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Car Insurance Rates – Another Casualty of the Biden-Harris Economy

CPI report reveals motor vehicle insurance prices accelerating.

by | Sep 16, 2024 | Articles, Business News, Opinion

Has the smoke and dust from the post-COVID inflation bomb finally settled? After the August Consumer Price Index (CPI) report revealed that the annual inflation rate eased to 2.5%, the lowest level since February 2021, the public gladly received the good news. But while the growth rate in consumer inflation has slowed, other pockets of the US marketplace are still witnessing an acceleration of prices. Car insurance is one of them – and drivers are getting tired of it.

What’s Driving Car Insurance Inflation?

First, let’s take a test drive of the numbers. Motor vehicle insurance rose 0.6% month-over-month in August. Over the last 12 months, car insurance inflation has rocketed 16.5%. Premiums are hovering around their highest levels in more than 40 years and continue to lift the overall CPI.

Last year, when asked about this trend, the current administration relied on an oldie but goodie: Greedflation. In other words, blame big business. White House National Economic Council Director Lael Brainard told reporters there was a “call to big business to bring down those prices that they increased so much when supply chains were snarled.” The federal government, she noted, is placing “a real focus on tackling unfair and deceptive price practices.”

Like everything else in the present economic landscape, however, there are other factors at play.

Parts and Repair

Yes, new and used car and truck prices have eased considerably. In August, the cost of new and used vehicles declined by 1.2% and 10.4%, respectively, from a year ago. But the price tag tells only a part of the story. The CPI report identifies some of the under-the-hood contributors. Motor vehicle maintenance and repair are up 4.1% compared to last year. Vehicle parts and equipment other than tires have risen 2.1% year over year. Motor oil, coolant, and other fluids have been steadily increasing month to month this year.

Labor

On the services front, motor vehicle repair has climbed by an annualized pace of 3.4%. This makes sense, considering the average labor rate for repairs is north of $60 per hour in the US, up from the sub-$50 average before the coronavirus pandemic.

GettyImages-1205380668 car repair

(Photo by: Andrew Woodley/Universal Images Group via Getty Images)

The labor shortage has been one of the contributing factors to the price increase. Since 2020, the number of graduates completing post-secondary studies in the automotive sector has tumbled 20%. This means fewer people are entering the industry at a time when current technicians might not possess the skills to engage in modern car repairs or aging workers are quitting the industry.

As a result, the US will experience a shortage of 642,000 auto technicians this year, and the country will need more than 100,000 new auto technicians to join the workforce, according to a July 2024 TechForce Foundation study.

Computer on Wheels

Technology is exacerbating the situation, too. Tech-loaded auto parts, such as cameras, microprocessors, sensors, and many other gadgets, are costlier to repair when damaged. Estimates suggest that the sticker shock for replacing a camera-enabled bumper is around $2,000 – it would usually cost up to $600 to fix a car bumper without a camera. So, when collisions occur, these crashes become much more financially severe than the typical fender bender of 30 years ago.

Electric Vehicles

And then there is the electric vehicle. Motorists are realizing that shifting to EVs is becoming an expensive endeavor, which might explain why they are hitting the brakes on the transition. Indeed, EVs have fewer parts than gas-powered automobiles, but they are more expensive to repair and replace. RepairPal compared the average repair costs between gas and electric vehicles. The Toyota Corolla ($362) and Nissan Altima ($483) were the cheapest, while the Tesla Model S ($1,047) and Nissan Leaf ($748) were the most expensive. Additionally, for example, the average cost to replace an EV battery can be as high as $18,000. By comparison, replacing an internal combustion engine might be as high as $10,000.

According to the National Association of Insurance Commissioners, insuring an electric car can cost up to 20% more than a gas-powered automobile.

Will This Continue Forever?

Data show that Americans drive less, and enjoying the open road might become a niche passion. The share of teenagers (16 to 19) with driver’s licenses is below 40%, down from 64% in 1995. Generation Z is taking fewer driving trips, waiting longer to obtain government permission to operate a vehicle on public roads, and depending on ride-sharing apps to get from A to B. Perhaps trends will change with the arrival of autonomous cars, but the industry, be it automakers or insurance firms, will need to make driving great again by reversing price inflation.

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Liberty Nation does not endorse candidates, campaigns, or legislation, and this presentation is no endorsement.

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