Your Auto Insurance Rates May Not Be All Your Fault
Our current economy means more people are employed, earning money, and driving more miles. Unfortunately more miles being driven means more auto accidents. (INSURANCE INFORMATION INSTITUTE, “More Accidents, Larger Claims Drive Costs Higher,” October 2016.)
Auto accidents in Arizona have jumped 16% the past few years, leading to a substantial increase in serious injuries and related costs. (Arizona Department of Transportation, “Crash Facts for the State of Arizona,” June 2017.)
Vehicle repair costs increase with inflation, and newer autos equipped with the latest technological gadgets – such as computers, sensors, and back-up cameras – are much more expensive to repair.
If your auto insurance premiums surged the past two to three years, 2018 may be even worse. Auto insurance companies posted another year with bleak profit margins due to more car crashes and disastrous weather. That means more rate increases – even for crash- and citation-free drivers.
Why Are Auto Insurance Premiums Climbing?
To stay viable, businesses, including auto insurance companies, must take in more money than they pay. The auto insurance companies make money from the premiums their customers pay (and investing that money) and would rather keep their money than pay their customers’ damage claims. They also have operating expenses to pay, including – as you frequently see on TV – advertising.
Even if you have never had an accident, your rates are still going up because the auto insurance companies are trying to recover from past losses and poor decisions. For example, if an untimely deep freeze hits the Florida citrus crop, orange juice prices will be going up to help the farmers make up for their losses. It is the same principle with your auto insurer.
The auto insurance companies claim their rate hikes have not closed the gap between profit and loss. Most of the major auto insurance companies increased their written premium revenues in 2016, mostly due to rate hikes, but still claim higher loss ratios. The current trend is the companies are getting further from turning profits again. Even after three solid years of increases, the companies claim they are still losing money.
Why Are the Auto Insurance Companies Losing So Much Money?
In their financial statements, GEICO, Progressive and Allstate blame bad weather as a significant source for their losses. In its financial statement, Progressive claimed catastrophe losses as of the end of the third quarter were “$121.0 million greater than in the same period last year,” with $85 million attributed to 2016’s Hurricane Matthew.
Comprehensive claims that result from catastrophic weather can average upwards of $1,700 per claim, according to the Insurance Information Institute, so those figures may make sense given the number of people affected by a hurricane. The floods in Louisiana also ended up costing insurers millions. The weather, however, is not the only reason.
Auto crashes happened more frequently, more than they have in almost a decade. The National Safety Council found that fatal motor accidents went up 6% from 2015 to 2016, for a total of 40,200 fatalities – the most since 2007. The National Highway Traffic and Safety Administration blames distracted driving (HINT: texting) as a major reason for the increase in fatalities. More disasters and more crashes equal more claims, thus more payouts from the insurers.
How Much Will Car Insurance Cost in the Future?
What you will pay for future auto insurance will most likely be more than what you are paying now, even if you have a spotless driving record.
The trends leading to more crashes – more drivers driving more miles, and those drivers being distracted with texting – show no sign of stopping. Other important factors like severe weather are difficult to predict. While scientists may be able to predict a more or less active hurricane season, they cannot predict if those storms will hit the United States. So even if the hurricane season is below average as to the number of storms, if the number of storms that hit the United States is above average, the property damage costs would be enormous and an even heavier burden on the insurers.
Thinking optimistically, if weather turns out to be less damaging, or something caused drivers to drive less, the insurance companies may start to see better profits margins again. Whether they would keep rates down is another question.
What Can You Do?
Understand what auto insurance coverage you need, and how much, and shop around. Auto insurance companies may lure you in with low premiums, and hope you will not pay close enough attention to your renewal statements that arrive every 6 or 12 months. If you compare your renewals to your existing premiums, you will see when you get hit with a rate increase, and if no explanation is given, it may be time for a new insurance company.
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