Want to save on your auto insurance? An agent explains how

Auto insurance has been increasing rapidly, so much so it contributed to recent hotter-than-expected Consumer Price Index (CPI). With rising costs hurting consumers, it's important to know what are the best ways to cut costs.

Trusted Choice Board Member and CoverLink Insurance President Matt Simon joins Yahoo Finance to break down some of the best ways to reduce auto insurance costs and what investors need to keep in mind with auto insurance and inflation.

Simon offers this advice to consumers: "Two big things that consumers can do -- number one, look at increasing your deductibles. So many drivers nowadays we see still have $250, $500 deductibles when the reality is they probably should be closer to $1,000 or $2,500 if they can afford it. That would certainly help drive their down cost of insurance down quite a bit. Which dovetails into my second suggestion, don't use your insurance for the nickel and dime-type claims. Don't turn in small claims if you can avoid it. If you're going to do that you might as well go ahead and increase your deductibles because you're not planning on turning those smaller claims in in the first place. "

For more expert insight and the latest market action, click here to watch this full episode.

This post was written by Nicholas Jacobino

Video transcript

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JULIE HYMAN: The cost of car insurance is skyrocketing so much so that it's contributing to the recent hotter than expected inflation data. Our next guest has some ideas for how you can drive those prices down. With us now, Matt Simon, board member of Trusted Choice and cover link insurance president. Thanks so much for being here. So I guess we should start first of all with Matt, with why insurance costs have gone so high in the first place. What are the main factors behind the increases that we've seen?

MATT SIMON: Well, yeah, if you think about it, insurance is not immune from the macro trends affecting the economy. So inflation being what it is, is really driving up largely the cost of auto insurance because when you think about what auto insurance actually pays for. It pays for when property is damaged or people are injured. And so when you think about property, meaning people's vehicles, homes, things like that, cost of car parts have increased drastically since January of 2020. And then the second piece of that, cost of medical care. If people are injured, we all know the cost of that has gone up substantially.

So really the auto insurance industry is reacting to broader macro trends that are affecting the overall economy right now.

JOSH LIPTON: And Matt, we also seeing more accidents on the road that we used to. Is that also another possible contributing factor?

MATT SIMON: Absolutely, so the two big factors now. Driving the cost of insurance, we talked about one being inflation. The second piece is exactly what you said we've got from a claims perspective. An increasing frequency of claims that are occurring and when those claims do occur, the amounts being paid out are far higher than what they used to be. Which is interesting because you think about when COVID was going on, there was far fewer drivers on the road. So the number of exposures actually had gone down quite a bit. So you saw the frequency of claims decline. But even during COVID, the severity of claims.

So was being paid out when those claims occurred continued to increase and is only accelerated post COVID. And even now once we're out of COVID, we started to see that frequency tick back up as well. So you're in a position now where you have increasing frequency and increasing severity when these claims occur.

JULIE HYMAN: So let's get to what you can do about it. How do people try to save money on this?

MATT SIMON: Yeah. So there's a couple things. One is largely within individuals control. So everybody's experiencing auto rate increases right now. The degree to which those increases they're experiencing can vary widely depending on individual factors. Meaning, what's your driving record look like, claims violation or claims violations, speeding tickets belt violations. The more that you can control those, obviously the better off your premium is going to be. The second big piece is a lot of carriers nowadays are offering discounts for telematics.

So carriers just like most other industries want more data on their individual drivers so they can better price each individual risk. And they're willing to provide discounts to those drivers that are willing to implement those telematics. Usually, meaning an app that you download on your phone that tracks your driving behavior. The other big piece of it is, I think consumers need to be smart about how it is that they look at their insurance in terms of how they plan to use it. It's not for the nickel and dime type claims.

And so two big things that consumers can do. Number one, look at increasing your deductibles. So many drivers nowadays we see still have 250, $500 deductibles when the reality is they probably should be closer to 1,000 maybe even 2,500 if they can afford it. That would certainly help drive their cost of insurance down quite a bit. Which dovetails into my second suggestion is, don't use your insurance for the nickel and dime type claims. So don't turn in small claims if you can avoid it. And if you're going to do that, you might as well go ahead and increase your deductibles because you're not planning on turning those smaller claims in the first place.

JOSH LIPTON: How much time Matt, should people-- excuse me, spend shopping around? Are there big differences?

MATT SIMON: There can be very big differences depending on which insurance companies they're looking to. And so usually what we recommend ideally is 30 to 60 days prior to their policy renewing. That's the time to begin looking. And in the insurance industry, it's largely categorized in two segments. Number one would be captive agents. Those agents that only have access to one insurance company. And then the second category is independent insurance agents. Those agents tend to represent multiple different insurance companies.

And so whenever those clients work with an independent agent, they can shop around to multiple different companies to find the best option for that individual consumer. And consumers can go to a website called TrustedChoice.com and they're able to find independent agencies within their own town their zip code, their geographic area.

JULIE HYMAN: And Matt, finally, are you seeing less business because people are saying, well, I'm not going to get a new policy. I'm not going to get a new car because I don't want to pay for insurance?

MATT SIMON: Where we're located in Ohio, we're really not seeing that yet. It's still spread out. Most consumers in Ohio don't have the option to go without a vehicle. And auto insurance is a legal requirement if you own a vehicle. So we're not seeing less business, we're just seeing more and more consumers reaching out to us. Looking for options because the prices that they're paying right now have gone up so significantly. And that's in Ohio, which typically has been a more favorable state from an insurance perspective. So when you get into some other challenging states, typically, coastal states.

That's even more pronounced in those areas in terms of the number of and the amount of rate increases that drivers are experiencing.

JULIE HYMAN: Matt, thank you. I appreciate your time.

MATT SIMON: Absolutely, thank you.