Branch Owner, TWFG Insurance Services, Fremont California and the Greater Bay Area Representing Dozens of Insurance Carriers
Well I have to admit it sure seems like it sometimes but auto insurance does not increase every year. There are many variable factors that come into play into an auto insurance rate. For example, driving record, types of vehicles, marital status, where you live and more. However for the sake of argument lets assume all factors remain stagnant and the rate still increases. The insurance industry flows through what we call hard and soft markets. A soft market is when insurance carriers are showing a profit, loss ratios are good and investments are performing. A hard market is when profits are down, loss ratios are high and investments are performing under expectation.
It is more of a constant guessing game for the insurance carriers to operate a business and keep their heads above water. If losses continue and profits are down an insurance carrier will make a necessary adjustment to remain solvent by increasing rates. Rate changes can be local or regional depending on performance in any given area. If the market turns around and profits increase the carriers will then loosen up into what we call a softer market opening the doors to more potential clients by lowering the rates again. Cycles usually run for several years before they shift one way or the other simply due to the time it takes to gather loss information and process it. I will give you an example of some recent trends. During the dot com era insurance companies were performing very well and rates were down. The market crashed and rates began increasing due to poor market performance and increased losses. Carriers got a handle on the situation and things seemed to be going well for the next couple of years and rates actually dipped a little, but now it seems we are back at an upswing. If someone was paying $500.00 for a 6 month policy that dropped to $450.00 for a year they were happy. But then a year later went to $475.00 from the consumers point of view this is a rate increase forgetting just two years back they may have been paying $500.00. Again sometimes this type of movement is difficult to see since variables come into play such as moving to a new location, adding or changing cars, adding drivers and so on. I hope that helped at least explain a little bit on how the insurance industry operates.
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It is more of a constant guessing game for the insurance carriers to operate a business and keep their heads above water. If losses continue and profits are down an insurance carrier will make a necessary adjustment to remain solvent by increasing rates. Rate changes can be local or regional depending on performance in any given area. If the market turns around and profits increase the carriers will then loosen up into what we call a softer market opening the doors to more potential clients by lowering the rates again. Cycles usually run for several years before they shift one way or the other simply due to the time it takes to gather loss information and process it. I will give you an example of some recent trends. During the dot com era insurance companies were performing very well and rates were down. The market crashed and rates began increasing due to poor market performance and increased losses. Carriers got a handle on the situation and things seemed to be going well for the next couple of years and rates actually dipped a little, but now it seems we are back at an upswing. If someone was paying $500.00 for a 6 month policy that dropped to $450.00 for a year they were happy. But then a year later went to $475.00 from the consumers point of view this is a rate increase forgetting just two years back they may have been paying $500.00. Again sometimes this type of movement is difficult to see since variables come into play such as moving to a new location, adding or changing cars, adding drivers and so on. I hope that helped at least explain a little bit on how the insurance industry operates.