Over the last year the biggest question we have received at Patriot Insurance Brokers is, “Why are the premiums going up so much?” I am here to help address why auto insurance premiums are seeing an increase.
I am sure most have heard we have soaring inflation rates in the United States. While this is contributing to the higher rates, you will see there are many other factors contributing to the rise in premiums as well.
Inflation possibly has the greatest impact on premiums. The increase in inflation was caused by a few factors. First, the new car market saw low inventory. Those who would normally be in the market for new cars began turning to the used car market. This is critical because it has created a high demand for used cars. Again, the lower inventory of new cars created a higher demand for used cars which increased the price of used cars. Though used car prices have gone down slightly by 3.3% from a year ago, the price of used cars is still inflated and remains 33% higher than if normal depreciation rates were occurring. (O’Brien, 2023) Another factor contributing to the increase in premiums is more people keeping older vehicles on the road. The average car in the US is now more than 12 years old and this has been steadily increasing for the past 15 years. (Kay, 2021)
There will be roughly 243 million drivers on the road in 2023, up from about 238 million in 2022. (Hedges & Company, 2023) Car manufacturers were unable to build new cars due to the shortage of computer chips. This supply chain disruption created a higher demand for used vehicles. This ended up in a trickle effect because it affected more than just the inflation on the price of used vehicles. Having more drivers and more used cars being driven is contributing to higher insurance premiums.
The steady increase in the number of older cars on the road creates a greater demand for used auto parts. All automobiles need regular maintenance so there is more need for parts worn out or damaged in an accident. Another factor affecting auto insurance premiums is one found in other industries. There is a major labor shortage with auto technicians as well as shortage in the supply chain. Combined with a shortage of drivers to deliver parts, this causes a longer waiting period for maintenance and repairs.
Rentals car prices were also affected by the COVID-19 pandemic. Though prices dipped slightly, rental prices remain higher than pre-pandemic rates. (French & Kemmis, 2023) Certainly, there will be some repairs when people need a rental car.
When you look into the increase in premiums, there are many factors. The demand for used vehicles has caused the price of vehicles to go up in addition to the parts for those vehicles. There is an auto technician shortage causing an increase in price and a delay in scheduling a repair. Any repairs needing parts to be ordered will see a delay with supply chain disruption and a shortage of delivery drivers. Inflation continues to be at around 7% (Rugaber, 2023). Prices and premiums will rise with everything being higher. Patriot Insurance Brokers will assist you finding an auto policy best for you. As premiums do go up, we are here to help you limit the amount of increase in premium. Give us a call today at 320-252-8222 or at PatriotInsuranceBrokers.com.
References
French, S., & Kemmis, S. (2023, January 3). Rental Car Pricing Statistics: 2023. Retrieved from Nerd Wallet: https://www.nerdwallet.com/article/travel/car-rental-pricing-statistics
Hedges & Company. (2023). HOW MANY LICENSED DRIVERS ARE THERE IN THE US? Retrieved from Hedges & Company: https://hedgescompany.com/blog/2018/10/number-of-licensed-drivers-usa/
Kay, G. (2021, June 16). Americans are keeping their cars longer than ever before, as used-car prices hit record highs. Retrieved from Business Insider: https://www.businessinsider.com/used-car-prices-americans-keep-cars-longer-than-ever-before-2021-6
O’Brien, S. (2023, January 26). Used car prices are down 3.3% from a year ago — but still ‘grossly inflated,’ auto expert says. Here’s where to find deals. Retrieved from CNBC: https://www.cnbc.com/2022/12/13/used-car-prices-are-down-3point3percent-from-a-year-ago-per-inflation-data.html
Rugaber, C. S. (2023, January 23). U.S. inflation slowed sharply to 7.1% over past 12 months. Retrieved from Denver Post: https://www.denverpost.com/2022/12/13/us-inflation-rate-in-2022-december/