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why auto insurance premiums are increasing

why auto insurance premiums are increasing

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The past year has brought many new challenges to the insurance industry. The consistent rise of auto insurance premiums is impossible to ignore— but why are premiums rising? Let’s discuss.

why are my auto insurance rates rising?

Let’s dive into some reasons why your auto insurance rates might be increasing.

the pandemic

During the COVID-19 pandemic, miles driven fell off a cliff as everyone quarantined and worked from home. Auto losses dropped and loss ratios for most carriers dropped 20-30%.

 

We all saw clients adjust their annual miles driven since they were not driving to work. For the first time in a long time, the combined ratios dropped below 100.

 

We are now, mostly, out of the pandemic, and miles driven are back to the pre-pandemic levels. However, carriers are struggling to catch up with insureds to adjust mileage and get adequate rates for exposure.

supply chain issues

Similarly, supply chain disruptions—a result of the COVID-19 pandemic—have caused a slew of issues in the auto industry. How?

 

The COVID-19 pandemic exposed any weak links or inefficient areas in supply chains by creating a series of issues that trickled down the chain. Lockdowns and illnesses kept workers out of the workplace, resulting in a labor shortage and a consequent shortage of materials.

 

As a result of these issues, freight costs increased, shipments were delayed, and the costs of goods spiked.

what do these supply chain issues mean for the automotive industry?

Again, these supply chain issues caused a ripple effect within the automotive industry: Getting parts to repair or create new cars is more difficult than pre-pandemic, materials are more expensive, and labor costs have increased.

 

This means car repairs are taking longer and costing more than before. Further, the costs of rental vehicles have increased due to high demand.

 

The effects of these delays have affected the automotive insurance industry by driving up premiums. Insurance companies are not necessarily profiting from these increases but are instead raising their rates about 15 to 20% to cover the inflated costs of repairs to the vehicles.

distractions behind the wheel

The rise of technology brings a plethora of pros and cons to the insurance field. As reported by The Centers for Disease Control and Prevention (CDC), there are eight deaths a day due to distracted drivers.

They list the three main types of distraction as:

  • Visual: Taking your eyes off the road
  • Manual: Taking your hands off the wheel, and
  • Cognitive: Taking your mind off of driving

The statistics have shown that distracted driving has increased with the influx of devices to be distracted by (consider the 17-inch screen that is now installed in Teslas).

The rise in distractions creates a greater financial risk for insurance companies, hence the rise in auto insurance premiums. Some insurance companies even have a “Distracted Driver Policy” because it has become so common.

The National Safety Council provides a PDF with a sample of a Distracted Driver Policy for reference.

drivers with little experience

The hiring market is unpredictable right now. According to The American Trucking Association, “without substantial action, by 2030 and at current trends, the driver shortage could grow to 160,000.”

What does this mean? Well, nearly “one million new drivers will need to be trained and hired in the next decade to keep pace with increasing consumer demand and an aging workforce.”

With the lack of drivers, there is a sense of desperation to find anyone to help transport supplies. In turn, this has resulted in a higher risk of accidents because of less experienced drivers handling large machinery and vehicles, and you guessed it, increased auto insurance premiums as a result.

repair costs

Vehicle repair time, due to the pandemic, has doubled or tripled—which increases the cost of rental cars. Moreover, both new and used vehicle prices are at all-time highs, which increases claim costs when vehicles are totaled in accidents.

Insurance aside, most vehicles have become more expensive to maintain because inflation has affected many sectors in the auto industry. 

This is partially due to the rise in smart cars that are equipped with special technology and advanced parts that are expensive to replace and repair. The combination of technological advancements and the stress on chain distributors over the past year has created the perfect storm.

As a result, more control is given to car shops and manufacturers to raise prices on parts and labor. This includes a higher premium and insurance needed for more expensive auto installations and parts.

injury costs

The rise in accidents has caused a rise in auto insurance premiums. CNN reports that last year around 38,680 persons died in car accidents – the highest number since 2007.

There are different types of car accidents, and not all of them are chargeable. Forbes lists a “chargeable accident” as a collision that causes damage to property (like another car or a fence) or causes injury or death.

Most reports and claims of a car accident that causes injury increase an insurance premium.

involved attorneys

The rise of claims has created a higher demand for attorneys involved in the vehicle accident sector. With the increase in specific claims, more people have representation.

Has your insurance broker asked for a copy of your contract recently? Don’t worry, they’re not being nosy! Your broker is just going the extra mile to understand the terms and scope of an agreement.

Learn more about why your broker needs a copy of your contract in order to issue a certificate on the benchmark commercial insurance blog.

what does proposition 103 have to do with my auto insurance?

On November 8, 1988, California voters passed Proposition 103. The California Department of Insurance (CDI) was charged with creating new programs and expanding existing operations to meet the mandates of Proposition 103.

 

But what does this have to do with auto insurance?

 

Under the rules of Prop 103, California began requiring insurance companies to justify their proposed rate increases and receive approval from the California Insurance Commissioner before passing along to consumers any rate hikes. 

 

Prop 103 requires that safety record, mileage, and driving experience rating factors have the greatest influence on auto premiums. As people are going back to in-office work and social events in 2022, insureds are increasing their mileage and, effectively, experiencing higher rates.

what’s next? let’s keep the conversation going

What’s next you ask? Our team at benchmark commercial insurance has recently been informed that one of our largest personal auto carriers is contacting all the comparative rating vendors, and removing them from all platforms.

 

Therefore, the only way to quote and write new business will be directly on their portal.

