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What a Growing Economy and Shrinking Gas Prices Do To Your Auto Insurance Rates

Gas pump nearby a field

The good almost always comes along with the bad. For the improving economy and cheaper gas prices, this unwanted sidekick is the 11% increase in car accident fatalities, 30% increase in driving-related injuries, and 10% rise in auto insurance pricing. While these three variables don’t necessarily seem to correlate, they do. Let’s talk about why.

More jobs = More Commuting

The economy is up, businesses are hiring, and Americans are getting back on the road. While this is a good thing, the more congestion on the roads, the higher the risk of accidents. Based on National Safety Council (NCS) data from January to June 2015, there were 18,630 car accident casualties compared to 16,400 fatalities in 2014.

Lower gas prices make travel affordable.

Today, gas costs American’s an average of $2.30 per gallon. One year ago, the average gas price was nearly one dollar more—or 30% higher. The result of these lower gas prices can be seen in the increase in road travel. For example, this Memorial Day weekend, 37.2 million people traveled 50 miles or more—resulting in the highest volume of travel in 10 years. 

Disposable income means more insured drivers and vehicles on the road.

From 2005-2010, Americans spent less on car insurance because of higher unemployment rates. A calculation by The New York Times revealed that “the amount of uninsured drivers rose 0.75% for every point of increase in unemployment rates.” So, as the economy worsened, the amount of insured drivers shrank.

In August 2015, unemployment rate dropped to 5.1%—the lowest it’s been since 2008. That spike in the economy also contributed to a 9% increase in auto sales this year. But as we know, as traffic volume increases so does the risk of accidents.

A better economy worsens summertime “danger months.”

The “100 deadliest days” for car accidents are from Memorial Day to Labor Day. Since 2010, 48,579 people have died in car accidents during this timeframe. With summer travel, higher frequencies of speeding, partying, and drinking, the road conditions worsen substantially. And now with more people on the road, you can see the dangers in the eyes of insurance companies.

Why will this cost us more in auto insurance?

To a car insurance agency, more cars on the road equate to higher risk. With higher risk, comes bigger auto insurance premiums. GEICO and Allstate have confirmed rate increases of about 10% due to the rise in claims and loss ratios they reported in 2014. As they see monetary loss due to more accidents, you can expect to pay more to cover their bottom line. 

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