Insurance analysts have noticed a sharp spike in the demand for car insurance as the Car Allowance Rebate System (CARS) federal program draws to an end today.
Popularly known as the “cash for clunkers” or simply “clunkers” program, the CARS initiative run out of financial resources sooner than expected. Congress initially allotted $1 billion to finance new car purchases. The federal government launched the program to help boost car sales by offering substantial tax credits to Americans who want to trade in their aging vehicles. Car owners who qualified were then given anywhere from $3,500 to $4,500 in tax credit to help buy newer and more economical cars.
Under the program, drivers who traded in their clunkers in exchange for gas-sipping cars received the maximum $4,500 amount. However, the new vehicles they plan to buy must have at least a 10 mpg improvement over their old cars for them to receive the maximum amount allowable.
Car dealers across the U.S. were swamped with hundreds of thousands of motorists looking for new cars. In fact, reports indicate that the program generated 457,000 car sales, totaling to some $1.9 billion. Just a few days into the program, the federal government had to suspend the initiative amidst fears that the initial $1 billion would run out much sooner than anticipated. Congress than allotted another $2 billion to give more Americans the chance to buy new cars and hopefully jumpstart the car industry.
Insurance companies were also on a roll in recent weeks as new car owners compared quotes and searched for new car insurance. The sudden influx of motorists looking for insurance raised hopes that the additional revenues would help the ailing industry get back on its feet.
An ongoing price war among insurance providers is also forcing insurers to offer rock-bottom prices to attract new customers. Increasing numbers of college students looking for affordable insurance policies have also resulted in providers slashing rates to lure potential clients. With the sudden increase in demand for car insurance as a result of the clunkers program, industry sources expressed optimism that the influx of potential clients can help ease the tough competition and give insurance companies the opportunity to raise premiums.
Analysts also said that because insurance providers are offering considerably low rates, their willingness to offer substantial payouts during insurance claims can be dampened greatly. Specialists say that the insurance industry needs to balance the needs of policyholders with their need to make a profit and stay afloat.