Why Car Insurance Keeps Getting More Expensive And What You Can Do About It

Why Car Insurance Keeps Getting More Expensive. Why Car Insurance Keeps Getting More Expensive And What You Can Do About It

The cost of auto insurance in the US rose more than 22% in the 12 months that ended in March, the biggest annual jump since 1976. Rates are up 43.7% since January 2020, making car insurance premiums one of the bigger contributors to high inflation.

Here’s Why:

1. Cars Are More Expensive To Fix

Today’s cars are packed with high-tech gadgetry meant to entertain, comfort and protect occupants. The array of safety equipment now common on cars includes automatic emergency braking, blind-spot detection and lane departure warnings.

To give drivers eyes in the back of their head, automotive engineers have embedded cameras, sonar and radar sensors from bumper to bumper. All that technology has driven up the cost of repairing even a minor fender bender.

For example, when Toyota Motor Corp. upgraded its Camry sedan in 2018, its front bumper went from having 18 parts to 43, including sensors for the advanced driver-assistance system that can control speed and lane position automatically as well as provide blind-spot warnings.

As a result, it now costs 43% more to repair a Camry after a front-end collision, according to Mitchell International Inc., a researcher that provides data and software to insurance companies and car repair shops.

Once all those sensors are replaced, they have to be carefully recalibrated to make sure they’re working in harmony to detect crash risks, which adds an average of $500 to the cost of a repair, Mitchell says.

The average repair bill for a car with a standard internal-combustion engine was $5,564 in 2023, according to auto insurance processing company CCC Intelligent Solutions.

2. Electric Vehicles Are Even More Expensive

If your vehicle is battery powered, then the cost to repair it is 22.3% higher than for a traditional car, or $6,806 on average last year, according to the processing company.

Even though EVs have fewer parts than internal combustion engine vehicles, they are more costly to fix for a variety of reasons, starting with that big battery underneath the floorboards.

The battery is the most expensive component on an electric car — by far. It’s also costly to handle during repairs. Because of the risk of battery fires, many manufacturers require that the massive lithium-ion battery be drained and disconnected before a repair.

If the EV needs to be welded or taken through a hot paint bay, then the battery has to be removed entirely. The result: A battery-powered model takes nearly 50 days to repair, on average, 10 days longer than non-EVs, according to CCC Intelligent Solutions.

Hertz Global Holdings Inc. cited repair costs for EVs that were twice as high as for traditional cars when it decided in January to drastically scale back its EV rental fleet.

EV repair costs will probably come down as battery-powered automobiles become more commonplace — they accounted for just 7.6% of US car sales last year — but that could take a while since mainstream consumers are passing on plug-in models for now because of high prices and a spotty charging infrastructure.

3. There Are More Crashes That Are More Severe

Despite the additional safety equipment on cars to help drivers avoid crashes, US roads have become far more dangerous. And that’s pushing up insurance rates to cover the costs of repairs and health care for those injured in crashes.

Nearly 41,000 people died in US traffic crashes last year, up 13% from 2019, according to the National Highway Traffic Safety Administration.

That increase followed decades of declines in road fatalities, and it coincided with the rise of mobile phone use in cars. Americans look at their phones while driving at three times the rate of drivers in the UK, according to a study by Cambridge Mobile Telematics.

Most cars these days are also outfitted with a tablet-like touchscreen in the dashboard to provide entertainment and navigation. In 2022 in the US, 3,808 people were killed and more than 289,000 were injured in crashes involving distracted driving, according to NHTSA.

Paradoxically, all the high-tech safety equipment in new cars might be giving motorists a false sense of security. “People were concerned that there might be an incentive to be even more distracted while driving because you believe the technology will kick in when needed,” said Stephen Crewdson, senior director of insurance business intelligence with researcher J.D. Power.

“It looks like they were correct because we’re seeing auto collisions are still happening as they did before, and the severity is going up.”

4. There’s A Shortage Of Mechanics And Car Parts

Pandemic-related shortages of parts and a long-running dearth of mechanics to bolt them onto cars has turbocharged repair costs and thus insurance premiums.

Though there was an uptick in mechanics last year, there remains a chronic shortage: The industry needs as many as 800,000 more technicians to meet demand over the next five years, according to a study by TechForce Foundation, which tracks the business.

