Why is my Car Insurance not Cheaper on Renewal?
Upon receiving your car insurance renewal, you may have gotten a shock. You may have anticipated a decrease in the auto insurance premium, given the decrease in your car's value. However, the insurance premium not only did not decrease, it has increased in some instances.
This car insurance premiums increase can be attributed to exceptional circumstances in recent years within both the global and local economy.
1. COVID-19 and car shortage
When COVID-19 brought the economy to a halt back in 2020, automakers cancelled orders for semiconductor chips. Despite the economy recovering, factories continue to struggle with the challenges of restoring new car production to its former capacity.
As a consequence, the number of new car sales in Singapore for 2022 has dropped by over 30%, according to LTA figures.
Unfortunately, this trend shows no signs of immediate improvement. With the shortage of cars in circulation, car prices have been on an upward trajectory. Some used cars now command higher prices than when they were brand new, due to the demand and supply imbalances. Since insurance premiums are calculated based on car values, the surge in car prices results in higher premiums.
2. Impact of inflation
In 2022, Singapore’s headline inflation soared to 6.1%. For the past decade, motor insurance premiums have been on a declining trend. The recent sharp rise in inflation has made it increasingly challenging for these premiums to continue decreasing. The situation for the automotive and insurance claims industry has become notably more challenging.
- Soaring shipping costs: Shipping rates shot up by more than 200%, with a severe shortage of containers. The automotive industry practices a just-in-time inventory management system, meaning they order repair parts from manufacturers only when necessary. Consequently, shipping parts for repairs has become significantly more expensive and time-consuming.
- Labour shortages: The workforce for automotive aftersales has traditionally relied heavily on foreign talent from neighbouring countries. The post-COVID landscape has seen many of these individuals returning to their home countries. New hires for replacements come at a premium of 20-30% on salaries, further impacting costs.
- Chip price surge: The demand for semiconductor chips has drastically outstripped the available supply, leading to a more than 30% increase in chip prices.
- Rising raw material costs: The prices of energy and essential raw materials like rubber, steel, and oil have been increasing for the past two years. Some of these materials have reached all-time highs, with increases exceeding 30% compared to previous years. As these raw material costs rise, so do the costs of manufacturing replacement parts for vehicles and the overall operation of the automotive industry.
3. Regulatory changes to calculation of vehicle taxation
On 14 February 2023, the Singapore government announced a Revision to the Additional Registration Fee (ARF) Structure. Cars with an OMV (the approximate pre-tax cost of a car) higher than $80,000 will incur an ARF of 320%, up from the previous 220%. This change directly led to an increase in car prices, particularly affecting continental car brands.
Insurance premiums are linked to car repair costs, which depend on the vehicle’s price. This new tax structure has inflated the car price, subsequently increasing both car repair costs and insurance premiums.
4. Exit of AXA insurance
In March 2022, AXA Insurance announced its withdrawal from the Singaporean market. AXA was the second-largest motor insurer in Singapore and held a prominent position as the leading and most competitive insurer for high-end and supercars. With their departure, the competitive landscape for insurance in this segment was disrupted.
While a few other insurance companies are entering to fill this void (whom eazy are also working with), it will take time for them to get fully comfortable with the higher risks and offer competitive pricing.
Get insured with the right help.
Having an insurance expert by your side can make a significant difference when picking the right insurance plan and finding the best price. If you need help finding the right insurance coverage, consider working with an experienced broker like eazy.
Our team can advise you on various insurance plans, including motor, health, corporate, lifestyle, and marine coverage. Speak to us today to get your insurance needs covered!