8 Reasons the Chip Shortage Makes Auto Insurance Rates Soar

Have you noticed your car insurance rates climbing? If so, you’re not alone. The auto industry is currently in crisis. As Market Watch explains, ‘When the COVID-19 pandemic began in 2020, global supply chains shuddered. Carmakers halted production, parts manufacturers cut orders, and many plants shut down permanently. A global chip shortage contributed to significant slowdowns in automotive production, resulting in a surge in automobile prices.’ This affects not only vehicle availability but also auto insurance premiums, which have seen a sharp increase in the past few years.

As technology weaves its way into the fabric of industrialization, the impact on premiums becomes evident, with cutting-edge features adding to soaring repair costs. If you’ve been shocked by a spike in your rates, it’s important to understand how the chip shortage ties into this trend.

 

 

What Is a Semiconductor Chip and Why Is It Essential for Modern Technology?

First thing’s first,  you may be wondering what is this “chip” we’re speaking of?  A semiconductor chip, often just called a “chip,” is a tiny electronic component made from materials that partially conduct electricity. These chips are the “brains” behind most modern technology. They are responsible for many modern devices, including:

• Smartphones
• Computers
• Newer Vehicles
• Household Appliances

Inside each chip are circuits that process and store data, allowing electronic devices to perform a wide range of tasks, from simple calculations to complex data processing. Semiconductor chips work by controlling the flow of electrical current within electronic devices, enabling everything from quick calculations to data storage. The global semiconductor industry is incredibly crucial to the tech world, and recent shortages have had a huge impact on production and availability of many products, especially in the auto industry. Let’s explore eight key ways this shortage drives up auto insurance premiums, and how you can save on your premium despite these circumstances.

 

 

1. Chip Shortage Means Expensive Car Repairs (And Higher Insurance Premiums)

The chip shortage is making it more expensive to repair cars, especially newer models. Many modern vehicles are packed with chips that control everything from your navigation to advanced safety systems. When accidents happen, the car repair costs go up, and insurance companies pass these extra expenses along in the form of higher car insurance rates.

Insurance Savings Tip

Look for insurance premiums that offer coverage for electronics or consider raising your deductible. Even a slight adjustment can help offset the increased premiums.

 

2. Car Prices Are Rising, So Insurance Costs Are Too

With fewer chips available, car production has slowed, causing a scarcity of new vehicles. The result? Car prices are rising across the board. For insurance companies, this  means they’ll pay more to replace or repair a vehicle, driving up auto insurance costs.

Insurance Savings Tip

Consider purchasing a used car instead of a new one. Older cars generally cost less to insure since their repair and replacement costs are lower. This strategy can reduce your auto insurance rates significantly.

 

3. Longer Waits for Car Repairs Are Driving Up Insurance Claims

Supply chain delays mean that even small car repairs can take weeks or months. Many auto insurance policies cover rental cars while yours is in the shop. But with the wait times piling up, insurance companies are paying more for rental coverage, which ultimately boosts car insurance costs.

Insurance Savings Tip

If you can, look for vehicle insurance policies with rental coverage included. It might cost a little extra now, but if needed it could save you more in the long run.

 

4. Loss of Discounts for New Safety Features Due to High Repair Costs

The costs associated with repairing these tech-heavy systems have significantly increased, leading some insurers to reassess the viability of these discounts. Studies show that while new safety technologies enhance vehicle safety, repair expenses have risen faster than the benefits of discounts. As a result, drivers may experience diminished savings from these safety features, contributing to a rise in overall insurance premiums.

Insurance Savings Tip

When purchasing a new car, consider models known for their reliability and lower long-term repair costs in addition to safety features. This strategy can help keep your insurance premiums manageable.

 

5. Increased Demand for Specialized Labor in Repairs

With more high-tech components needing repairs, there’s a greater demand for skilled technicians who understand semiconductor-based systems. The scarcity of these specialized laborers drives up labor costs, which insurers have to consider in calculating premiums.

Insurance Savings Tip

Find repair shops in your network with technicians certified for high-tech repairs. Insurers may offer lower rates if you use their network’s preferred technicians, as it reduces overall claim expenses.

 

6. More Costly to Insure Electric Vehicles Affected by the Chip Shortage

The chip shortage has hit electric vehicles (EVs) particularly hard. EVs require more chips than traditional cars, and when repairs or replacements are needed, the costs can be significantly higher. This added expense drives up insurance rates for EV owners, as insurers must cover higher repair costs associated with advanced electric models.

