MONDAY, JANUARY 16, 2017
Why did my Auto Insurance rate go up?
by Justin Honey (President, Absolute Integrity Insurance)
So, we've heard it over and over again... my car is another year older, I've had no claims or tickets, I've been with your Company for 10+ years... and my auto insurance rates keeping going up. We are happy to address this, when this happens, on a case-by-case basis but I wanted to write this article to explain what is happening in the industry right now. It is unlikely that much will change that could reduce average base rates in the near foreseeable future, so I wanted to discuss why rate changes happen and things you can do to ensure you're maintaining coverage that adequately protects you, while remaining affordable.
Industry Loss Ratios on the Rise
Over the past 5 years, auto insurance industry combined ratios are up over 102% collectively in the U.S.* Combined ratio includes the combination of claims expenses, loss payouts, and operating expenses measured against actual incoming premium dollars. At 102%, auto insurance has been operating, as a whole industry, at a loss for a while. Accident frequency is on the rise which doesn't help the situation.
Automobile Purchases and Usage on the Rise
In 2015, new vehicle purchases hit a record high. During this year, 17.5 million new vehicles were purchased!** This coupled with reduced and/or stable gas prices means more vehicles are on the road and more miles are being driven. We are seeing the greatest increase in driving activity in our country than we have in 25 years!***
Texting While Driving Increasing
It has been stated that even people who text while driving get mad at others who text while driving. According to the National Highway Traffic Safety Administration, while fewer people are talking while driving, more people are texting and surfing the web while driving than ever before. Also, they note that 10 percent of fatal crashes are the result of distracted driving, and 17 percent of all crashes (including non-fatal crashes). These are huge numbers! If distracted driving was eliminated or significantly reduced in our country, it could in time hypothetically result in a 10-15% reduction in auto insurance rates (as claim costs decrease as a result of fewer accidents). While I don't think we'd live in a culture that would embrace a total abstinence from texting while driving, if litigation was strongly enforced that prevented these types of things, it could have a positive impact on what we all pay, collectively, for auto insurance.
Overall Claims Cost Inflation
Inflation impacts everyone, including medical provider costs, body shop costs, attorney fees, etc. Injury costs are on the rise by 5-6%, repair costs are up 5-7%, and traffic fatalities have increased up 7.2% according to the National Highway Traffic Safety Administration. These all have a direct impact on what gets paid out with each auto insurance claim. As these costs rise, so do the base costs for insurance. These base costs for insurance ensure that claims are able to be paid out in a fair and timely manner.
Even though cars get older, the parts that are purchased to repair them don't depreciate like a vehicle does (for example, it costs more this year to replace a bumper on 2000 model vehicle than it did last year, even though the 2000 model vehicle is a year older now).
So what can I do about it?
This is a great question! Don't ever doubt that your safe driving history helps your rates, because it does (quite significantly). While base rates may go up due to claims costs rising quite heavily, additional rate impact is present when there is a history of tickets or accidents in the past 3-5 years of driving history. Remaining a safe driver can help minimize rate increases.
Does my loyalty to my insurance company matter?
While rates may fluctuate up and down over time, your loyalty definitely matters! Absolute Integrity Insurance carriers offer programs such as incident leniency (which minimizes the impact of a new ticket for existing customers only), renewal and longevity credits (discounts just for being a renewal customer), youthful driver leniency (this is a big one! Existing customers may see a smaller impact than new customers when adding a teenage driver to the policy).
What other options are there?
Some of our carriers offer the option to purchase Accident and Violation Forgiveness, which helps protect your auto insurance rate from increases due to violations or accidents. Contact us to see if this option is available on your policy (if not currently on there).
If your budget is fairly tight and needs some relief, you could consider raising your Policy Deductible. Many of our carriers offer options between $250, $500, $750, and $1000, all of which could save you money if you currently carry a lower deductible.
Most of carriers also offer other device-based programs that can give significant discounts up to 40% off. These devices monitor miles driven and/or how well you drive and give a personalized discount based upon a short driving assessment time (usually 90-120 days with most companies, as long as 11 months with one of our carriers). We are happy to discuss the details of these programs. As of the writing of this articles, programs like these are available for our Travelers, Safeco, Nationwide, and Progressive auto insurance clients. Additional programs with other companies may be available in the future.
What do you NOT recommend to save on insurance costs?
The one thing our firm strongly believes is we do not recommend lowering your liability limits, in any case. The cost to maintain high liability limits is minimal, and in a sticky claim situation (especially one involving injuries and attorney costs) you will be glad you opted for higher liability limits. It's difficult to control your out of pocket costs if you get sued. An alternative is higher deductibles, a higher deductible is a small increase in a fixed cost that is the maximum you'll pay out of pocket for body shop repairs after a collision or comprehensive claim. In contrast, with a liability claim against you, what seems like a small fender bender could result in tens of thousands (if not hundreds of thousands) of dollars out of your own pocket. This is why our firm highly recommends maintaining significant liability limits.
While a quote from a No-Name 1-800-# or website may seem attractive, we highly recommend that you contact us for a policy review first if you're thinking about obtaining quotes elsewhere. The reason is, here at Absolute Integrity, we have your best interests at heart. We write through multiple insurance carriers and have many options. Additionally, many of the online and 1-800-# insurance companies don't provide anywhere near the same level of coverage standards that we do, nor the same level of service that you can expect from us.
Additionally, rates are up across the entire industry, not just with one or two companies.
What type of impact can I expect?
This is a challenging question to answer. Every customer has their own set of unique variables that determine their auto insurance rate (including driving history, mix of drivers in the household, mix of vehicles in the household, credit history, tenure with your company, homeownership status, etc.).
Certain customers may experience rate decreases. Other customers may also see rate decreases as violations or accidents age off.
Many customers will see some increases as well, which we expect to be minimal (5-8%) but consistent across the board. Most of our insurance carriers that we represent have notified us of changes well under 10% to the base rates this year. The variety of factors (including credit history, driving history, etc.) determine how much impact any rate change will have.
As a final note, we encourage our clients to contact us if there are any concerns. We value the relationship that we've been able to establish with you and we are here to help navigate you through the challenging and complex insurance marketplace. Our firm offers policy reviews, deductible reviews, coverage assessments, and even a look at other policy options if necessary. Our firm writes for nearly a dozen insurance carriers, all that are exceptionally well-rated and provide industry-leading claims service.
* Insurance Information Institute, 2016
** Strategy & Price WaterHouse Coopers, 2016 Auto Industry Trends
*** U.S. Department of Transportation's Federal Highway Administration