No Deal Left Behind
Auto insurance rates are finally leveling out, which could ease consumers’ wallet woes.
The end may be near — in a positive way.
We told you not too long ago that dealers were losing sales or even having vehicles returned when customers received insurance quotes. A new report by the auto insurance platform Polly – Q3 2024 Embedded Auto Insurance Report – reports analysts believe insurance rates have leveled off and may actually begin to decline.
“Dealerships have a unique window to optimize their F&I strategies as insurance rates stabilize,” says Mike Burgiss, chief marketing officer at Polly. “By introducing competitive insurance quotes directly to customers, dealerships can enhance the car-buying experience and drive additional sales in their F&I departments.”
To break that down: Polly analysts reviewed more than 400,000 insurance quotes and found the average monthly insurance quote in Q3 of this year was $199 – 0.4% lower than the previous quarter. That might not seem like cause for celebration until you remember that shows insurance prices are stabilizing.
What that means for your F&I: Clearly, it’s early days but dealers who offer insurance quotes had 18% higher back-end gross profits compared to those who didn’t in Q3. With incentives high, dealers need that back-end gross, which Polly reports is 59% of total vehicle sales gross profit. And, perhaps just as important, stable insurance rates can help keep deals viable, so fewer are left on the table.
Of course, insurance rates are still high – they’ve risen 52% over the past two years with the average monthly Q3 quote clocking in at $199. But consumers are looking for any cost savings available.
Rick Gorvett, a fellow of the Casualty Actuarial Society, reports several factors have led to what he calls the “perfect storm” that led to skyrocketing insurance rates not seen since the economically turbulent 1970s. Those factors include:
Insurance Industry Cycle: The insurance industry follows a well-known cyclical pattern. In 2022 and into 2023, insurers saw significant underwriting losses. Over the past year, they’ve been working to bring rates up to sustainable levels.
Supply Chain Disruptions: Supply chain issues during and after the pandemic, especially shortages of computer chips and other critical parts, created bottlenecks for car production. This led to price hikes for both new and used vehicles, with rising vehicle values contributing to increased insurance premiums.
Rising Repair Costs: Modern vehicles, equipped with advanced electronics and integrated components, have become more expensive to repair. Unlike in the past, repairs often require replacing entire assemblies rather than smaller parts, further driving up costs.
Social Inflation: Insurance losses are rising faster than general consumer inflation due to social factors like increased litigation and higher tort awards.
Changes in Driving Habits: There’s been evidence, even before the pandemic, that driving behavior – particularly distracted driving – has led to more frequent accidents and fatalities.
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