What’s Up with Auto Insurance Rates?

April 11, 2018

If you have seen your auto insurance rates increase in the last few years, there isn’t much good news in store for 2018. Auto insurance companies posted another year with slim to negative profit margins due to increased frequency of car accidents and storms. The likely result will be more rate increases in the coming years–even for good drivers.

Why Are Auto Insurance Rates Continuing to Climb?

Like any business, companies need to sustain higher revenue than expenses in order to stay viable. Auto insurance is no different; companies make money off of the premiums customers pay, but lose money when they fulfill their obligation to pay for their customer’s damages. They also have a host of operating expenses to pay, including agent compensation and advertising.

The proportion of expenses to revenue is called the “combined loss ratio,” and whenever it is above 100%, the company loses more money than it is earning. In 2016, only two of the top 10 auto insurance companies in the country had combined ratios below 100%–and just barely.

So even if you have never been in an accident, your rates are still going up because the auto insurers are trying to bring their ratios back below 100%. Imagine a major drought destroying part of a farm’s crops, and then the farm charging more for the crops that survived in order to make up for the ones they lost–it is the same principle with your auto insurer.

Why Are the Auto Insurance Companies Losing So Much Money?

More storms, more cars, more people driving and more distractions.

2017 was the second highest year ever recorded for natural disasters in the U.S. with upwards of $330 Billion dollars in damages as a result of catastrophic storms. Comprehensive claims, the ones that would result from catastrophic weather, can average upwards of $1,700 per claim according to the Insurance Information Institute, so those figures make sense given the number of people affected by a hurricane. It’s not just the weather though.

People are crashing more than they have in nearly 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 due to texting as a large source for the increase in fatalities.

More disasters and more accidents are leading to more claims, thus more payouts from the insurers. In 2017, the number of households with at least one auto insurance claim in the past three years increased by 3,869,969 compared to the same statistic in 2014. In 2017, 22.2% of households had at least one auto insurance claim, while 20.5% had one in 2014. Nielsen, which compiled the data, projects that by 2022, 22.5% of households will have at least one auto claim.

What can we do about it?

Well, sadly it might not be entirely up to you, but the auto manufacturers themselves. According to a study by KPMG on the effect of autonomous vehicles and its impact on auto insurance, they predict that by 2050 the auto industry will see a 90 percent reduction on auto loss frequency and a decline of $137 billion in claims paid out.

And don’t forget that Ted Marty & Associates is an independent insurance agency, representing many top rated auto insurers which means that we have more OPTIONS to shop for the best rate for you. We also understand the various discounts that you may be eligible for and leverage those discounts with a carrier that matches your needs. Another way to preserve your rates is to self-insure on the small claims, those that are at or near your deductible.

Meanwhile, put your cell phone down and keep your eyes on the road. Safe travels this summer!