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More wrecks, fewer shops means higher premiums
According to statistics, the average price of motor vehicle insurance in May rose by 17.1% year-on-year consumer price index.
That was the largest annual increase of any consumer good or service, trailing only prices for margarine, frozen vegetables, motor vehicle repairs and meals at schools and employee establishments, according to Consumer Price Index data.
Prices rose 2 percent between April and May alone.
According to a recent survey, about one-third (31%) of U.S. auto insurance customers say they have experienced a rate increase in the past year study Courtesy of JD Power.
Consumers will pay an average of $2,014 a year in premiums for “full coverage” auto insurance, or nearly 3% of their income, according to 2023 Bankrate data study. (These policies typically include liability and collision coverage.)
Economists say a number of factors conspire to drive up the cost of auto repairs, which ultimately affects insurance prices.
On the one hand, many auto body shops and auto repair companies have closed during the pandemic, reducing supply and driving up repair costs, said Mark Zandi, chief economist at Moody’s Analytics.
“This pandemic has really taken a toll on the auto repair business,” he said.
car wrecks too Soar in 2022.
The number of car accident deaths in the first quarter of 2022 is the highest in two decades, according to to the U.S. Department of Transportation. This dynamic puts financial pressure on insurers as they receive a high volume of auto damage insurance claims.
In 2022, auto insurers will lose an average of 12 cents for every dollar paid in customer premiums, according to JD Power — Worst performance in over 20 years.
That leaves insurers with no choice but to raise premiums, JD Power said. Customer satisfaction then plummeted, falling at the fastest pace in two decades, the report added.
“They did raise premiums,” Zandi said. “At some point — and I think we’re getting there — people will be hesitant.”
Auto prices ease after pandemic-era surge
In addition, vehicle prices have also started Rapid growth in the first half of 2021. Economists say those high prices often lead to higher repair costs (and ultimately, higher costs for insurers as well).
In fact, new and used cars were one of the first consumer goods to experience high inflation, which eventually swept through the entire U.S. economy (and now appears to be falling back).
Charlie Chesbrough, senior economist at Cox Automotive, said the “perfect storm” of pandemic-era factors, such as supply chain disruptions and shortages of auto parts such as semiconductors, has led directly to consumer growing demand.
Auto sales growth in March, April and May of 2021 is the fastest since the Great Recession, Chesbrough said. The Federal Reserve slashed borrowing costs to near zero in early 2020, and consumers built up cash reserves during the pandemic by staying at home and government relief.
In other words, a flood of consumers wanted to buy cars that were in short supply, driving up prices.
Now, however, something has changed.
They did raise those premiums. At some point — and I think we’re getting there — people will hesitate.
Mark Zandi
Chief Economist, Moody’s Analytics
So far, auto inventories have partially recovered.
Chesbrough said the Fed has raised interest rates aggressively to curb inflation, leading to higher borrowing costs and dampening demand. Manufacturers are using more financial incentives to reduce transaction costs and boost consumer demand amid rising interest rates, he added.
According to the CPI, new car prices fell for two consecutive months in April and May. Despite the decline, it was still 4.7 percent higher than a year ago.
Prices of used cars and trucks rose in April and May, CPI data showed, but economists see prices falling. According to statistics, since March, the wholesale price of used cars has dropped by about 6%. Mannheim Used Car Value Index.
Prices for used cars and trucks have fallen about 4% over the past year, according to CPI data.
For more on auto insurance policies, check out CNBC Select’s recent auto insurance rankings best car insurance company.
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