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Does a Bad Economy Mean Higher Car Insurance Rates?

The short answer is “yes.” Like almost every segment of the economy, car insurance costs are impacted by a recession. But while that causal relationship is intuitive, it’s interesting to dig deeper and take a closer look at the reasons for the price hikes.

The carriers are losing money. Big insurance carriers are large corporations with nuanced investment strategies. Some even shoot to break even in terms of revenues and payouts, and depend on a yearly 6% gain in the market for their profits. If the stock market drops substantially, these carriers are going to look to make that money back in other ways. Unfortunately, this often means higher rates for the consumer.

Prices are generally high. Businesses traditionally raise their prices during an economic downturn in order to recoup losses in revenue. In a sense, the fundamentals of the economy become more expensive. Energy becomes more costly, as does gas, shipping, electricity, food and countless other line items in monthly budgets. This upward thrust ultimately reaches the price of health care, which of course puts added pressure on car insurance companies to pay those bills -- a cost increase they shift back to drivers.

Consumer credit ratings. In difficult times, some consumers often aren’t able to pay the minimums on their credit cards. And while this may be an understandable reality of life, carriers are concerned that these same customers might pay their car insurance bills late as well, or not at all. In fact, a rocky credit card payment history can push up your insurance premiums even if you make all your car insurance payments on time and in full. The low credit ratings of some don't affect the car insurance rates of the entire population, but nevertheless each policyholder should be vigilant about his credit card payment history in order to hold down the cost of his car insurance.

A bad economy is bad for almost everything and everyone, including car insurance and its providers. The best thing you can do to temper the inevitable rate increases is drive safely and make monthly payments on your credit card.

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