Picture this, you open the mail or your email and see your auto policy renewal and…WHAT, you are hit with a big increase! Now you know that you are a good driver, haven’t had an moving violations or accidents; didn’t buy a new car or add a driver or vehicle to the policy…so what in the world is going on? It may be little comfort, but it’s not just you. Since 2012, the consumer price index (CPI) for auto insurance rates has increase by 21.5% vs a 4.5% overall rise in the CPI! This represents the largest five year growth since the 30% increase between 1989 – 1993.
There are three primary reasons why you may see an increase in your auto rates.
- Accidents cost more. So? You didn’t have an accident so why would an increase in the payout per accident affect you? Progressive reported a five percent increase in the cost per claim for the first nine months of 2016 vs 2015. Part of this increase in the cost per claim is a national increase of 6% in fatal car accidents. A single fatal car crash can cost $6 million (these costs represent the cost of the accident, settlements and social impacts); plus medical care for post-accident injuries have increased 12% just since 2012. These are all factors when calculating your insurance rates. Accidents with non-fatal injuries cost an average of $126,000 (this does not include severe head/spinal injuries which range between $500,000 to $1 million).
- A drop in investment income. Like it or not, insurance companies need to be profitable and use a portion of their profits for investments. Historically insurance companies could off-set a poor underwriting year with healthy returns on their investment portfolio (primarily bonds). But since the most recent financial crisis, the returns on these investments have been very low and thus the “recovery pools” are extremely shallow.
- Extreme weather. Did you know that under your comprehensive auto coverage, your car is protected if it is damaged due to weather? Weather disasters that result in hail, tornadoes or flooding result in increased comp claims on auto policies. Between 2010 – 2013, the average damage, per year, was $9.5 billion for car damaged caused by these three weather events!
So what has to happen for you to see auto insurance rates “level out”? Forbes reports that it will be a combination of luck, improvement in economic trends and technology.
Unfortunately, in the Forbes “luck” arena we do not have direct control. Unfortunately, Hurricane Harvey may have guaranteed a delay in the “leveling” off of rates. Nationally we would need a decrease in weather events that result in comprehensive damage claims.
As a nation we also need to see a reduction in the number and severity of accidents. Of course the increase in the number of drivers hitting the road every year correlates to an increase in opportunity for accidents. Given this increase in the population of on our roadways it’s imperative for each one of us to be more aware and courteous drivers. We ALL need to adhere to all driving laws, PUT DOWN our mobile devices and slow our speeds. Heck, you could even think of leaving the car home and using your bicycle or your feet for trips or errands that are close enough to home!
On the tech front, there are indications that self-driving cars could reduce road accidents. The National Highway Traffic Safety Administration (NHTSA) have previously reported that 94% of vehicle accidents are due to human operator error. But the jury is still out on how much safer autonomous vehicles will be on our roads, especially since these autonomous vehicles are not expected to be fully implemented until 2030. Only extensive testing, time and really secure software will tell.
So what can YOU do given all of these contributing factors that you can not control? Be an aware and safe driver; combine your home and auto policies with the same company or agency (many companies offer a multi-policy discount even if you have two different companies with the same agency). Keep your credit in good standing. According to Consumer Reports, a poor credit history can have a larger impact on your rates than an average speeding ticket!