Between 2020 and 2022, the number of graduates completing postsecondary programs in the auto sector fell by 20%. As the baby boomer-heavy profession loses thousands of mechanics to retirement each year, fewer young people are going into the profession that pays on average $49,690 annually, 20% below the national average wage, according to the US Bureau of Labor Statistics.

EV mechanics are even harder to find. Pricey labor accounts for nearly half the cost of an EV repair, and it’s the biggest factor in the disparity between the expense to fix an EV and a non-EV, according to CCC Intelligent Solutions.

The price of car parts also skyrocketed as Covid shutdowns and the war in Ukraine disrupted global supply chains.

The twin shortages of people and parts continue to drive up repair costs, which rose 3.1% month-over-month in the latest core consumer price index, the biggest jump since August 2022.

5. Insurance Companies Are Playing Catch-Up

During the early days of the pandemic, driving miles plummeted and accidents declined by so much that auto insurers refunded their policy holders billions of dollars during April and May of 2020.

But the snapback was severe. First came the rising costs from the parts shortages, then the price of cars, also in short supply, shot up, and finally drivers returned to the roads with a vengeance.

The resulting surge in crashes and claims left auto insurers with their worst underwriting results in decades. They found themselves upside down, with the cost of claims exceeding the premiums they were bringing in.

So the insurance companies began aggressively increasing rates. The latest consumer price index data show rates rose by 2.6% in March, the biggest monthly advance since July 2020.

Consumer advocates accuse the insurers of being too aggressive with their rate increases and point to the rising stock prices of the big insurance companies as proof.

But since auto insurance is regulated by each US state, insurers have had to make a case for their increases based on the trends of rising claims, costs and accident rates.

“A gas station can increase and decrease prices by the minute,” Crewdson of J.D. Power said. “But an auto insurer has to justify their rate changes, so they are always behind the curve. They’re still catching up.” And that means rates will continue to rise.

Updated: 4-17-2024

A Simple Guide To Car Insurance And 6 Ways To Cut Your Premium

Get the lowdown on insuring a car – from the mysteries of a No Claims Bonus to the different types of cover.

Running a car is more expensive than ever, so it’s really important to keep your costs down. If you haven’t bought outright, then you’ll have to budget for your monthly finance payments; then there’s fuel or charging, road tax, servicing, maintenance and repairs.

Other expenses include breakdown cover, parking fees and permits, and tolls.

However, one of the biggest costs is insurance, and premiums are soaring. The cost of car insurance has surged by 46% in a year adding £292 to the average annual cost.

The punishing increase has taken the average annual premium up to £892, according to the Compare the Market comparison site.

What Is Car Insurance?

Car insurance protects you if your car is involved in an accident, stolen, vandalised or damaged by fire. As well as covering your car, motor insurance covers you for any damage you might cause to other vehicles, other people’s property, and injuries to other people.

Why Do I Need Car Insurance?

You must have motor insurance to drive your vehicle on UK roads. It protects you, your vehicle and other motorists against liability in case there is an accident. It provides financial compensation to cover any injuries caused to people or their property.

Penalties for driving without insurance range from a fine and at least six points on your licence, to being disqualified from driving. The police can also seize, and in some cases, destroy the vehicle that’s being driven uninsured.

Different Types Of Motor Insurance Cover Explained:

Third Party

This cover is the minimum legal requirement. It makes sure that compensation is available for injury to other people (including your passengers) or damage to other people’s property resulting from an accident caused by you. It doesn’t cover any of your costs as the result of an accident.

Third Party Fire And Theft

Providing the same cover as third party only, TFT also insures you should your vehicle be damaged by fire or is stolen.
Comprehensive

This provides the same cover as third party fire and theft. However, it also covers you should your vehicle be damaged in an accident. Additions to this level of cover can include providing a courtesy car while your car is being repaired, legal expenses and roadside recovery.

How Much Does Car Insurance Cost?

The premium your pay to insure your car will depend on a number of factors including the type of vehicle you drive (the less powerful the better), whether you use your car for business, pleasure or commuting, your age, driving history and where you live.

Voluntary excess is also important. This is the amount you’re willing to pay towards the cost of a claim, in addition to the Compulsory excess. A higher figure will help to cut your premium, but only set a voluntary excess amount you’re confident you’d be able to pay.

Adding an additional driver to your policy, such as your partner, could also lower your premium. However, adding young or inexperienced drivers would probably increase it.

