Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
If the cost of auto repairs hasn’t increased and damages awarded in lawsuits hasn’t increased, auto insurance probably shouldn’t increase. Your state insurance commissioner keeps a close eye on insurance cost in your states. He does this for two reasons. The first is to make sure that the public isn’t being charged too much and the second is to make sure that the insurance companies are taking in sufficient money to honor all of the promises that they have made.
The real cost of automobile insurance is determined when you have a claim. If the policy limit is exceeded and angry people are suing you, you paid too much for your insurance. If your policy had high limits and took care of everything, then you bought cheap insurance. Having to settle a claim out of your own pocket is the most expensive form of insurance that you can purchase.
The reason that insurance premiums increase is that the company pays out more than it can afford to pay out. It is a simple balance sheet calculation. When the company finds that they are paying out more in claims than they are receiving in premiums they file with the state insurance commissioner to review and adjust rates in your state.
Several things cause the claims experience of a company to increase. It could be that the frequency of claims increases. This could be the result of reduced safety enforcement, poorer road conditions or a variety of other causes. It could be that the severity of claims has increased. This would be the result of an increasing number of accidents turning into lawsuits. It also could be caused by juries making increasingly high awards to those injured in accidents. It also could be the result of increased medical costs in your area. Another factor could be the cost of auto repairs. Materials and parts tend to become more expensive over time and this could affect the claims experience of a company. It is important to note that most companies in the state will feel similar pressure at the same time as those factors affect all the companies.
There are moral factors that also come to affect the premiums of auto insurance. When drivers report fewer annual miles than they actually drive, that increases their exposure without increasing the premium for their policy. If people allow other drivers to operate their vehicles without adequate supervision of screening risky drivers could be populating the streets. Even though your state requires that vehicles be insured we all know that some are not and that expense has to be shared somewhere. A frequent abuse is the pizza delivery man who is driving the family sedan. His insurance policy never knew he was doing that and has a risk that hasn’t been properly evaluated. There are far more lurid cases but my all-time favorite is the family sedan that has steel tanks welded underneath the body to carry illegal liquor. All these moral issues also affect the premium.
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The real cost of automobile insurance is determined when you have a claim. If the policy limit is exceeded and angry people are suing you, you paid too much for your insurance. If your policy had high limits and took care of everything, then you bought cheap insurance. Having to settle a claim out of your own pocket is the most expensive form of insurance that you can purchase.
The reason that insurance premiums increase is that the company pays out more than it can afford to pay out. It is a simple balance sheet calculation. When the company finds that they are paying out more in claims than they are receiving in premiums they file with the state insurance commissioner to review and adjust rates in your state.
Several things cause the claims experience of a company to increase. It could be that the frequency of claims increases. This could be the result of reduced safety enforcement, poorer road conditions or a variety of other causes. It could be that the severity of claims has increased. This would be the result of an increasing number of accidents turning into lawsuits. It also could be caused by juries making increasingly high awards to those injured in accidents. It also could be the result of increased medical costs in your area. Another factor could be the cost of auto repairs. Materials and parts tend to become more expensive over time and this could affect the claims experience of a company. It is important to note that most companies in the state will feel similar pressure at the same time as those factors affect all the companies.
There are moral factors that also come to affect the premiums of auto insurance. When drivers report fewer annual miles than they actually drive, that increases their exposure without increasing the premium for their policy. If people allow other drivers to operate their vehicles without adequate supervision of screening risky drivers could be populating the streets. Even though your state requires that vehicles be insured we all know that some are not and that expense has to be shared somewhere. A frequent abuse is the pizza delivery man who is driving the family sedan. His insurance policy never knew he was doing that and has a risk that hasn’t been properly evaluated. There are far more lurid cases but my all-time favorite is the family sedan that has steel tanks welded underneath the body to carry illegal liquor. All these moral issues also affect the premium.