As of December 2024, car insurance rates in the U.S. had surged by 11.3% year-over-year, making it challenging to pinpoint the exact causes behind this increase. However, a multitude of factors contribute to insurance rate fluctuations, particularly those tied to the global economy. These can range from alterations in U.S. trade agreements to rising costs at local auto body shops, ultimately affecting your insurance bill.
CheapInsurance.com analyzed data from the Bureau of Labor Statistics and the Census Bureau to examine the domestic and international forces influencing car insurance rates.
American car insurance companies typically base their rates on various criteria, including a driver’s age, gender, driving history, geographic location, the type of vehicle, credit score, and even marital status. Yet, supply chain disruptions, labor shortages and associated costs, and an increase in new car prices all play a role in the price of premiums.
Insurance companies have been raising rates partly because of advancements in vehicle technology. Sophisticated technology makes repairing cars, SUVs, vans, and trucks more difficult, and, as the demand for repairs climbs, so do the costs. This has been especially true since parts shortages and other global issues brought on by the COVID-19 pandemic. For instance, a worldwide shortage of computer chips in early 2021 nearly stopped the production of new vehicles. This shortage also complicated the process of providing replacement vehicles after cars were totaled.
Increased new car prices are also a factor driving up premiums. Higher initial prices often push consumers to repair existing vehicles rather than purchase new ones, according to a report by ABC News. Moreover, a CNBC report suggests that the trend toward heavier, more powerful vehicles that need advanced repair work, alongside a rise in speeding and accidents, could also be driving up repair costs.
A shortage of mechanics adds another layer of complexity. Many skilled technicians are retiring, while fewer young people are entering the field to fill the gaps. During the pandemic, with fewer vehicles on the road, the need for regular maintenance decreased. Now that people are driving more frequently, the demand for repairs has increased, but the number of available mechanics has not kept pace. A 2023 report by the TechForce Foundation estimated that the U.S. could face a shortage of up to 471,000 technicians between 2024 and 2028.
Problems at critical supply chain choke points around the world also affect business expenses, prompting insurers to adjust their rates, which in turn impacts consumers’ expenses.
Cost of insurance and maintenance are increasing
Data from the Bureau of Labor Statistics indicates maintenance and repair costs have steadily increased beginning in the 1960s, with a sharp rise in recent years. The New York Times reported that this is the “main reason” for recent increases in car insurance rates.
Other factors that complicate repair costs include the growing number of luxury models and more severe crashes, which mean that insurers are paying out more. Also, when newer, safer vehicles are involved in accidents, the repair of their cameras, radars, sensors, and other advanced features can quickly become complicated and more expensive.
In essence, as liabilities increase, so do premiums.
How global changes influence domestic auto insurance
There are reasons to be optimistic. Global shifts in manufacturing might help reduce car insurance rates in the United States. The prices are so high they’re nearing a breaking point, according to reporting in the Times.
Since consumers bear the costs of production, a movement away from globalization toward regionalization could bring costs down. While supply chain risks and bottlenecks are still impeding the flow of goods through the Red Sea, Suez Canal, and Panama Canal, U.S. manufacturers who move production closer to home might reduce their overhead. As a result, some prices should go down, and this includes insurance.
Moreover, the increasing emphasis on fair pay, regulatory compliance, labor rights, and social and environmental concerns has prompted numerous companies to relocate production closer to home, where regulatory burdens are often lower. For example, car and car parts manufacturers that have long had operations in China and other Asian countries are making significant investments in Mexico. This shift is partly aimed at reducing regulatory compliance costs, as Al Jazeera reported in early 2024. Political factors, including concerns about the information the U.S. shares with China, have also contributed to this trend.
This transition, known as “nearshoring,” in which companies move closer to their preferred markets, has a substantial impact on the automotive industry.
From 2019 to 2023, industrial park space in Mexico more than doubled, from 21.5 to 46 million square feet. Most of the $13 billion in industrial funding the country has secured in the last few years backs auto or auto parts manufacturers, which have a history in Mexico spanning almost a century. The nation now significantly surpasses other U.S. trade partners in terms of parts supply, thanks to a more convenient and efficient supply chain.
That said, there is a delicate balance between fair price increases and padding profit margins. Between shifts in production, consumer frustration, and a 2024 win by Consumer Watchdog, which challenged requests for inflated insurance rate increases among significant providers, auto owners might want to consistently monitor their insurance rates. While drivers can control many factors, geopolitical influences are not among them.
