If you’re in the market for a new car or are due for repairs, you’ve probably felt the impact of the recent market changes. Standard passenger vehicles and commercial vehicles alike are all facing challenges when it comes to manufacturing and securing new car parts, but these aren’t the only instances the shortage is felt. Auto insurance in general is experiencing significant increases as a result of these shortages, and consumers are now having to pay more to meet the standard requirements for coverage, even for vehicles in perfect condition. The combination of inflation, the labor market, foreign conflict, and continuing semiconductor chip production delays will likely continue to drive increases for upcoming policy renewals.
Semiconductor Chip Shortages
The shortage in semiconductor chips, the microchips that power digital devices and process data, is causing delays in repairs nationwide. Semiconductor chips play a significant role in the functioning of modern vehicles and are used to control safety features like sensing, power management, visuals, and control. Since 2020, the number of vehicles that utilize these chips has increased dramatically, but so have the supply chain delays in their manufacturing. Unlike standard car parts, semiconductor chips can take up to 6 months to manufacture, and the aftermath of the Covid-19 pandemic has stalled hundreds of thousands of cars in production. As a result, fewer new cars are on the market, leaving a higher demand for used vehicles. Elevated retail prices ultimately lead to higher total loss costs, and in turn higher insurance prices to fully cover a vehicle.
Auto Part and Labor Shortages
The shortage of both auto parts and qualified laborers to conduct the repairs has remained a pressing issue since the start of the pandemic. Supply chain delays stem far beyond modern vehicles with semiconductor chips. Everything from brakes, exhaust systems, engines, and basic plastic parts that feed the auto industry has been challenging to access. Foreign cars may see even greater delays due to the delay in trading and production. According to the Department of Labor, parts, and equipment have increased more than 10% since last year making it the highest increase since the early 70s.
The declining number of qualified automotive technicians has furthered the increase in delays and labor costs. 96% of repair shops are reporting a 2-week backlog for repairs. The Bureau of Labor predicts a further 4% decline in automotive labor through 2029. The combination of complexity for repairs and higher demand for qualified workers may also lead to higher wages. These delays are causing increases in not just collision repairs, but standard maintenance repairs. This will be a positive outcome for workers but may be factored into more pricing increases.
For insurance companies, this poses a greater risk for a number of reasons. There is a higher need to factor in extended rented vehicle coverage while vehicles are in the shop, a need to consider increased replacement costs even for standard maintenance, and in general, a higher value associated with each car. Those with a clean driving record and lower-valued vehicles may see less of an increase, but price hikes will be felt across the board.
Less Damage Needed to be Considered a Total Loss
Another area that may be affected by the previously mentioned variables is that it may take less damage than before for a claim to be considered a total loss. A vehicle is considered to be a total loss to your insurance carrier when the cost of damages approaches or exceeds the cash value of the car. With prices increasing in just about every aspect of the auto industry, costs add up quickly. With used vehicle retail prices now higher than ever before, and all costs associated with repairs continually increasing, the insurance carrier may deem your car a total loss with less damage than what would have been a total loss in prior years.
How to Keep Your Auto Costs at a Minimum
It is undeniably a challenging market right now, but there are plenty of ways to keep your costs at a minimum. If you currently own a car, make sure you schedule all of your maintenance appointment ahead of time to avoid delays that may lead to damage. If you anticipate needing large repairs in the near future, contact your local repair shop to order parts in advance.
If you don’t own a car or are in the market for a new one, it may be best to hold off right now. With retail prices inflated, you will pay more for your vehicle and the insurance to legally drive it. If you need to purchase a vehicle, opt for a vehicle that is in good condition and offers safety features that may provide you with coverage discounts.
Review Your Auto Insurance with ECBM
If your policy is up for renewal, it's a good idea to review your policy with a professional agent who can help you secure the best coverage for the best price. ECBM has expert knowledge in automotive insurance and can help you and your business secure auto insurance, compare quotes or review your current policy for gaps. For more information, contact one of our agents.