Will insurance rates for both your auto and home insurance continue to increase in the year 2023. That’s the question… and unfortunately, we do not have good news for you!
By all indications, yes, insurance rates will continue to increase in the year 2023. Before we get into this discussion, it’s important to remember: insurance companies do not simply pull insurance rates out of thin air.
They don’t just make it up. Instead they use hundreds, if not thousands of data points and they use that data to determine what insurance rates are going to be.
Also, it’s not always about you specifically, many people say, “why are my rates going up? I haven’t had an accident in my entire life. I don’t have any tickets.”
Remember, all of those data points go into making up your rate. So it’s not always about you specifically. You could have been a perfect driver the past year. And rates are still going to go up. Insurance companies, like all financial institutions, try to look at the data, look at what the economy is doing and then make forecasts and set rates based off of that.
However, because of a lot of uncertainty and because you can’t really predict the future, they have to be reactive to prior years data and that is what we are seeing right now.
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Auto Insurance Premiums In 2023
So let’s jump into it and let’s talk about why your auto insurance premiums are more than likely going to continue to increase in the year 2023.
Supply Chain Issues
The first reason is because of supply chain issues. Now, this is something that’s a little strange to me. I guess I’m not smart enough to understand it, but this has been an issue ever since the Covid pandemic began. Back then, I understood it. However, it seems like they have still not caught up since Covid and the pandemic happened.
There is a huge shortage of semiconductor chips for vehicles and just vehicle parts in general. This is a huge blow when it comes to the pricing to get your car fixed and also the time of getting your car fixed. It’s taking much longer and it’s costing much more to get your vehicle fixed if it’s been damaged in an accident.
What this leads to is fewer cars and higher prices. So when an accident occurs and the vehicle is totaled, that accident is going to cost the insurance company more money because that vehicle costs more to replace or to repair. Because of this, the average price of new cars has increased by 14% and get this, the average price of used cars has increased by 55% over the past two years.
Car Accident Frequency Skyrockets
The second reason why you will more than likely see an increase on your car insurance is because the frequency of accidents has greatly increased and also the severity of accidents has greatly increased. You can guess why this is costing insurance companies more money. Hence the reason why they are charging you more for your insurance premium in the year 2023.
In addition to this, a sad fact, over the past two years, insurance companies have seen a 14% increase in fatalities due to accidents that are covered by insurance claims.
And then the third reason, which doesn’t require much explanation because everybody can understand, it is inflation. Everything is going up in price, your groceries, your gas, everything. Unfortunately, insurance does not escape that. Insurance companies want to remain profitable and to make the profit margin, so they are also increasing insurance premiums due to inflation.
So those are three reasons why your car insurance is more than likely going to increase in 2023.
Home Insurance Premiums In 2023
Now, let’s talk about your home insurance and the reasons why you’re probably going to see an increase in your home insurance premiums as well.
Low Inventory & High Demand
Low housing inventory and historic demand are the first reason why your insurance premiums are probably going to increase. In March of 2022, there were only 870,000 unsold homes on the market. That’s down 60% over the past two years. This has resulted in the medium price of homes sold surging 23% since 2019.
So in simple terms, the cost of homes has gone up. When a claim occurs on your home, it is going to cost the insurance company more money to replace and repair that home. If it costs the insurance company more money, they’re going to pass that along to you, you’re going to pay more money on your insurance premiums.
Skilled Labor Shortage
Now, the second reason why your home insurance may increase in 2023 is a shortage of skilled labor. Again, this is something I don’t quite understand because it started with Covid and it has not seemed to catch up. In all industries, there’s a huge shortage of skilled labor. The home building industry is currently facing a shortfall of at least 200,000
Skilled trained workers. People like framers, carpenters, concrete workers, plumbers and electricians. Because of this shortage, it takes longer to get homes fixed. And it also costs more because like everything prices go up.
If there’s a shortage, that means there’s more demand, that means they can charge more. That means it’s going to cost the insurance company more money to replace or repair your home.
Price Of Building Materials
And then the next reason that goes right along with the prior reason – The price of materials has also increased again.
This dates back to Covid and seems like it has not recovered. Last year, the cost of building materials rose over 14%. And like I said, lumber is the worst out of all of them.
More than tripling in price since 2022. And if you don’t believe me, just go into home depot and look at the prices of all building material and then think back to what it was four years ago, there has been a huge increase.
And then of course the last reason, which is also a reason for auto insurance is inflation.
You don’t need to hash that out again. But that is a huge reason why your home insurance will more than likely increase in the year 2023.
What Can You Do?
Now I don’t want to give just this bad news. The good news is if you work with an insurance broker, they have a number of different options. The first thing they can do and remember this is the most important, is make sure you have the correct coverage.
As a broker they have options to a number of different carriers and they can shop around for you and make sure that you do have the best price. But just know that more than likely you will see somewhat of an increase. And if you’re the lucky one and you don’t see an increase or if you’re really lucky and you see a decrease, good for you, you should probably go play the lottery because you are not like most people, most people unfortunately well received that insurance increase in the year 2023.