Auto Insurance Costs Skyrocket Just as Car Prices Start Settling Down
All that fancy tech in new cars makes them pricier to repair and more likely to be totaled.
Car prices, both new and used, are finally coming down as pandemic-related challenges are drifting further in our rearview mirrors. Unfortunately, customers aren't able to enjoy that reduction in prices as much as they should, since insurance costs are getting quickly out of hand.
Obviously insurance costs vary per person, as expensive new cars have much higher premiums than old beaters with very low-cost, low-coverage plans, and personal history is a big factor, too. However, new cars are the ones doing the most damage in terms of soaring insurance costs, which jumped 22% since this time last year, according to Reuters. That's the largest insurance cost increase since the 1970s. Insurance now represents more than a quarter of a new compact car's total cost of ownership (which includes the cost of the car, fuel, routine maintenance, depreciation, and insurance) in 2024, at 26%, per data cited from Kelley Blue Book by Reuters. That's up from 16% in 2019. For compact SUVs, that cost percentage will likely crest 20% this year.
Why are insurance rates so much higher now, just as car prices are starting to fall? There are several factors, but one is the ever-rising cost of repair for new vehicles, which are far more complex and technologically advanced than ever before. Even inexpensive economy cars now come with advanced safety system hardware that's pricey to set right in the event of a crash. And some new manufacturing techniques, such as Tesla's gigacasting, create structural components that are more difficult to replace after a crash, which translates to more totaled cars.
Average repair times are getting longer all the time, too, due to vehicle complexity, supply chain issues, and, in some cases, a shortage of mechanics. The more time taken to repair a car, the more expensive it is for insurance companies to provide rentals to its customers, which also drives premiums up. According to Insurify, insurance costs for new cars skyrocketed 24% in 2023 and, while that rise is projected to slow down in 2024, it's still going to increase by 7% this year. An even more disturbing figure, per Insurify, is that increases to insurance rates outpaced wages by a staggering 638% last year.
These rising costs are thorns in the sides of many customers who can afford the car they want, but not the insurance. Ballooning prices not only hurt customers' wallets monthly but could also negatively impact them in the long run, as many people may reduce their coverage to save cash only to find themselves in an even worse financial pickle after a crash. The especially frustrating part is that these rising premiums have arrived right as car prices have started to return to Earth. One way or the other, they're continuing to keep shoppers out of the vehicles they want or need.
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