During the Covid-19 pandemic, the disruption of global supply chains sent car prices soaring as auto deliveries became erratic and spare parts went scarce. Now that worldwide logistics networks are largely back to normal, however, the cost of cars has been steadily going down. According to the Consumer Price Index (CPI), used car prices fell by 10 percent over the past year while new vehicles are about 4 percent cheaper compared to 2023. Rental cars costs have dropped as well, marking a significant change from a few years ago when rental companies struggled to keep up with demand.
When car prices go down, car insurance rates typically go down with them — but not this year. Even as auto dealers lower their prices, insurance companies are raising theirs steeply, and it’s not clear when premiums will start to go back down. Car insurance rates are up by 22 percent over the last year, the biggest annual increase since 1976. The average 12-month premium for car insurance comes to about $1,280, and experts predict that premiums could rise by another 13 percent over the next year.
Insurance companies say rates are going up because car crashes are getting more expensive to insure, and that’s partly because collisions are getting worse. As the lockdown lifted in 2021, out-of-practice drivers caused more severe and damaging wrecks, leading to more expensive medical claims than usual. The number of car crashes is going up, too: almost 41,000 people died in collisions last year, a 20 percent jump compared to a decade ago. Expensive car parts with new technological features are also contributing to high insurance costs. Parts like bumpers and windshields that were once simple to replace now use advanced sensors to detect motion or water, making repairs pricier. As more crashes, higher medical payments, and greater property damage lead to lower income margins for insurers, they often pass those losses onto consumers in the form of higher rates.
Questions:
- What are some factors that have contributed to the recent rise in car insurance premiums?
- How could rising auto insurance premiums potentially affect consumers who are in the market for a new or used car?
Sources: Elisabeth Buchwald, “Why Car Insurance Is Still So Expensive Even As Car Prices Are Dropping,” CNN, August 14, 2024; Emily Flitter, “Why Is Car Insurance So Expensive?” The New York Times, May 15, 2024.