Insurance Savings Tip

If you’re in the market for an EV, research models with lower repair costs. Opting for an EV with a simpler setup can save you money on both maintenance and insurance.

 

7. Insurance Companies Are Bracing for More Uncertain Costs

Insurers are in a tricky spot: Repair costs are up, car values are up, and it’s not clear when things will stabilize. To protect against unknowns, they’re raising car insurance rates. With more claims expected to cost higher amounts, insurers are preparing for the worst.

Insurance Savings Tip

Shop around for the best rates regularly. Insurers differ in their approaches, so you may find a company that offers more favorable car insurance rates even in uncertain times. If you have an independent insurance agent, this will help expedite the process as they work with numerous carriers and are familiar with carrier rates.

 

8. Used Car Prices Are Skyrocketing, Impacting Your Insurance Rates

Not only are car prices rising for new models, but the used car market is also experiencing price jumps due to limited supply. Since car insurance costs are partly based on vehicle value, these inflated used car prices mean higher vehicle insurance rates.

Insurance Savings Tip

If you’re shopping for a car, look for models that have traditionally lower car insurance costs and repair expenses. These choices can potentially offer some relief from premium spikes.

 

Why Auto Insurance Rates Are Skyrocketing: Chip Shortages, Inflation, and a Hard Insurance Market

Unfortunately, it’s not just the chip shortage driving auto insurance rates up, other major factors are adding to the pressure. Rising medical costs mean that insurers face higher expenses when covering accident-related injuries, pushing premiums higher for everyone. Environmental impacts, like extreme weather events, have also increased claim frequency and accounted for larger claims, especially in high-risk areas. On top of all this, inflation has raised costs for car repairs, parts, and labor, putting additional strain on insurers.

As of 2020-2024, we’re also in what’s known as a “hard insurance market.” This is a phase when insurers increase premiums, limit coverage, and tighten underwriting standards to hopefully offset rising claims costs. Between soaring accident rates, costlier repairs, and the semiconductor shortage, even cautious drivers are feeling the pinch in their premiums.

 

 

How to Save on Car Insurance During the Chip Shortage & Hard Insurance Market

Now that we’ve looked at how the chip shortage and hard insurance market are pushing car insurance rates higher, let’s talk about what you can actually do to keep your premium in check.

• Bundle Policies: Bundling auto and home insurance can sometimes qualify you for discounts, lowering your auto insurance rates overall.
• Drive Less: Some insurers offer lower car insurance rates for low-mileage drivers. If you’re working from home more often, this could be an easy win.
• Raise Your Deductible: A higher deductible generally means lower insurance premiums. This can be a smart move if you’re a safe driver who doesn’t file claims often.
• Maintain a Clean Driving Record: Safe drivers typically get the best car insurance rates. Even a few months of clean driving can help bring those premiums down over time.
• Inquire About Discounts: From loyalty discounts to safety feature discounts, ask your agent what’s available. Even a small discount can help offset the higher costs.

 

 

Why Car Insurance Costs Are Increasing in 2024 and What To Do

The chip shortage is a stark reminder of just how intertwined our lives have become with technology. From smartphones to cars, semiconductor chips power much of what we rely on daily, and now, they’re impacting us in unexpected ways. Few would have guessed that a tiny piece of silicon could send car insurance rates through the roof, but here we are, living in a world where the tech we crave is both a blessing and a challenge.

Understanding these forces doesn’t just make us savvier consumers, it gives us the power to make smarter choices. By staying on top of your insurance options and using strategies to counter rising rates, you can soften the blow of this tech-induced price hike. So, take a moment to review your coverage, shop around, and use these tips to your advantage. The chip shortage may be out of our control, but managing your car insurance doesn’t have to be.

 

 

YourPolicy Agents Can Help You Navigate Rising Car Insurance Costs

To navigate rising car insurance costs, having the right support can make all the difference. At YourPolicy, our independent agents believe in making insurance simple, transparent, and convenient by challenging traditional methods. As a technology-enabled, people-first platform, we connect you with the nation’s leading insurance carriers, and guide you every step of your insurance journey. Get in touch by filling out an online contact form or call a YourPolicy agent at (866) 236-0203. 

 

 

 

Frequently Asked Questions (FAQ) About Rising Auto Insurance Rates