Insurance premiums are absolutely spiking

Hey, everyone. Here’s some news: Buoyed by its popular $250,000 Urus SUV, Lamborghini sold over 10,000 vehicles last year…for the first time ever. 60 years in and Lambo is still smashing milestones. You love to see it.

—CDG

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Today’s Biggest News

What Skyrocketing Insurance Costs Mean for Sales

Here’s a major wake-up call for your Thursday morning: Auto insurance premiums jumped 20% annually in December…the largest increase since the mid-1970s.

Digging deeper into the stats:

• The average rate for full auto coverage in the US rose 24% annually to $2,019 per year in 2023. That’s about 2.6% of the median household income.

• Premiums have been climbing on a monthly basis, too. In December, they increased 1.5% monthly. That’s on track with the average monthly increase over the last year—a rate that exceeds all monthly increases prior to the pandemic.

• Auto insurance, which typically isn’t an expense category that impacts inflation all that much, accounted for 15% of headline price increases in Q4 of 2023.

These days, the Honda CR-V LX, Jeep Wrangler JL Sport, and Subaru Crosstrek are the least expensive models to insure…while the Tesla Model S Performance, Lexus ES 300H, and Volvo XC90 T8 Inscription are the most expensive.

And looking ahead: Premiums could increase another 12.6% in 2024.

So what’s behind soaring insurance prices? A few notable trends: 

Labor and parts to repair damaged vehicles are getting pricier. As of last summer, car repair costs were up almost 20% in just a year. As cars get more technologically advanced, repairs get more complex (read: expensive). And insurers have to pass that cost along in order to stop the balance sheet bleeding.

Vehicles are still historically expensive across the board—the average transaction price for a new vehicle in December 2023 was $48,759. While that’s down from recent highs, that relatively pricey baseline increases the underlying collateral being insured.

Thefts are becoming more common. Motor vehicle thefts were up about 34% during the first half of 2023 compared to the same time a year earlier.

Reinsurer norms are shifting, especially given natural disaster risks—“the past decade of global natural catastrophes has been the costliest ever,” as the WSJ put it. When insurers and reinsurers can’t accurately quantify a risk,they often charge more to cover it.

All of this will have lasting impacts on the automotive industry, from insurers to Uber drivers. Think about it →

• Insurers might have to do more than just raise premiums. They could cut staff, minimize operational costs, stop marketing spend, and even suspend coverage in some areas and for some consumers. Already, insurance companies in California are being investigated for allegedly deploying tactics designed to keep drivers from getting coverage.

• Good repairs cost money, and it’s possible insurance companies cut more corners when it comes to the repairs process.

• With insurance rates skyrocketing, there might be a slowdown in the auto-based gig economy—why drive for a ride-sharing platform when your insurance bill costs more than you make in a month?

• Drivers are increasingly opting to go without insurance. In the first six months of 2023, 5.7% of households that possessed at least one vehicle didn’t have insurance, up almost half a percent from a year earlier.

Most notable, though? The impact on auto sales. When I asked all of you if high insurance rates were hurting business, 64% of you said yes. My replies were flooded with people, from would-be buyers to insurers, telling me how sky-high premiums were negatively impacting them:

What that means for dealers: They need to dig deeper into the well, work with more providers, and offer more options for their customers…because insurance premiums will continue to make or break deals.

Bottom line: Auto insurance is regulated state-by-state, meaning your premium could differ significantly across the US. But today, states across the country have something in common: Insurance prices are increasing with little sign of slowing down.

Ultimately, there are a few ways to potentially fix this problem—but how likely they are to actually happen remains to be seen: 1) Insurers get better at accurately pricing the impact of unpredictable natural disasters 2) manufacturers lower vehicle costs that they ratcheted up post-Covid or 3) the US government steps in to magnify the increased scrutiny states are already placing on insurance companies (though this one seems especially unlikely).

I’d love to hear from you: How do you think we solve this insurance pricing conundrum? How should dealers respond to rising premiums? Hit reply and tell me how you’d go about it. 

This Week’s Episodes of the CDG Podcast

Two stellar episodes for you this week:

1. How AI is changing car buying forever (and whose job the tech will come for first) with Aharon Horwitz, CEO of Fullpath. Listen here.

2. Breaking down the phenomenon of lease here, pay here and what it might tell us about the future of mobility with Tim Lawrence, CEO of LHPH Capital. Listen here.

Catch up on episodes here, and subscribe to the CDG Podcast on Apple, Spotify, or wherever else you get your podcasts. Thank you to AutoFi and CDK Global for making this episode possible.

Together With PrivateAuto

Private party sales have always been clunky and complicated. Traditional marketplaces leave it up to you to figure out how to close the sale.

Not anymore. PrivateAuto is the first transactional marketplace that provides a fully self-service, end-to-end platform for private vehicle sales. Since it's 100% automated with proprietary banking technology, it removes the middleman, empowering both buyers and sellers to close the sale on their own, anytime.

PrivateAuto includes features like identity verification, an eBill of Sale, and instant transfer of funds. For the first time, private sales can be safe, simple, and secure.

I believe in PrivateAuto so much that I invested in the company earlier this year. :)

Click here to list your car, and use code CDGUY to list for FREE!

A Major CDG Announcement

I promised you big news this year...time to deliver.

Come meet me at NADA Conference in Las Vegas on February 2nd!

I’m premiering a short (but juicy) documentary I’ve been filming for the past couple months. The goal? Uncover my personal story, explain why I created Car Dealership Guy, and showcase the future plans for the CDG brand.

Here are the details:

• I've partnered with Cars Commerce to premiere the documentary during the NADA Convention in Las Vegas. The premiere will air at the Cars Commerce NADA booth (#3421W) on February 2 at 10:30 am PT.

• Right after the premiere, I’m doing a fireside chat with Cars Commerce CEO Alex Vetter.

• I’m also hosting my first-ever meet and greet that same day from 12:00 pm to 2:00 pm PT.

And this will all be live, in person, for the first time ever. Want to join the free meet and greet at NADA? Sign up right here.

Can’t wait to see you all IRL.

In Other News

The headline: Hertz is selling about one-third of its fleet of EVs, or roughly 20,000 cars. Most are Teslas.

The context: This isn’t necessarily an indictment on Hertz or EVs as a whole. Yes, Hertz is about to record a $245 million non-cash charge related to “incremental net depreciation expense” in its Q4 results…but this is more about EV repair costs than anything. Breaking it down:

• Hertz directed a lot of EVs to Uber drivers when it started building out its electric fleet. 

• Turns out repair costs on those EVs were higher than anticipated.

• And that was magnified by the fact that many of the ride-share drivers Hertz rented to were 1) inexperienced 2) bad drivers or 3) both.

So now? Hertz is reinvesting in gas-powered cars…at least for the time being. I’ll keep you posted on how this plays out.

The Backlot

• New vehicle incentives are now at the highest level since August 2021.

• Confidence in the transition to battery-electric vehicles is dropping among auto execs in most regions (aside from China), according to KPMG.

• Here’s what all that freezing cold weather that hit the US this week is doing to EV charging stations.

• Used car prices are on track to stabilize this year.

• This was an interesting read: Will 2024 (finally) be the year of the autonomous vehicle?

Thanks for reading. Did you see Honda’s new logo? Tell me what you think by hitting reply. See you next week for more.

—Car Dealership Guy

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