling auto coverage with other insurance, such as homeowners or renters, there’s no guarantee those discounts will save you money. You may find that another insurer can offer you a lower rate.
- Choose a Higher Deductible. Skip the $250 or $500 deductible, and ask for a $1,000 or $1,500 deductible. While a higher deductible will bring down the cost of your premium, there’s another benefit. “A higher deductible helps you avoid the temptation to make small claims, and that can save you plenty,” says Laura Adams, senior analyst at InsuranceQuotes.com, a site that connects consumers with insurance carriers. A study by InsuranceQuotes.com found that people who made a car insurance claim in 2015 saw their premiums rise by 44% on average.
This article originally appeared on Consumer Reports. Consumer Reports has no relationship with any advertisers on this website.