Car insurance rates have soared 36% since 2020. Here’s why.

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As car prices have climbed in recent years, bright-colored signs at dealerships and boldface headlines have blared warnings to buyers.

But less attention has been paid to the jump in price for a stiff expense that comes along with the vehicle: insurance.

Car insurance rates have climbed 36% since January 2020, according to an ABC News analysis of consumer price data released by the Bureau of Labor Statistics.

Within the past year alone, rates for car insurance have soared more than 20%, BLS data shows.

“Prices for a lot of things have gone up over the last few years,” Tom Simons, an economist at Jefferies who studies the auto industry, told ABC News. “The difference with car insurance is that it’s still going up while others have subsided.”

The rate increases tie directly to the surge in vehicle prices, analysts told ABC News, noting that the elevated car prices left owners more likely to seek repairs for their current vehicle than opt to buy a new one.

In turn, a spike in demand for car repairs sent up the price of such services, which led to ballooning insurance rates, analysts added. Those rates have continued to rise as repair shops weather expenses like pay increases for in-demand workers and high costs for parts, even as the supply shortages have begun to ease.

The average cost of car insurance in the U.S. stands at roughly $2,500 per year, personal finance site Bankrate found. In 2021, the average cost ran some $1,700, according to Bankrate data reviewed by ABC News.

The source of the rate increases took hold during the pandemic, when a global chip shortage snarled auto production, which sent prices skyward for new and used cars. The elevated prices made it more expensive for insurers to provide replacement vehicles after a major wreck.

Even more, the surge in prices altered the mentality of car owners focused on the “break-even point” at which it becomes more costly to repair a car than buy a new one, Simons said. As the prices of new and used cars skyrocketed, car owners became more willing to swallow high repair costs.

PHOTO: A worker prepares to park a Tesla electric car at a Tesla dealership, on Jan. 16, 2024, in Burbank, Calif.

A worker prepares to park a Tesla electric car at a Tesla dealership, on Jan. 16, 2024, in Burbank, Calif.

Mario Tama/Getty Images, FILE

That dynamic caused a rush of demand for car repairs, leading to a shortage of workers and parts, raising the costs faced by repair shops and the prices charged to insurers.

Car repair prices climbed 7% over the past year, a rate more than double the overall pace of inflation during that period, BLS data showed.

Insurers have struggled to make up for expenses amid the sky-high prices for new vehicles and repairs, Jeff Rieder, head of insurance at research firm Aon, told ABC News.

“As much as people are being impacted by the increase in their insurance costs, it’s still not enough for insurers to cover their losses,” Rieder said. “Auto insurance has become an unprofitable business for most companies.”

Despite the forces pushing rates up, the pace of increases is expected to slow in the coming months, analysts said.

After rebounding from the pandemic-era car shortage, the auto industry has built up a glut of new vehicles, which should slow price increases for new cars, Simons said. That will ease the pain for insurers when a plan calls for a replacement vehicle and could soften demand for repairs as customers shift their break-even point, he added.

The labor and parts shortage facing repair shops is likely to persist, however, Simons said. Wider adoption of electric vehicles could also complicate the future of insurance rates, Simons added, since such cars require fewer parts but each one is relatively costly to replace or fix when compared with the components of a combustion vehicle.

“That’s a wild card,” Simons said. “I’m not 100% sure how this will go.”

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