Car insurance is legally required in most states in order to be on the road. But customers are seeing their premium costs soar post-pandemic, causing major hurdles for everyone in the auto industry. What is behind these rising costs and what impact is it having on car dealers? In this article, we’ll explore the factors at play. 

How Much Have Car Insurance Rates Increased? 

As of the end of February 2024, auto insurance rates were up 21% compared to the 12 months prior, making it the highest 12-month rise since 1976.¹ This rise in rates reflects the increased total cost of ownership for owning a car, which includes the cost of the vehicle and other associated bills, like maintenance, gas, and insurance. According to Reuters, the rising cost of insurance accounted for 16% of the increase in total cost of ownership back in 2019, and is predicted to jump to 26% for 2024.² 

What’s Behind the Rising Car Insurance Rates? 

But what’s causing this dramatic increase? Numerous factors acting simultaneously have resulted in a new landscape for car insurance prices. 

Inflation

Inflation represents the general rise in costs across the board for all goods and services over time. Recent years saw a spike in inflation which means increased associated costs like higher medical bills, repair prices, or accident claims—all of which have been passed down through higher insurance costs.³

Rising Repair Costs

This year, the cost to repair a car is up 6.7%, which represents a slower rate of increase compared to recent years. But it is still much steeper than the increases we typically saw before the pandemic.¹ Among the underlying causes are supply chain issues, which have led to shortages of replacement parts, increased storage fees, and rising substitute part prices.³ 

More Car Accidents and Increased Severity 

Since the pandemic, the number of traffic related deaths has been increasing at a faster rate. As a result, there has been an increase in claims—both in terms of quantity and severity. In 2022, insurers took losses on 27% of collision claims in 2022 versus just 24% in 2021.¹

Fewer Auto Mechanics

There have been significant labor shortages in the mechanics industry, leading to rising prices for services—and therefore contributing to the increased cost of repairing a car (and the total cost of ownership).¹

Extreme Weather Damage

An increased frequency of devastating storms have taken a hit on car insurance rates. Extreme weather events—like hurricanes, flooding, wildfires, and hail—have led to an increase in the frequency and amount of property damage. As a result, car insurance prices have been rising, particularly in the most affected or vulnerable regions of the country. For example, in 2022, Hurricane Ian cost an estimated $47 billion in insured losses across central Florida and the Carolinas.³ 

How Are Increasing Car Insurance Rates Affecting Dealers?

It’s easy to see how the dramatic rate increases affect drivers, so let’s examine how these effects ripple out to dealerships:

• Reduced affordability for consumers: The rising prices of car insurance have led many consumers to delay their purchase of a car, which means slowing sales for car dealers. 
• Shift in consumer preferences: Because more expensive vehicles can cost more to insure, high insurance prices have pushed customers to look at lower priced vehicles and used cars, where the total cost of ownership can be less. 
• Challenges in financing and leasing: Lenders and leasing companies typically require full coverage insurance, which means higher premiums. The added cost becomes a roadblock for many customers, creating a slowdown in activity for dealers.

Work With Us at ACV Auctions

As customers look for ways to reduce expenses, many are opting for used vehicles. Offering the best used vehicle inventory at your dealership is essential for driving sales today. To get your hands on the vehicles your customers are looking for, work ACV Auctions. Our online auctioning platform makes it simple to obtain used car inventory in your area. You can easily set Saved Searches and be notified when inventory you are looking for is available in your area.  Reach out to us to learn more and get started today. 

Sources

1. Buchwald. Elisabeth. 2024. “What’s behind the rapid increase in car insurance rates.” CNN. Retrieved September 28, 2024. https://www.cnn.com/2024/03/13/business/car-insurance-rates-are-surging/index.html 
2. Aeppel, Timothy. 2024. “Soaring insurance costs hit as US buyers get a break on car prices.” Reuters. Retrieved September 28. 2024. https://www.reuters.com/markets/us/soaring-insurance-costs-hit-us-buyers-finally-get-break-car-prices-2024-04-11/ 
3. Yeiser, Robert. 2024. “Why are car insurance rates increasing? Dairyland. Retrieved September 28, 2024. https://www.dairylandinsurance.com/resources/why-are-car-insurance-rates-increasing