Why Car Insurance Is Going Up?

There are various reasons why the cost of insuring a car has soared over the past year especially.

Inflation is a major factor because it has pushed up the cost of repairs, replacement parts, energy costs and even the price of paint.

The cost to replace written-off vehicles has also increased as the average price of new cars has risen.

There’s also an argument that today’s sophisticated cars are helping to fuel insurance price hikes because their repair costs are higher. A simple bumper replacement now involves the replacement of expensive sensors for everything from parking to autonomous emergency braking (AEB).

Are EVs More Expensive To Insure?

There is growing evidence that drivers of electric vehicles are being charged more to insure their cars than owners of conventional cars with petrol and diesel engines. Again, there are many reasons why electric car premiums have been hit harder.

One of the biggest ones is that EVs tend to be higher value, which means that insurers assume repair parts or fully replacing the car will cost them more.

Also, younger drivers have traditionally chosen cheaper, older, slower, smaller-engined cars. However, EVs are more expensive, newer, more powerful and faster, which means that they are at a higher risk of being involved in an accident.

EVs are also built with advanced technology and parts, meaning they’re more expensive to repair or replace in the event of a claim.

Some EVs take longer to fix too or require specialist mechanics, while the high cost of repairing and replacing batteries meaning EVs are more commonly written off.

What Is A No Claims Bonus?

Also known as a No Claim Discount (NCD), a No Claims Bonus (NCB) is a discount your insurer can apply to the price of your car insurance policy to recognise your claim-free driving history.

The amount of money varies for each insurer, but the more consecutive years you go without making a claim, the greater the discount you might get.

Car Insurance Groups Explained

Cars are placed in insurance groups, also known as insurance bands, to help calculate the cost of insurance policies. Broadly speaking, the lower the number, the cheaper a vehicle is to insure.

There are 50 car insurance groups. Cars in insurance Group 1 are the cheapest to insure, while vehicles in Group 50 are the most expensive to insure.

Small cars, such as the Skoda Citigo, Kia Picanto, Hyundai i10 and Volkswagen Up!, tend to be in the cheapest groups. Family cars including the Nissan Qashqai range between 11-25, while a Tesla Model Y falls into groups 46-50.

Ways To Lower Your Annual Premium

There Are Things You Can Do To Cut The Cost Of Your Car Insurance. Here Are Six Of The Best:

Choose The Right Car

When you’re choosing your next car, check what it will cost to insure. The basic rule of thumb is that the more impressive the vehicle, the more it will cost to insure. Not only will it attract thieves and vandals, it will cost more to repair and is more likely to be involved in an accident because it’s likely to be powerful and fast.

Pay Upfront

When you find a car insurance policy that ticks all the right boxes, you’ll probably be given the opportunity to pay in one lump sum or in monthly instalments. If possible, pay upfront because by paying monthly you are effectively taking out a loan from the insurer with added interest rates.

Shop Around

One of the best ways to find cheaper car insurance is by shopping around and comparing prices in the weeks before your renewal. Use comparison websites like Go.Compare, MoneySuperMarket and Compare the Market, and if you find a cheaper price don’t be afraid to go back to your insurer and ask it to match or lower the price. The golden rule is never to allow your policy to auto-renew.

Even if you don’t find a cheaper quote elsewhere, the odds are that you will be offered a better deal with your existing insurer if you tell them you’re thinking of switching.

Drive Sensibly

Avoid accidents and speeding fines because these will impact your policy. Whether an accident is your fault or not, making a claim will usually lead to an increase in your car insurance premium the following year. Insurance companies also take a dim view of points on your licence because they suggest a higher risk of accidents and claims.

Location, Location, Location

Insurance companies assess crimes relating to car theft, fire and vandalism in your area, so changing your address could affect the cost of your car insurance premium. Insurers will also offer you a more affordable premium if you keep your car in a secure garage on a driveway overnight, rather than on the road.

Mileage Matters

Most people estimate their mileage when getting a car insurance quote, but it’s not that difficult to get a more accurate figure, which could help lower your premium. Check your MOT history online or using recent certificates. They will show your mileage from previous years. Car insurance premiums are usually cheaper for those who drive fewer miles, because the more miles you drive, the greater the chance of having an accident.

Why Car Insurance Keeps Getting More Expensive And What You Can Do About It

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