Lower petrol prices could well lead to higher insurance premiums: one example of how relative prices will change as oil prices fall. Consumers will enjoy more disposable income released by lower energy prices, be they at the petrol pump or in household heating or lower prices for goods, including food, with high energy content. One reasonable guess at what they will do with the spare cash is that they will use their cars more.
If you make the reasonable assumption that accidents are accidents, then if you drive more, you are more likely to have an accident. Moreover, if everyone else is driving more and car density, users on the road, goes up, you are yet more likely to have an accident. So, we are likely to see more accidents. More accidents means more claims on the car insurers who, having to pay out more to drivers, will start making less money, and perhaps losing money, on their car insurance businesses. So, insurance premiums will have to rise simply to cover the cost of more accidents and more repairs.
There may be an additional element. if there are more accidents, there will be greater demand on garages and body shops for repairs. In the short term, at least, they are likely to put up prices to deal with demand. It is possible, at the same time, that these garages will anyway be busier because more driving will also mean more repair work arising from greater wear and tear. So the car insurers will not only be facing more insurance claims but possibly more expensive individual bills from the garages.
This is not to say that the disinflationary impact of lower energy prices will be balanced by price changes in other areas. More that the effects of the fall in the price of oil, if sustained, will reverberate for a while and may cause some upwards price changes in other areas. It will take a while for this to work through.
I also feel this illustrates, how the fall in energy prices might enhance economic velocity. In the high oil price world, consumer dollars were exported to the oil producing countries who would accumulate surpluses, deploy them into the international financial system whence they would eventually work their way back to deficit accumulators. It was all a bit cumbersome. In the new world, consumer dollars are instead spent on highway restaurants, car maintenance and insurance premiums, or other goods and services. These businesses will still accumulate surpluses – profits – but on smaller scale and more likely to be deployed through the local or regional financial system: a more nimble and reactive system.
The Oblique View 