With major changes to the economy and the car industry in recent years, adjustments in auto insurance are expected to shape the industry for the remainder of 2022. A recent market report by LexisNexis has identified trends that caused insurance shopping and policy growth to be volatile: reduced car sales due to vehicle shortages and supply chain issues, problems with getting claims, and a change in driving behaviors. On top of this the cost of vehicles for America buyers is also increasing. Although there are several negative factors influencing the market, there is also a hope that customers are better positioned to make more informed decisions and increase market share. In this article, we’ll discuss the present factors affecting auto insurance.

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Average cost of auto insurance

The cost of insurance policies has grown steadily over the past few years. As outlined in Sound Dollar’s guide to car insurance costs, the average full-coverage auto insurance policy is $1,202 per year. This is for someone who is younger than age 65, has more than six years of driving experience with no accidents, and resides in a suburban location. In Maryland, however, the average price is slightly higher at $1,236, as recorded by the Insurance Information Institute. Notably, the average full-coverage cost for a car insurance policy is affected by variations in pricing across expensive states, marking Maryland as the 12th most expensive state for car insurance.

Factors affecting auto insurance

As mentioned in the introduction, there are several causes for the changes in auto insurance. Listed below are three crucial factors that affect the price of auto insurance premiums:

Inflation

One of the main economic aspects that is affecting car insurance is the country’s inflation. In July 2022, CBSNews’ report on inflation reflected a slight dip to 8.5% due to falling gasoline prices. Despite this change, inflation still remains at an all-time high, which makes it difficult to balance other rising costs like food and shelter. With this in mind, many people have considered cutting auto insurance coverage to save money for other expenses like health insurance, electricity, home bills, and their mortgage. Currently, the Federal Reserve is expected to raise its benchmark interest rate to around 3.5% to 3.75%, in an attempt to slow the economy without plunging the country into a recession.

Supply shortages

Global issues and geopolitics have made it difficult to set up supply chains properly in recent years. The advent of COVID-19 has caused many companies and industries to shut down, lowering the demand for vehicles. In recent months, however, many businesses have been reopening and demand has climbed back up to pre-pandemic levels. Still, the combination of rising prices and the Great Resignation has made it difficult to return to efficient supply chains, leaving current supplies and labor more expensive than ever before. This poor supply-and-demand cycle affecting vehicles heavily impacts auto insurance— with fewer subscribers, the current policies have to increase prices to make up for the losses.

Government policies

In multiple states, there have been considerations and efforts to combat or preserve insurance companies’ use of credit scoring, which determines auto insurance eligibility and premium prices. As disclosed by the Consumer Federation of America, the Maryland House Economic Matters Committee has chosen to keep the status quota and retain the use of credit scoring, much to the anger of many. Credit scoring has been described as an unfair and disproportionate system, which punishes even the most careful of drivers. Unfortunately, people who face systemic biases typically have lower average credit scores, which keeps them vulnerable to higher auto premiums. It is these changes in the political environment that also ultimately affect the economics of auto insurance.


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