At Crowley Insurance we are asked this question all the time, “Why does my auto insurance continue to go up year after year when I don’t get in any accidents and my vehicle is getting older?”
Well the bottom line is that it’s not the insurance companies fault.
Yes, I said it, stop blaming the insurance companies like they are the only reason rates continue to rise.
The constant changing in insurance rates seemed to really start during and after the financial crisis in 2008. Even though we have made significant strides since then in improving our economy, insurance rates seem to be continuing to rise and consumers are left in the dark at why.
How Insurance is Calculated
Before I explain why, let’s go over the process insurance company’s use when calculating auto insurance rates.
First, you need to realize that rates aren’t solely based on what type of car you drive. Auto Insurance is based on hundreds of factors including but not limited to
- geographically (how likely you are to be in an accident due to where you live),
- your age,
- your sex,
- your insurance credit score,
- your driving history and
- what you had for breakfast.
Okay, maybe the last one isn’t true but it gives you the idea that almost everything plays a factor in how actuaries calculate risk and these are only a few of them.
Secondly, it is important to understand that you are not the only person the insurance company insures. Think of your insurance company has a large pool with millions of hands in the water. Meaning when your rates go up ,it usually has little to nothing to do with just you. It has to do with the entire pool of members and how much the insurance company paid out compared to how much you paid in.
So remember the next time your rates increase a few dollars each month, it isn’t the insurance company just picking on you. They are adjusting your insurance along with everyone else’s in the pool, this is also known as a rate increase. Base rates needed to be increased to help offset the rising costs of claims and expenses.
So now that you understand that you are just a piece of the insurance companies pie, lets dive into the rest of it. Insurance companies job are twofold. Their jobs are to collect money from millions of people to help spread the expense out and pay money out when needed for what is a called an insurance claim.
The problem is
- the average number of claims per year is rising each year,
- the average dollar amount paid out each year is increasing greatly, and
- the total number of fatalities have almost doubled in the 5 years.
What does this mean for you? Well easy, it means rate increases for everyone.
Now you may ask why are the number of claims filed each year increasing or why is the dollar amount per claim doubled. Well for once that is not the insurance companies fault.
This is where we will bring back the great recession of 2008. As you can see in the above chart the amount of miles people were driving were very low and the average age of the vehicles on the road were older. Since 2012, new car sales have greatly increased and you can see so has miles driven. This is not only going to cause more frequent claims it is also going to make the repairs costs soar.
Here is the thing, I am not writing this just to show you the law of numbers and stay the obvious but it definitely helps paint a picture.
Fastfoward to the Present
Here are the main factors behind the reason auto insurance rates continue to rise that NO ONE is talking about:
Distracted driving- In the old days it was a big no no, to even eat while driving. Now every time you pull up to a traffic light or look to the car on the left on the highway you will see someone texting or putting on their makeup.
Lawsuits- this should be obvious but how many of you know a personal injury attorney’s phone number by heart? Now after you think about it and say their jingle in your head, raise your hand. This just shows the power of advertising because I can’t even turn the TV on without seeing at least 3 different personal injury attorney’s commercials. Who do you think is paying for all of that, you guessed it, the insurance companies which means YOU.
Medical Costs- We all know the mess the health insurance industry is in and part of the reasons are very similar to the auto insurance industry. Increased medical costs have driven insurance premiums up for years.
Repair Bills- The cost to repair your vehicle has risen due to the high tech features each vehicle now has. No longer can you fix a bumper for $800 with the sensors and features they have. You need to replace more parts than repair and it the old days, that wasn’t the case.
As you can see insurance companies are not the only ones to blame in the ever changing world of insurance rates. The next time you or a friend decide to try and take advantage of the insurance company just remember it’s going to come back around and affect everything and everyone.
Even though the media tries to make it, Insurance is not a commodity.
Buying insurance from an Independent Agent will offer you choices. So when you are hit with the dreaded rate increase or tier change, they will be able to present multiple options for you. Don’t try and purchase insurance on your own, no matter how funny the commercials are or how cute you think the lizard is. Get advice from a professional to make sure you have the right coverage and the right price.