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)

Insurance Concept of the Week: Merit Rates

Each week we will post and define an industry term or concept for our readers.

To continue our discussion on rates, a merit rate considers the characteristics of a particular risk, and depending on those characteristics a premium can be increased or decreased. Merit rates take into consideration a person's loss history, as well as steps he/she has taken to prevent loss, such as installing a smoke detector in a home.

Check out our previous posts on: (1) what is a rate (link here), and (2) manual/class rates (link here).

Insurance Concept of the Week: Manual or Class Rates

Each week we will post and define an industry term or concept for our readers.

Continued from last week's discussion on rates (link here), manual or class rates group insureds into classes based on similar characteristics. These classes receive the same rate. Manual rates are often used as the starting point for developing merit rates, which we will look at next week.

Insurance Concept of the Week: Rate

Each week we will post and define an industry term or concept for our readers.

There has been a lot of coverage in the news recently about insurance rates. So, we are going to use the next few "Concept of the Week" posts to look more closely at insurance rates and how insurance companies arrive at them.

A rate is a price per unit, and it is used to determine the total premium of an insurance policy. Rates establish a price structure to cover claims and other insurer expenses, as well as provide profit for the insurer.

Next week we will start looking at some of the different types of rates used by insurers.