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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.
“Prices for a lot of things have gone up over the last few years,” Tom Simons, an economist at Jefferies who studies the auto industry, told ABC News. “The difference with car insurance is that it’s still going up while others have subsided.”
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, major demands for auto maintenance increased the value of those services, causing an explosion in insurance rates, analysts added. These fees have continued as department stores deal with expenses such as pay increases for on-call workers, staffing costs and higher portions, even as supply shortages have begun to ease.
The average cost of car insurance in the U. S. UU. es about $2,500 per year, according to private finance site Bankrate. In 2021, the average cost is around $1,700, according to Bankrate data reviewed through ABC News.
The source of the rate increases took hold during the pandemic, when a global chip shortage snarled auto production, which sent prices skyward for new and used cars. The elevated prices made it more expensive for insurers to provide replacement vehicles after a major wreck.
What’s more, rising costs have changed the mindset of car owners who focus on the “break-even point” where it’s more expensive to repair a car than to buy a new one, Simons said. As the prices of new and used cars skyrocketed, car owners have been willing to take on major 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.
Car repair prices climbed 7% over the past year, a rate more than double the overall pace of inflation during that period, BLS data showed.
Insurers have struggled to offset expenses in the face of sky-high costs for new cars and repairs, Jeff Rieder, chief insurance officer at 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 pace is expected to slow in the coming months, analysts say.
After recovering from the pandemic-era car shortage, the auto industry has built up a glut of new vehicles, which is expected to drive down new car prices, Simons said. That would ease the pain for insurers when a plan requires a replacement. vehicle and could minimize the need for maintenance as consumers break even, 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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