Mmmm…This glass of red wine that I just purchased from Dollar General is delicious. I honestly never thought I would type that sentence, but here we are. Thanks, COVID! In all seriousness, it’s almost impossible to turn on the news or scroll the headlines without being confronted by rising inflation. With all that we have been through these last few years, it is easy to see why.
Inflation is defined as the decline in our ability to purchase goods and services over time as the price of those goods and services rises. When our purchase power is strained, so is our budget, and it can make tight financial situations even tighter. We are all feeling it right now and it is painful.
So why is this happening to us? Simply put,
There is an increase in demand from shoppers – During the first part of the pandemic, most of us stayed home. This eliminated many costs we would normally experience. As spending behaviors shifted, some of us found ourselves saving money. I personally remember having vacation money that we didn’t spend. Nearly two years later, people are going out more and life is getting back to normal and spending behaviors are shifting again. This creates a change in the demand for goods and services, which has caused the costs of those goods and services to rise.
The pandemic has affected “supply” – Because of lockdowns, factory closings, and labor shortages, supply has simply failed to keep up with demand; therefore, we have seen an increase in prices.
There has also been a shift from purchasing goods to purchasing services – So many services were inaccessible during the pandemic, but when people started returning to restaurants and travelling more, prices for these things started to rise. You can thank limited resources and increases in labor costs for this one.
In case you were also wondering, auto insurance is not immune the impact of such rising costs. To establish premiums, insurance companies consider multiple factors. Such factors include your location information, claims history and the costs of repairing and replacing vehicles. When the costs of these repairs and replacements increase, so do premiums. Unfortunately, for consumers, inflation has caused auto repair and replacement prices to jump significantly.
Auto and auto parts prices have increased significantly as well. It costs more today to repair your car, but it also costs more today to replace it. Body shops across the country continue to struggle with obtaining replacement parts (which are also more expensive.) As I sit here and type this, my own vehicle sits in my garage, with a very, very big dent in my door it has had for months because the door necessary to replace my current door is not available. In fact, it is not expected to ship for three more months. It’s pure insanity. The world we lived in pre-Covid, a world where we had immediate access to most everything, just doesn’t exist anymore.
According to the Consumer Price Index Report of 2021, the value of a used car has increased over 35%! In fact, both used and new prices have increased significantly. When a claim results in a total loss, replacing the vehicle for the customer now costs much more than it did. Because of rising costs to replace and insure, insurance companies must charge more.
There are instances where customers will rent a car through their rental car coverage within their auto policy. With the rising costs already discussed, rental carshave increased in price and are extremely hard to find. Guess what that means? Insurance companies must charge more for this coverage.
Do you remember your insurance premiums going down during the pandemic? Well, yours likely did. Because of this, many insurance companies are playing catch up today. With traffic rates increasing to pre-pandemic numbers, there are considerably more traffic accidents. This factors into how insurance providers plan their rate changes.
Here is the hard truth. Your auto insurance premiums are likely going to increase this year. While you do not have control how insurers price their products, there are some steps you can take to potentially avoid facing higher insurance premiums in 2023.
It really is okay to compare rates from multiple providers. Compare the rates, but also compare the financial strength of the companies. When you buy a policy, you buy a promise. The insurance company promises to be there in the event of a loss. If they don’t have the financial strength, they may not be able to deliver on that promise.
Ask about discounts. Auto insurance discounts will reduce your premium. Ask your insurance agent and their team about available discounts you may qualify for that you don’t already receive.
Increase your deductible. This will decrease your premiums, but be careful. The higher the deductible, the more you pay out of pocket at the time of an accident. It is important to choose a deductible you can afford.
With prices increasing across the board, finding ways to save is essential. Know your key expenses to know what you must cover each month. If there is money left, add in your non-essentials. Also, be mindful of where you shop. You might find that generic or store brands are cheaper and work just as well. Finally, your insurance agency wants to work with you to find the best coverage for you at the best price. Give them a call to start saving today.