October 6, 2009

How Cash For Clunkers Aided The Auto Insurance Industry

The Cash for Clunkers program recently ended, and with over $3 billion in federal funds used, it’s been one of the biggest economic programs introduced by the Obama administration. In the program, large credits of up to $4000 were given to consumers who traded in older vehicles with poor gas mileage for new vehicles. The goals of the program were to bring in new customers for the struggling auto industry, encourage purchases of new American cars with good fuel efficiency, and, at the same time, take some of the unsafe and ecologically unsound cars off of the roads. The program provided a much-needed revitalization of the car manufacturing industry in America. However, Cash for Clunkers also had a somewhat less-expected effect – it also provided a much-needed boost for the auto insurance industry, which has seen dips in profits over the last year.

New cars mean new insurance policies. As a variety of consumers traded in their old vehicles, auto insurance companies were able to better market and sell their services. Over 700,000 cars were sold under Cash for Clunkers, and legally all of them needed auto insurance in order to be driven – and in order for Federal stimulus money to benefit the new automobile owners. The auto insurance industry has received a fairly massive boost, with an estimated $375 million coming in from new policies that cover the cars sold during Cash for Clunkers.

The success of the car industry and the auto insurance industry are very closely linked. This has spelled out trouble for insurers, as car sales have plummeted in the bad economy. Insurance companies make money from new policies and investments with made with premium money, and hard losses to the stock market have decreased the profits derived from both. However, current trends are looking positive. Insurers are hoping that the new gains from Cash for Clunkers will continue to propel the industry. The additional policies will allow better investments and continued business that could ensure the long-term prosperity of auto insurance companies everywhere.

While it’s too late for drivers to profit from the Cash for Clunkers program, they can still take advantage of the lower average of auto insurance rates. It’s easy to do so by using Internet auto insurance comparison sites and a good head for negotiation. Further government stimulus plans for the automotive industry will likely provide additional profits to the car insurance industry. This means policyholders should regularly check auto insurance policies during recessions and comparison shop, as premium quotes are likely to shift. This is especially important when buying a new vehicle, regardless of whether you’re participating in a particular government stimulus program.