AutoInsurance.com
December 12, 2022

How COVID Made Car Insurance More Expensive 

One side effect of COVID-19 that the CDC didn’t mention? Higher car insurance premiums.

They say every action has an equal and opposite reaction.

A global pandemic leads to a labor shortage. A labor shortage leads to a broken supply chain. A broken supply chain leads to higher prices for new and used cars. And after a period of people not driving for a long period of time, it’s official: Car insurance is more expensive now than ever before — even when you account for inflation.

So what’s the relationship between the coronavirus and the cost of auto insurance?

Increase in Car Insurance Prices

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?

How COVID Led to Higher Car Insurance Prices

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.

How to Cope With Higher Car Insurance Costs

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.

Citations

  1. 12-month percentage change, Consumer Price Index, selected categories. U.S. Bureau of Labor Statistics. (2022).
    https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category.htm#

  2. Creating pathways for tomorrow’s workforce today. Deloitte Insights. (2022).
    https://www2.deloitte.com/us/en/insights/industry/manufacturing/manufacturing-industry-diversity.html/#executive-overview

  3. NADA DATA 2021. NADA. (2021).
    https://www.nada.org/media/4695/download?inline

  4. Average New Car Price Tops $47,000. Kelley Blue Book. (2022).
    https://www.kbb.com/car-news/average-new-car-price-tops-47000/