Are you surprised by the escalated commercial auto insurance rates? You are not alone. According to the United States BLS (bureau of labor statistics), the cost of auto insurance has reached twice its earlier rate in the last 40 years.
Inflation was already one of the biggest economic issues in the country. But in the year 2020 when the pandemic struck the world hard, the cost of every single thing just soared to another level. Insurance rates are among those things which are sky-rocketing. So expect to pay more money for your vehicle insurance this year.
Auto insurance is an inevitable expense for owners in most states of the US. An increase in premiums can be financially challenging for many. Especially for those truckers who have speeding tickets and accidents on their driving record or for those who are staying in areas that have a high cost of living.
Commercial auto insurance premiums are calculated after factoring in numerous things. Such as your age, driving history, the vehicle you use, and the type of coverage you choose. Let’s dive in to gather more understanding.
Why commercial auto insurance rates are rising?
There are n-number of factors that contribute to rising insurance rates. From inflation to disruption in the supply chain many aspects influence the rate of an insurance policy.
We will explain why insurance rates are mounting. Knowing all the factors will prepare you for a likely hike and draft out a strategy to counterbalance these surges.
Inflation
One of the biggest drivers of the increase in commercial auto insurance rates is inflation. The CPI (consumer price index) rose by 8.6% between 2021 to 2022. This means you are spending 8.6% more than earlier for the same services and goods. The most drastic effect is on the energy commodity, fuel cost, and airfares. This rise is expected to go even higher and strain people’s pockets more.
Nowadays vehicles are launched with more complex models which increases the cost of ownership. Even a small accident can cost you thousand dollars to repair delicate parts of vehicles that need specific repairing. Not only are the price of vehicles increasing but also the cost of healthcare. This means if someone gets injured in a collision then the medical cost can dig a hole in your pocket.
Disruption in supply chain
The last two years may have passed from our calendar but they disrupted the supply chain like anything. When the pandemic hit the world it caused an immense downfall in demand in various industries. With less number of people on the road, there was no use for vehicles so there were fewer requirements for its parts.
Now things are getting better and the demand for vehicles is high. The higher demand causes an increase in the price of autos and hence its insurance cost.
Shortage of labor
The issues in the supply chain make vehicle parts tough to arrange on time. The shortage of labor has made it harder for businesses to find skilled workers. Many people faced unemployment after the pandemic as they fall prey to lay-offs as most companies took a downfall. Now when things are slowly becoming normal it is hard to find skilled workers. Because unemployment has made several people switch their job profiles.
The demand and supply of the labor are not proportionate. High demand for labor and lower supply has increased the cost of repair as they are paid higher incentives than earlier. This highly contributes to making auto insurance expensive.
Repair and replacement cost
The vehicle industry has seen a massive shortage of labor and disruption in the supply chain in recent years. This increased the cost of labor and a disordered supply chain inflated the price of vehicles and their parts. Between the years 2021 and 2022, all these factors spiked the maintenance and repair cost dramatically to 6.3%.
When the repair cost goes up the amount of money that is required to pay for the insured vehicles also steeps. When insurance companies need to pay a high amount for reimbursing the cost of repair then the policy rate automatically increases.
A drastic change in driving habit
As we already mentioned that during the pandemic there was a decrease in the demand for vehicles. Therefore the country saw a huge reduction in the level of driving on the road. Many people stopped going to work and schools were operating online. This resulted in fewer accidents and many insurance companies refunded policy premiums to many policyholders.
Now the same insurance companies are quoting higher insurance premiums because there is an increase in the demand for vehicles and an escalation in the labor cost.
Increase in the number of claims
Now the graph of accidents has surged which is resulting in more claims. When the insurance claims volume goes up and the companies have to compensate for the repair and the cost of replacement. Then the rate of insurance premiums increases across the industry.
Parting thoughts
Whether you are into a trucking business or drive your own vehicle to deliver different types of shipments to your customers. You must be surprised by the increase in insurance premiums and might be wondering why insurance cost is getting upwards. Besides inflation, there are several factors that influence the rate of commercial auto insurance. You need to know each one of them to prepare yourself for this upsurge and understand the actual reason.
Keep in note that the insurance can be customized and its premium depends on:
- Type of commercial vehicle you drive
- History of your driving record
- Level of coverage you choose
- Type of coverage you select
In addition, insurance rates also get impacted when states revise insurance laws, increase vehicle repair costs, and more claims happen in a particular area.
To avoid this increased cost of insurance, you should review your existing insurance policy if you think you are paying expensive premiums. Then when the time comes for its renewal shop around and sees which one falls within your budget.
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