Why car insurance costs are going through the roof

 

We've all seen the reports that vehicle insurance premiums are rising rapidly (I've seen numbers like a 20%+ increase in one year bandied about).  An anonymous car dealer, posting on Twitter, explains.

We are in the midst of a "total loss" epidemic.

More than *20%* of vehicles are now declared a write-off by insurers after examining claims.

That's around *five* times higher than in 1980.

But why?

One big reason is that the cost of vehicle repairs has increased by almost 50% since the pandemic started—far exceeding inflation.

Another major driver?

Declining used car prices.

It may seem counterintuitive, but the rate at which used car prices have fallen over the past couple of years encourages salvaging instead of repair...

And all that contributes to an increase in vehicle write-offs.

There are lots of responses at the link, which are worth reading in themselves.  A few examples:

• "General manager of a corporate body shop here. I’ve seen several drivers contributing to this. First, cost of repair. We’re essentially driving computers now. Parts scarcity driven from Covid manufacturing slump and the manufacturing strikes, increased both length of rental (which most people don’t understand factors into cost of repair on the insurance side) and constructive total losses (where parts are now obsolete or on intergallactic back order). This drove salvage value to the moon."
• "Used to work in a claim reporting call center taking first reports. Almost any time an airbag deploys a car is going to be deemed a total loss due to the cost to replace the airbag. Especially side ones."
• "Insurance companies often benefit by totaling a car. If your 4k car costs 5k to repair, they give you 4k and leave it to you to find a replacement car (good luck) while they sell your car to a salvager who can cheaply fix it for 2k. They are out 2k instead of 5k. Numbers are made up but the concept is real."

I've had two vehicle insurance claims in the past year, one my own fault (backing into a brick postbox container that was hard to see behind my vehicle) and the other not (hitting a dog that ran out into the road, too close to miss it).  In both cases, I was unpleasantly surprised at the quotes from repair shops.  The insurance paid on both occasions, but I continue to feel ripped-off at the sums involved (particularly when the repair shops used third-party parts rather than original equipment).

That was confirmed to me by needing new headlights for my vehicle a few months ago.  The dealership wanted $1,200 plus labor costs for OEM headlights, while a repair shop wanted $1,600 including labor to fit third-party headlights.  (If I was in better physical shape, I could have done the installation myself, but I can't bend and twist like that any more.)  By shopping around on eBay, then looking for a repair shop that charged a reasonable rate for the job, I got away with total costs of less than $600 - still expensive, IMHO, but much more realistic than the earlier quotes.

I think these figures indicate yet another reason to buy an older, cheaper vehicle as a runabout.  Third-party-only insurance is a lot cheaper than comprehensive, and if you haven't paid a lot for your old car, it doesn't hurt as much to write it off and look for another one.  Unfortunately, in the US at least, first Obama's "cash for clunkers" scheme, and then COVID-19's impact on sales, have clobbered the used car market, boosting values - or, rather, prices, because used vehicles just aren't that valuable as such - to insane levels.  I guess there's no easy way out of this conundrum right now.

*Sigh*

Peter