Auto insurance rates have increased partly due to the steep costs of repair to the high-tech systems used in today’s cars.
A January report from the Consumer Price Index (CPI) reveals what many insurance agents and their clients probably already know: car insurance rates have risen steeply in recent years. According to the CPI, auto insurance costs increased 7% in 2016 and by another 7.9% last year.
The escalation becomes even more apparent when viewed in a longer timeline. Citing the CPI, the Chicago Tribune reports that auto insurance prices rose 21.5% between 2012 and 2017.
The commercial auto market has also been hit with rate hikes. The January IVANS Index, which tracks the rates changes on premium renewals, found that commercial auto prices rose 3% in December followed by a 4.3% jump in January.
What’s behind this boost in auto insurance prices? Experts agree that one of the main causes is the high-tech systems that promise to make driving safer but at the same time inflate repair costs when an accident occurs.
A Costly Bumper
A greater number of vehicles on the road, an increase in distracted driving, and even damages from recent natural disasters like Hurricane Harvey have all contributed to the rise in auto insurance rates, but newer cars outfitted with high-tech safety components have played an equally significant role in the upward trend in auto insurance prices.
To help prevent collisions, many brand-new cars come equipped with sensors that warn drivers of blind spots and other dangers. Those features, however, are usually installed in bumpers and side mirrors that are easily damaged in a crash.
Consequently, even a minor fender bender may result in an astronomical repair bill. Liberty Mutual Insurance's own data revealed that it cost $3,550 to fix a bumper on an entry level luxury car manufactured in 2016, while the some repairs to a 2014 model totaled $1,845. That’s because the parts and labor needed to restore the 2016 model are 130% and 18% more expensive, respectively.
“Rates follow costs, and costs have been rising,” James Lynch, Chief Actuary for the Insurance Information Institute, told Kiplinger’s Personal Finance. According to the Institute, the average auto insurance premium soared from $915 in 2015, to $980 in 2016, and to $1,060 in 2017. This year, the cost is projected to hit $1,150.
Matt Moore, SVP of the Highway Loss Data Institute at the Insurance Institute for Highway Safety, told the Detroit Free Press that fixing these modern tech systems will add an extra 2% to collision claims.
Moore attributed the current rise in auto insurance premiums to insurers focusing more on the skyrocketing price tag to replace the expensive technology. He said that insurers may decrease the rates when they recognize how technology greatly reduces the risk of a crash in relation to the costs of repair.
A Case in Point
In recent years, many insurers have promoted the use of telematics to help policyholders reduce premiums. When installed in a car, these small devices monitor a policyholder’s behavior on the road. Drivers who exhibit safe driving habits can receive a rate reduction.
An analysis by auto insurance pricing website Zebra, however, determined that the use of telematics had a negligible impact on auto insurance premiums. Policyholders that introduced a telematics device into their vehicle paid an annual average premium of $1,415, not much lower than the $1,427 paid by drivers who didn’t use it.
Tech could transform the automotive industry, helping manufacturers, drivers, and insurers alike save money. For the moment, however, they might continue to cause some spikes in premiums.