Why Are Car Insurance Prices Rising?

By: William Forbes

Being an insurance agent, I get asked every day, "Why is the cost of my car insurance going up?" And, the majority of the time this question isn't even coming from one of my clients. I get asked by friends, family, my supermarket cashier...it seems to be a question on everyone's mind.

Believe it or not, there are some very specific reasons for the increased cost of auto insurance; and none of them have to do with insurance companies being out to get us (I hear this suggestion quite a bit as an agent, too).

Forbes recently published an article (link here) that does a nice job of explaining some of the reasons. As stated in the article, "the driving force in the upward march in premiums is an auto insurance industry that’s been finding it increasingly difficult to sustain healthy profit margins."

This means auto insurers are finding it difficult to make a profit off insurance premiums, when the expense of running an insurance company is considered.

The article points to a few main reasons why profits have been down for insurers:

  1. More costly accidents. Both the severity of accidents and the number of fatal car accidents have been trending upward. So, fulfilling these types of claims, particularly those that include high medical costs, is very costly.
     
  2. A decline in investment revenue. The article explains that insurance companies hold large investment portfolios, and when interest rates and investment income is lower, they can't offset losses.
     
  3. Bad weather. As comprehensive claims from bad weather (tornadoes, hail, flooding) continue to rise, so does the amount insurance companies pay out to their insureds. I would also add to this that cars are getting more expensive to repair - the cost of parts is increasing, and added technology features make what used to be simple repairs, more costly. For example, windshields now have cameras in them, and this increases the cost of replacing them.

For a deeper dive into these three points, check out the full article on Forbes.com. And, if you have questions about your policy, always feel free to contact your agent.

(Here is the full link to the article: https://www.forbes.com/sites/ccasazza/2017/05/23/why-are-car-insurance-rates-still-going-up/#3315a8cb7753)

A Low Credit Score Could Mean Higher Home Insurance Costs

By: Nicole Vattimo

Earlier in the month, HuffPost published an interesting article (link here) on how our credit scores impact our homeowners insurance premiums. The article dissects a study completed by Quadrant Information Services. It's probably not surprising that the study found there is a direct correlation between a poor credit score and a higher homeowners insurance cost. What surprised me, however, was just how much higher your insurance premium could be if you have a lower credit score, when compared with someone who has a high score.

According to the article, "The study found that if you have a fair (i.e. median) credit score, you may pay 36 percent more for home insurance than someone with excellent credit. That’s up from a 32 percent increase in 2015 and 29 percent in 2014."

So, not only are you paying more for home insurance if you have an average credit score, but exactly how much more is increasing over the years.

"What’s more, if you have poor rather than excellent credit, your premium more than doubles, increasing by an average of 114 percent (up from 100 percent in 2015 and 91 percent in 2014)," says the article.

What percentage more you will pay if you have less-than-stellar credit varies state-by-state, with some states weighing a credit-based insurance score more heavily than others. The article lists the states that place the most importance on credit score, and explains what goes into calculating your credit-based insurance score.

The article also discusses why insurance companies use credit-based insurance scores. In short, credit scores are predictive of loss behavior. Meaning people with lower scores tend to have more insurance losses.

Interestingly, there are three states, California, Maryland and Massachusetts, that ban the use of credit in setting home insurance prices.

The article discusses the arguments against using credit score in insurance. The top arguments against this practice: (1) it is unfair to consumers in lower socio-economic demographics, and (2) "there’s no uniformity or standardization to how this data is used" since different insurers weigh credit scores differently. Meaning some may consider them heavily, while others don't.

Since we are all consumers of insurance, in some way or another, I think it's a very worthwhile read to better understand what may impact your premium, and what is happening in the insurance industry at large.

Full link to HuffPost article: http://www.huffingtonpost.com/entry/why-poor-credit-can-triple-your-homeowners-insurance_us_590b4c30e4b046ea176ae88b

Claims Increase the Cost of Insurance

By: William Forbes

In last week's blog, I shared a story from Crain's Chicago Business, which said State Farm has just reported its worst year ever in terms of claims reported and the amount of money it lost insuring cars. The article hit on a number of trends insurance agents are seeing across the industry - distracted driving is leading to increased claims, and the increased claims are driving the price of insurance up for all of us. Even those of us who do not report claims are feeling the effects, as insurers raise rates for everyone in an effort to maintain profitability.

