Why are car insurance costs high despite dropping car prices?
Car prices for new, used, and rental vehicles, are steadily decreasing. Used car prices dropped by 10.9%, rental cars by 6.2%, and new cars by 4.4%
This offers consumers a welcome relief. However, the cost of car insurance has remained stubbornly high. It has risen by 18.6% over the last year.
According to experts, the relationship between car prices and insurance costs is complex.
Scott Shapiro, head of KPMG’s US insurance division, explains that there is a correlation between a vehicle’s price and the insurance rate for physical damage.
However, other factors also significantly influence insurance premiums. A key factor is the rising number of severe car accidents.
Nearly 41,000 fatalities were reported last year. This is a significant increase from previous years. The severity of these accidents has led to higher claim costs.
Insurers then pass this on to consumers in the form of higher premiums. So even though car prices are dropping, car insurance costs do not automatically drop as well.
Will lower car prices eventually lead to cheaper car insurance?
Although car prices have dropped insurance rates have not followed. Instead, they have surged. It marks the third-largest price hike across all categories tracked by the Consumer Price Index.
This disconnect has puzzled many consumers who expected insurance rates to decrease as the cost of cars dropped.
Industry analysts suggest that insurance premiums typically lag changes in car prices. Apart from higher claim costs, there are other factors why insurance premiums have not dropped yet.
Josh Damico, vice president of insurance operations at Jerry notes that insurers are “playing catch-up” due to the rapid rise in car repair costs. Although they are stabilizing, they are still up by 3.4% from last year.
The good news is that with repair costs beginning to level off and car prices continuing to drop, some insurers are starting to reevaluate their pricing strategies.
This potentially leads to lower insurance rates in the near future.
What is happening with electric vehicle (EV) prices?
The electric vehicle (EV) market has seen a significant price drop. The average price of used EVs plummeting by over 20% in the past year.
This sharp decline contrasts with the relatively modest decrease in the price of used gas-powered vehicles.
The influx of new, more affordable EV models is likely to keep used EV prices down. This creates a competitive market that could also influence car insurance rates.
The downward trend in EV prices is a recent development. The value of these lightly used EVs could present a compelling option for shoppers.
However, it remains to be seen how quickly these changes will translate into reduced insurance costs.
For now, despite falling car prices, many drivers still grapple with high insurance premiums. They hope for relief in the months ahead.