The purpose of Cash for Clunkers was to encourage drivers to trade in their old high-emissions vehicles for a $4500 voucher towards a newer, environmentally-sound car. As the program finished its run last week, many auto insurance providers were expecting to see their profits increase, as these new cars call for higher insurance premiums.
It has been estimated that Cash for Clunkers will result in a $375 million increase in revenues for various car insurance providers across the country. “When they buy new vehicles, the insurance generally will cost more”, said Robert Hartwig, president of New York’s Insurance Information Institute. “It’s a newer vehicle and people will normally take out full coverage of the car. Any insurer would stand to gain”.
Recently, insurance providers have felt the pinch of the recession, with costs increasing and fewer consumer purchases. Over the past three years, car sales have fallen from $16 million in 2006 to $9.1 million in February 2009. This has had dire effects on the insurance industry, as Progressive Insurance has not experienced quarterly net income profits since 2006.
The Cash for Clunkers program was created to stimulate the auto industry, with automaker and auto insurance markets seeing a corresponding increase in sales in 2009. The U.S. Transportation Department has noted that the program, which was launched in July, has resulted in nearly 700 000 new car sales.