And, now, on the heels of that article, NBC News 10 recently published findings from an annual study conducted by insuranceQuotes that indicates people pay more for insurance after reporting a single claim. The article says specifically, "drivers now pay an average of 44 percent more for car insurance after making a single claim of $2,000 or more." Reporting a second claim is even more costly.

I'm not writing about these articles to scare people away from reporting claims. There are times when insurance claims are necessary, and in those cases, that's why you pay for insurance. The point I would like to make, however, is that you should really have a detailed discussion with your agent before you report a claim. Having a conversation with your agent is an important part of managing your finances. The fact is, reporting claims will result in higher insurance premiums, and possible surcharges.

More broadly, the increase in claims across our state have caused insurance premiums to go up for everyone. Even if you don't report claims, your bill is being affected by these industry trends. That's why it's so important for us, as a community, to put an end to distracted, aggressive, and unsafe driving.

Check out the NBC article here: http://turnto10.com/i-team/consumer-advocate/study-looks-at-impact-of-claims-on-car-insurance-rates 

What to Know About Insurance Startups

By: William Forbes

In today’s consumer landscape, instant service, customization, and the ability to “do it yourself” are supported through web-based stores, communities, and applications. The insurance industry has taken notice. We are starting to see new and non-traditional insurance startups, which are hoping to address some of these customer demands through their unique web-based offerings. Recently, Forbes published an article (link here) on a company called Slice. Launched only in beta form for now, Slice is an on-demand insurance company that provides affordable policies for customers participating in home-sharing services, such as Airbnb.  

There was also recent coverage on CNBC (link here) of a peer-to-peer, online insurance company called Lemonade. In peer-to-peer insurance, members are grouped by specific factors (usually the type of policy they have), and claims are paid from the group’s pooled money. In the case of Lemonade, members are being grouped based on their philanthropic interests, with the added benefit of being able to donate unused premium to selected charities.

It’s great to see the insurance market expanding and evolving. But, my first concern is always for the individual consumer, my clients. So, for those of you thinking about trying out a new insurance company or application, I recommend considering a few things to protect you and your family (Click to Tweet!):

1. What do the company’s financials look like?

The financial health of an insurance company is a huge factor to consider, because it determines whether the company will be able to handle clients’ losses and pay out the appropriate amount for claims.

2. Does the company have reinsurance?

Reinsurance insures an insurance company from catastrophic losses such as tornadoes or hurricanes. This coverage protects the insurance company from significant claims or events that may make the company insolvent. Reinsurance ensures the customer will receive coverage for a loss, no matter the situation.

3. What is the company’s A.M. Best rating?

This rating measures the creditworthiness of an insurer, and is another indicator of the company’s financial health.

4. How long have they been in business?

Length of time in the marketplace is another sign of a company’s suitability. It’s great to be the first to try something, but, I wouldn’t advise my clients to roll the dice when it comes to insurance. You want to know you and your personal property are covered when you purchase a policy. 

Look up in the Sky! It's a Bird, it's a Plane, it's your Insurance Agent?

By: William Forbes

When I saw this article on drones in The Motley Fool, I have to admit I was pretty excited. It spoke to the business owner in me and the gadget-lover, who will always geek out over the latest technology. Additionally, it's not very often that insurance is "cool," perhaps the tide is turning!

The article proposes that the insurance industry could find significant savings by using remote-controlled drones. It suggests that drones could help with reducing fraud, evaluating risks, and collecting data to reduce losses. It's an interesting idea, particularly the bit about data collection. If insurers had better ways of predicting exposures and losses, they could better tailor rates to individuals. That means the potential for lower rates for consumers. You can't argue with that.

I'm sure the industry will have to address privacy and security in regard to drone use. There are plenty of people who would have concerns about drones collecting footage of their property at any time. But, another possible benefit, use of drones could potentially speed up the claims process for customers. Rather than waiting on an adjuster to drive out and survey the damage, agents could start collecting information on the claim immediately with a drone.

It'll be interesting to watch this industry trend develop.

Here is the full link to the article: http://www.fool.com/investing/2016/09/22/3-ways-drones-will-change-the-insurance-industry.aspx