Why is my car insurance not cheaper on renewal?
You have just received your car insurance renewal. You expected the premium to decrease, as the value of your car should have decreased. But contrary to your expectations, the insurance premium not only did not decrease, but increased in some cases.
The reason the premiums are not decreasing is due to exceptional circumstances the past few years in 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 a recovering economy, factories continue to struggle with getting new car production back on track. This has led to a reduction of 2022 new car sales in Singapore of over 30% (LTA Figures). This trend does not seem to be improving and with the scarcity of cars in circulation, car prices have been trending upwards. Some used cars are now even more expensive than when they were brand new, due to the demand and supply mismatch. Insurance is priced off the values of the cars, and higher car values result in higher premiums.
Singapore headline inflation for 2022 was 6.1%. However, motor insurance premium has been decreasing for the past decade. With a sudden shock high inflation, it is difficult for premiums to continue to lower any further. The reality for the automotive and insurance claims industry is much grimmer.
- Shipping rates shot up by more than 200%, with a severe shortage of containers. The automotive industry practices just in time inventory management, and they only order repair parts in from the manufacturer when they require it for repairs. Shipping parts in for repairs are now much more expensive (and longer!)
- Labour for automotive aftersales has traditionally been composited largely of foreigner talent from our neighbouring countries. Post COVID, many have chosen to return home, and to get new hires in as replacements would cost up to 20-30% premiums on salary.
- Chip prices has increased by more than 30% as demand drastically outstrip supply.
- As the prices of raw materials, such as rubber, steel, oil, etc. increase, so do the costs of manufacturing the replacement parts for the vehicles. Energy and raw material prices have been trending up for the past 2 years, and some of them are at all time highs, with increases of over 30% over prior years.
3. Regulatory changes to calculation of vehicle taxation
On 14th Feb 2023, the Singapore government announced a Revision to the Additional Registration Fee (ARF) Structure. Cars with an OMV (the approximate cost of a car before taxes) higher than $80,000 will incur an additional registration fee (ARF, or the main car tax) of 320 per cent. This is up from 220 per cent previously. This resulted in the prices of cars to rise in tandem with the tax increases, with most continental car brands being affected.
Insurance premium is a function of the car repair cost, which depends on the car price. This new tax structure has inflated the car price, therefore also increasing both car repair cost, and insurance premiums.
4. Exit of AXA insurance
In March 2022, AXA Insurance announced their exit from Singapore. AXA was the 2nd largest motor insurer in Singapore, and the largest and most competitive insurer for High End and Supercars. With their exit, the supply for insurance at a competitive rate for this segment was disrupted. Whilst a few other insurers (whom we are working with) are now coming in to fill the gap, it will take some time for them to get fully comfortable with this risk, and thus more competitive pricing.
Get Insured with the Right Help
Having an expert on your side to help you pick the right insurance plan and find the best price can be a big help. If you need help finding the right insurance coverage within your budget, consider working with an experienced broker like eazy. As a broker, we represent your interests, and it is our duty to research and present to you a suitable and competitive proposal for your car insurance.
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