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|Why Are Auto Insurance Prices Rising?|
Inflation will cause the price of all insurance policies to rise slowly, but you may have noticed that your auto insurance has risen more than normal lately. Most lines of insurance cycle between soft and hard markets over a number of years, which has a direct impact on the price you pay. The auto insurance market is currently hardening after many years of a soft market, which has resulted in higher prices for personal auto policies.
The cost of insurance is affected by many factors in the overall marketplace. Your driving record is just one of them. We are currently seeing a combination of factors that are causing rates to rise.
More Drivers More Problems
The number of accidents has risen due, in part, to an increase in unsafe driving practices. According to the AAA Foundation for Traffic Safety, about 87 percent of drivers admitted to engaging in at least one risky behavior while behind the wheel, such as texting, reaching for objects, using a GPS touchscreen and not wearing seatbelts. The National Highway Traffic Safety Administration indicated that one in four accidents involve cell phone use.
More people take to the road thanks to low gasoline prices and rising employment rates. Coupled with an increase in new car sales, people are driving more miles and putting more time inside their vehicles. More vehicles, more drivers, more questionable driving practices, typically leads to an increase of auto insurance accidents.
The number of accidents isn’t the only factor affecting auto insurance claims. The size of the average insurance claim—also known as claim severity—has increased as well. The three largest drivers of claim severity include the increase in the costs of medical care, auto repairs and auto parts. According to a recent study by CarMD, the largest repair cost comes from replacing the expensive technology and safety devices that are common in newer vehicles. For example, car bumpers are now being replaced that have cameras and built in sensors. Per Certified Collateral Corporation:
Honda Accord Rear Bumper: In 2005 $818 vs today $1,162
Mercedes E320 Headlight: In 2005 $1,145 vs today $3,212
In addition, the increased use of alternative materials in car manufacturing such as aluminum, carbon factor, and high strength steel are also contributing to increased costs. Car repair facilities are incurring additional costs to build separate facilities and certify repair technicians to work on alternative materials. For example, you can’t mix aluminum and steel dust, as it becomes explosive. Repair facilities that work on vehicles with aluminum frames are forced to build redundant repair shops.
Auto insurance is required in most states as a way to cover your own liability and provide compensation to others in the event that you’re responsible for an accident. Despite this, approximately 13 percent of drivers drive uninsured.
Unfortunately, it’s the drivers who follow required insurance laws who end up paying the price in the form of uninsured motorist coverage. According to the Insurance Research Council, uninsured claim payments have risen by 75 percent over the past 10 years, resulting in a $14 premium increase for every insured individual.
Insurance is meant to protect you in the event of an accident, but many criminals try to illegally use insurance policies for their personal gain. Most fraud schemes involve a policyholder faking an injury and blaming a third party, or conspiring to cause an accident that can be blamed on someone else.
Although insurance carriers attempt to uncover the truth during all insurance claims, the Insurance Information Institute estimates that insurance fraud costs the United States $32 billion per year. Unfortunately, much of this cost is transferred to law-abiding policyholders.
Although autonomous vehicles that can drive themselves have the potential to save lives and reduce injuries, they could also decrease the personal automobile insurance sector to less than 40 percent of its current size. While this change should be gradual, many insurance carriers are anticipating a shrinking market which could have an impact on the rating.
Keeping It All In Check
In summary, the cost of insurance is affected by many factors in the overall marketplace. In addition to the normal rating factors, insurance companies are seeing an increase in more costly accidents and claims. Thus, carriers will make small rate changes in order to compensate for the increases.
Your Personal Lines Insurance Advisors are aware of these changes. We are here to help make sure that you and your family are in the best insurance program. With each annual renewal, we find that our clients are taking advantage of available discounts such as good driver, loyalty, low mileage driving, accident forgiveness and multi-policy discounts. These savings ensure that clients receive the best rate possible with the best suited carrier for their insurance needs.