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Behind the Rise of Auto Insurance Premiums

Friday, May 5, 2023
George Daly
Behind the Rise of Auto Insurance Premiums

The automotive industry recorded a net underwriting loss of $26.9 billion for 2022, more than six times the $3.8 billion underwriting loss in 2021. As a result, we have started to see unprecedented auto insurance premium increases. While there are many reasons behind these increases, some of the biggest factors include new and used car prices, higher vehicle reparation costs, supply chain issues, and labor shortages.

Labor shortages, particularly within body shops, have caused longer wait times for parts and increased car rental rates and charges. Additional factors include higher frequency and severity associated with accidents and more comprehensive claims surrounding criminal thefts and vandalism.

Finding the root cause of these increases is not as easy as it used to be. For instance, if one company experienced a significant increase, we could look at other companies to compare the difference. However, in today’s market, the impacts are felt by every insurance carrier.

Higher Car Prices

The cost of cars has been steadily increasing; new and used car prices have gone up as much as 10-20% in recent months. As vehicle values continue to rise, insurers must pay more to help replace their customers’ totaled cars and trucks, which increases the cost of auto insurance premiums.

Skyrocketing prices can also be attributed to a rise in electric vehicles. As EVs grow in popularity, we have noticed increased claim costs due to higher purchase prices and difficulty obtaining parts. As one can probably discern, there is no single circumstance that increased premiums can be traced back to.

Higher Cost of Car Replacement Parts and a Broken Supply Chain

Increased demand for transportation technicians, breakdowns in the supply chain, and escalating costs of metals play a major role in the soaring costs of replacement parts. These costs add to the expense of repairing a damaged car, pushing insurance settlements upward. It is estimated that the costs of car parts are up somewhere between 7-20% this year alone.

Modern cars are equipped with more sophisticated technologies and systems than ever before, and the cost of replacing such high-tech components has added further financial strain to an already strained system. As repair costs continue to increase, the amount insurers pay to fix their customers’ vehicles also goes up.

High costs are not exclusive to advanced technology in vehicles; strained supply chains have also caused prices for auto parts and vehicles to spike dramatically. The auto industry has seen its share of labor shortages and supply chain disruptions over the past few years. In fact, the demand for transportation technicians outpaces supply by an estimated 5:1, leading to higher labor costs.

Altogether, these factors led to a 6.3% increase in vehicle repairs and maintenance costs between February 2021 and February 2022 and a 41.2% spike in used vehicle prices.

Rise in Car Crashes and Fatalities

There has been a significant increase in claims due to increased traffic accidents, injuries, and fatalities. More claims translate into greater losses for insurance carriers. Furthermore, as the frequency and severity of traffic accidents multiply, so does the involvement of attorneys. There has been a large spike in liability losses as a result of rising car crashes and fatalities.

Rising Comprehensive Claims

Comprehensive claims are included in the mix, as they have also been on the rise. Comprehensive insurance covers losses from disasters like Hurricane Ian, break-ins, vandalism, and theft. For example, the claims for catalytic converter thefts are way up nationwide. Each catalytic converter contains between $20 – $240 of rare metals, making them a popular target for thieves. Replacing a stolen converter and repairing the damage caused by a thief stealing it can lead to an insurance claim of up to $3,000 or more.

Will Your Car Insurance Premium Go Up?

You may be wondering what all of this means for your car insurance premium. Unfortunately, the news here isn’t good. Auto insurance rates are projected to increase by 5% to 10% next year. The discrepancy between the costs auto insurance carriers pay out in claims over what they earn in premiums has been growing for the past two years.

According to data from the Insurance Information Institute, in 2020, car insurers paid out roughly $0.93 for every premium dollar on average, which flipped to paying out $1.02 for each premium dollar in 2021. For the second quarter of 2022, that ratio deteriorated even more to $1.05 paid in claims for every premium dollar received.

We’re Here for You

The good news is, The Horton Group has your back. Our personal insurance team will continue to work for you and try to make suggestions that will provide value for your family. While there may be a lot of uncertainty surrounding the current economic climate, you can be sure that we will be here for you every step of the way.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.