 

Why? This is being done to hopefully make it harder to write new business. Moving forward, we may see this from more carriers.

 

Interested in learning more? Get in touch with our team today, or read on in our articles:

 

can bigger insurance brokerages negotiate better rates than smaller ones?

can bigger insurance brokerages negotiate better rates than smaller ones?

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At benchmark commercial insurance, we often get asked whether or not it’s better to work with a small brokerage or a large brokerage. While there are pros and cons to both, the pricing must remain the same from both carriers.

Hear from Benchmark’s own Peter Katkov, as he explains:

“I’m often asked the question, does the size of the agency impact the pricing of coverage received by a carrier? And the simple answer is no. There’s actually legislation that prohibits discriminatory pricing based on the size of the agency.”

Katkov continues. “Based on identical underwriting information and for the same coverage, the quote provided to the small agency or to the biggest in the world  must be identical. Obviously, there are pros and cons to being in both of those service environments.

“This considered, as the client, you have to ask yourself if the policy on the shelf is the same and costs the same. Under which environment are my needs as a client best being met?”

Let’s dive a little deeper into the pros and cons of small vs. large insurance brokerages.

the pros and cons of small insurance brokerages

To gain some further insight, let’s discuss both the pros and cons of small insurance brokerages.

the pros of small insurance brokerages

A smaller brokerage might be a better choice if you’re looking for an insurance brokerage that understands:

  • Your community
  • Your business’s unique needs

Why? Smaller brokerages hire local agents, who will understand the property and area on a deeper level compared to a national agent.

Another factor to consider when deciding between a small or large brokerage is how accessible their agents are to their clients. If you’re experiencing an emergency, you want a quick response from your broker about how to handle the situation.

Smaller brokerages have actual people on the other line as opposed to bots, helping you navigate the next steps to create a trusting relationship. With a small brokerage, you’re more likely to have personal contact with your broker, which can lead to a more seamless customer service experience overall.

Additionally, small insurance agencies are likely to have a lower level of employee turnover; meaning, the team you’re working with isn’t likely to change (which can, of course, be a pro or con depending on your feelings toward the team).

As you look for a brokerage that can meet your needs, larger insurance brokerages are unable to work with people or businesses with:

  • Low credit
  • A history of claims
  • Or, that are below premium thresholds

In these cases, a smaller insurance brokerage might be a better fit.

the cons of small insurance brokerages

With a smaller brokerage, there may be challenges with the number of national resources available. Additionally, there is a risk that a small brokerage may not be around long-term or as long as a large firm might be. This may put your own financial situation at risk if you need to find a new brokerage.

the pros and cons of large insurance brokerages

Now, let’s shift gears and discuss the pros and cons of large insurance brokerages.

the pros of large insurance brokerages

A large insurance brokerage will most likely be more financially anchored, championing a more consistent income from a larger number of team members and clients (when compared to a small insurance brokerage).

One of the largest pros of working with a larger insurance brokerage is technology and innovation. Larger brokerages often have applications to assist your business or personal insurance needs with ease; this might look like support for making a claim or investing in new insurance policies.

Another advantage to a large brokerage is that their customer service chat portals typically run 24/7. This feature can be great to address quick questions or emergency situations. Moreover, there are a variety of quick-access tools—apps, website chats, phone lines, and typical email communication—that you can use to access information.

the cons of large insurance brokerages

When it comes to large brokers, it might feel like there’s a missing piece to the puzzle. And what is this puzzle piece? The personal touch.

With a larger client base, things can blend together between clients and brokers, and may even become hard for the brokerage to keep track of. Employee turnover leads to an ever-changing Rolodex of different contacts for each service need.

In the case of an emergency, you might find yourself chatting with a bot for answers; whereas, at a small brokerage, you’d likely call your personal broker who already knows your situation and doesn’t need a time-consuming update.

The most important con, however, is what motivates the decision-making of a large multi-national brokerage. Remember: Publicly traded companies’ number one responsibility is to their shareholders, not their clients.

insurance carrier pricing requirements

As Katkov mentioned above, there are laws and regulations that forbid discriminatory pricing based on the size of the agency.

According to the Federal Trade Commission:

“A seller charging competing buyers different prices for the same ‘commodity’ or discriminating in the provision of ‘allowances’ — compensation for advertising and other services — may be violating the Robinson-Patman Act…

This kind of price discrimination may give favored customers an edge in the market that has nothing to do with their superior efficiency. Price discriminations are generally lawful, particularly if they reflect the different costs of dealing with different buyers or are the result of a seller’s attempts to meet a competitor’s offering.”

In the insurance industry, pricing discrimination is considered unlawful; therefore, small brokerages and large brokerages both receive the same rates from carriers.

what type of insurance brokerage is right for me?

At the end of the day, selecting a brokerage is largely influenced by your specific business needs. Regardless, here are some factors to consider when choosing a partner.

a small brokerage might be a good fit if…

A small brokerage will likely be a good fit for you if you value the personal touch.

Going with a smaller insurance brokerage could also be the right option for your business geographically—where there are specific exclusions or conditions to consider based on location. Moreover, depending on your financial history and your claims history, a large brokerage might not consider you an eligible client.

a large brokerage might be a good fit if…

A large broker might be a good fit if your particular situation requires contact outside of normal work hours. Then, the 24/7 hotlines that most large brokerages offer will be a great resource. Lastly, there is also higher adaptability from the higher capital and number of brokers that work with a large firm.

Unsure about what you should be paying to insure your business? Check out this article explaining the different factors that contribute to the coverage costs of business insurance.