The surge in car prices during the COVID-19 pandemic has given American car buyers a new form of sticker shock. However, as the supply chain issues that caused the price surge begin to untangle, car prices are starting to ease. Despite this relief, car buyers are facing another financial burden: rising auto insurance rates. For some car models, insurance rates now account for more than a quarter of the total cost of owning a vehicle.
There are several factors contributing to the increase in auto insurance rates. Firstly, the rising costs associated with repairing increasingly complicated vehicles are driving up insurance rates. Modern cars are equipped with advanced electronics and sensors, making them costlier and more difficult to repair.
Furthermore, the impact of climate change is also playing a role in pushing insurance rates higher. With more frequent and severe storms, the potential for damage to vehicles increases, leading to higher insurance costs.
Insurance rates vary across the country, influenced by factors such as the cost of local collision repair shops and the potential for damage from tropical storms and wildfires. According to insurance shopping site Insurify, the average cost of full auto coverage in the U.S. rose 24% last year and is now over $182 a month. The company predicts that rates will rise another 7% in 2024.
The rising cost of insurance is becoming a significant factor in car buying decisions, especially for consumers on tight budgets. Many shoppers report declining to buy a car or returning one because they can afford the car itself but not the insurance for it.
To address this issue, Kelley Blue Book, a car valuation and research company, has added insurance guidance to its list of buying tips. They advise shoppers to get an insurance quote before making any purchasing decisions.
Insurance costs are poised to increase even further and become a larger share of the total cost of owning a vehicle. In 2019, insurance accounted for an average of 16% of the total cost for a compact car, and it is projected to grow to 26% in 2024. For a compact SUV, insurance accounted for 13% of the total cost in 2019 and is expected to be 20% this year.
Multiple forces are driving the surge in insurance rates. More cars are being totaled, and quality issues have increased during the production disruptions caused by the pandemic, resulting in more insurance claims. Additionally, a shortage of mechanics has led to longer wait times for car repairs, increasing costs for insurance companies that provide rental cars to policyholders.
Changes in car production processes also have insurance implications. For example, Tesla’s gigacasting process, which involves casting a single part to replace multiple separate pieces of metal, reduces production costs but makes repairs costlier. Other carmakers, such as Cadillac, are adopting similar processes.
To cope with rising insurance costs, some car owners are seeking alternative options. For instance, Darin Davis, the Dallas real estate agent who experienced a significant increase in insurance rates for his Cadillac, found a cheaper option by bundling his car and homeowners insurance and increasing the deductible. This demonstrates that exploring different insurance providers and coverage options can alleviate some of the financial burden.
In conclusion, while car prices are starting to ease after the surge during the pandemic, American car buyers are now grappling with rising auto insurance rates. Factors such as the increasing complexity of vehicles, climate change-induced storms, and changes in car production processes contribute to these higher rates. It is crucial for car buyers to consider insurance costs and obtain quotes before purchasing a vehicle to ensure affordability. Exploring alternative coverage options and providers can also help mitigate rising insurance expenses.
