Minor Fender Bender? That Will Be $42,000, Please

Modern cars are marvelous, except when they need fixing — in which case the bill for even a seemingly minor dent can easily reach four or even five figures. Consumers and fleet owners are being stuck with huge repair bills while auto insurers are hiking premiums. Regrettably, this type of inflation could prove very sticky.

There isn’t a simple explanation for why car insurance prices have suddenly gone through the roof: Soaring used car values, an uptick in dangerous driving, rising theft, spare part, and technician shortages have all contributed to insurers’ burgeoning losses. Another less-explored issue is the increasing complexity of fixing vehicles; and, unlike some of those other factors, that won’t change once supply chains and labor markets revert to normal.

Rollercoaster Premiums | Car insurance became cheaper during the pandemic but premiums are now soaring on both sides of the Atlantic

New models — whether powered by combustion engines or electric batteries — have essentially become very expensive computers on wheels, sometimes containing as many as 3,000 semiconductors. This is wonderful from a safety and driving performance perspective, but replacement parts cost more and modern vehicles take longer to fix.

“If you think about the number of sensors, cameras, and the technology embedded in vehicles today, that is driving a significant increase in the underlying cost of repair,” Leah Stearns, the chief financial officer of salvage auction company Copart Inc., told investors earlier this month. “So if you do get in an accident, a lower level of damage actually could effectively result in the car being totaled.”

In the UK, the cost of vehicle repairs paid for by insurers jumped by one-third in the first quarter; Direct Line Insurance Group Plc warned last month that adverse damage claims would continue to pressure earnings this year. No wonder UK car insurance costs jumped by a staggering 43% year-on-year in May, according to official inflation data published this week.