For U.S. drivers, the average cost of a gallon of gasoline is $1.71, according to FuelGaugeReport.com, with prices at the pump the lowest since January 2009.
That has to be good news for consumers, right? After all, drivers (especially those with long workplace commutes) can save big with gasoline prices at seven-years lows.
But there’s a downside to low oil and gas prices, and it directly impacts auto insurance consumers, who may wind up seeing their rates go up, specifically because gasoline prices are down.
The gist of the problem: As oil and gas prices decline, drivers get behind the wheel more, drive farther and boost their risk of getting involved in more traffic accidents, resulting in more insurance claims. That’s how lower gas prices can become a heightened payout risk to auto insurance providers and result in higher auto insurance costs.
The auto and travel website TheCarConnection.com delves into the figures and establishes a link between lower gas prices and higher auto insurance rates.
“Data suggests there's some truth in that line of thinking,” the web site reports. “Gas prices began their long, downward spiral in the summer of 2014, falling below the $3-per-gallon mark in the fall of that year. Throughout 2015, prices have remained well below that line, and they could soon dip below $2 a gallon.”
Simultaneously, U.S. auto accident fatalities rose by 8% from 2014 to 2015, according to the U.S. National Highway Traffic Safety Administration. That, in turn, helped fuel price hikes for auto insurance customers. “Between January 1 and September 30 of 2015, Allstate has reported a net loss of $13 million on its auto insurance business, and as a result, it's increased premiums by up to 7.4%,” TheCarConnection.com reports.
3 tips to fight back as cheap gas drives up auto insurance costs
With gas prices reportedly down for the long term, auto insurance consumers should take three key steps to cut insurance costs elsewhere, to offset rate hikes linked to declining oil and gas prices.
1. Increase your deductibles
The simplest way to minimize one’s auto insurance premium is to choose higher deductibles, says Rob Drury, executive director at Association of Christian Financial Advisors, in San Antonio, Texas.
“The concept is simple, and is the basis for virtually all insurance decisions: Insure only the perils and expenses that you cannot afford out of pocket; 'self-insure' the rest. That is, plan to pay as much out of pocket as one can reasonably afford in the event of loss.”
2. Investigate any and all discounts
Nino Tarantino, CEO of Octo Telematics, a Vista, California-based information technology and services firm with multiple insurance industry customers, says diligence is critical in cutting high auto insurance costs.
“Often times, consumers don't pay attention to their insurance rates or program plan until there's a problem,” Tarantino says. “Rising gas prices are no exception.”
Beyond taking measures to carpool or drive less, consumers can "fight back" by being proactive in managing their insurance relationship and inquiring about discounts available, he adds.
“It's a good idea to check in with your insurance provider from time to time to ask about possible discounts, not only when you are beginning a new policy, but throughout the lifetime of your relationship and as you reach certain milestones.”
Bundling discounts, multi-car discounts and a clean driving record should all qualify you for a discount, Tarantino says.
3. Drop the collision insurance
One of the easiest ways to cut auto insurance expenses for people with older vehicles is to drop the collision coverage, notes Matt Cosgriff, a certified financial planner based in Minneapolis-St. Paul, Minnesota.
“This does not eliminate your liability coverage, which is a must-have for drivers, but rather eliminates the coverage that would essentially replace your car if it were in an accident,” he says. “For those driving older cars with lots of miles on them, it makes sense to drop the collision coverage to save a few bucks if you are planning to ditch the car at some point in the next 12 to 24 months, and don’t anticipate getting anything for it.”
These aren’t the only ways to balance out auto insurance price hikes due to low gasoline prices, but they are at the top of the list. Use all three to negate any gas pump-related insurance rate hikes.
See also: 5 tech innovations making cars safer