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As cars have skyrocketed in recent years, brightly colored signs at dealerships and ambitious headlines have issued warnings to buyers.
But less attention has been paid to the emergence of a primary expense that comes with the vehicle: insurance.
Auto insurance rates have skyrocketed 36% since January 2020, according to an ABC News study of customer value data released by the Bureau of Labor Statistics.
In the last year alone, auto insurance rates have skyrocketed more than 20%, according to BLS data.
“The costs of a lot of things have gone up in recent years,” Tom Simons, a Jefferies economist who studies the auto industry, told ABC News. “The difference with auto insurance is that it continues to be scrapped while others have. ” below. “
The rate increases are directly related to rising vehicle costs, analysts told ABC News, noting that high car costs made owners more likely to repair their existing vehicle than buy a new one.
In turn, a spike in demand for car repairs sent up the price of such services, which led to ballooning insurance rates, analysts added. Those rates have continued to rise as repair shops weather expenses like pay increases for in-demand workers and high costs for parts, even as the supply shortages have begun to ease.
The average cost of car insurance in the U.S. stands at roughly $2,500 per year, personal finance site Bankrate found. In 2021, the average cost ran some $1,700, according to Bankrate data reviewed by ABC News.
The source of the rate hike was the pandemic, when the global chip shortage put pressure on car production, causing the costs of new and used cars to skyrocket. High costs have made it more expensive for insurers to supply replacement cars after a primary accident. .
Rising costs have changed the mindset of car owners focused on the “break-even point” where it’s more expensive to repair a car than to buy a new one, Simons said. As the costs of new and used cars skyrocketed, car owners were willing to take on the increased repair costs.
This dynamic has led to a high demand for auto repairs, leading to a shortage of personnel and parts, increasing the costs faced by repairs and the costs charged to insurers.
Auto repairs are up 7% over the past year, more than double the overall inflation rate over that period, according to BLS data.
Insurers have struggled to make up for expenses amid the sky-high prices for new vehicles and repairs, Jeff Rieder, head of insurance at research firm Aon, told ABC News.
“While other people are affected by rising insurance costs, this is still not enough for insurers to cover their losses,” Rieder said. “Auto insurance is an unprofitable business for most businesses. “
Despite the forces pushing rates higher, the speed of hikes will most likely slow in the coming months, analysts say.
After rebounding from the pandemic-era car shortage, the auto industry has built up a glut of new vehicles, which should slow price increases for new cars, Simons said. That will ease the pain for insurers when a plan calls for a replacement vehicle and could soften demand for repairs as customers shift their break-even point, he added.
However, the hard work and spare parts shortages faced by repair shops are expected to persist, Simons said. Wider adoption of electric cars may also complicate the long-term of insurance rates, Simons added, as those cars require fewer parts but are all expensive. upgrade or correct compared to factors in a combustion vehicle.
“It’s a wild card,” he said, Simons. No I’m 100 percent sure what it’s going to be like. “
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