How COVID Made Car Insurance More Expensive 

Indirectly, the COVID-19 pandemic has made car insurance rates more expensive, as anyone who’s recently shopped in the auto insurance market knows. From 2021 to 2022, the average cost of auto insurance rates increased by 13 percent.

Now, before you blame that all on inflation and greedy insurance companies, consider the fact that across all consumer categories, from fuel oil to doctor’s services, the average increase year over year is 8 percent, according to data from the U.S. Bureau of Labor Statistics’ Consumer Price Index¹. So, clearly, something else has driven the larger price increase that the auto insurance market is experiencing. But how can a health-based pandemic cause average car insurance costs to rise?

Labor Shortage

The U.S. has yet to return to pre-pandemic levels of transportation equipment manufacturing. In 2020 alone, the country lost 578,000 manufacturing jobs. Deloitte predicts that by 2030, the U.S. will have 2.1 million unfilled manufacturing jobs compared to 500,000 in 2020². Fewer workers to manufacture cars means that the U.S. is more heavily dependent on China for its car supply, leading to a national car shortage. A car shortage, in turn, makes the vehicles for sale more expensive. More expensive cars make auto insurance more expensive.

Broken Supply Chain

Another problem the pandemic has exacerbated is the lack of materials. The U.S. already divested from semiconductor manufacturing before the onset of COVID-19, with an 18 percent reduction from 2015 to 2019. When stay-at-home orders led to less driving in early 2020, many auto manufacturers canceled their semiconductor manufacturing orders.

Now, as a result, we don’t have enough of this vital car part as driving ramps back up. Due to this lack of semiconductors, the car shortage we mentioned is further complicated — it’s not just decreased labor contributing to the problem but a broken supply chain. The result, unfortunately, is the same: Car prices rise, and more expensive cars are more expensive to insure, as they have higher repair costs.

Higher Prices for Cars and Parts

Amidst these issues of securing labor and supplies, the cost of used cars increased by 19 percent from 2020 to 2021³, while the cost of new cars increased by 47 percent⁴. The cost of car parts increased too. As a result of these COVID-induced problems, the higher car prices and car repair costs made insurance more expensive as well.

Although there may be fewer cars on the road than in pre-pandemic times, you can save money by having sufficient insurance and practicing good driving habits. With usage-based insurance, you can even see your rate decrease, thanks to safe driving patterns! Other ways to save include improving your credit score. Learn more about how to lower the cost of auto insurance.