Every day you read a new article about the effects of inflation on the things we buy.
Let me try to explain what is happening in the auto insurance market. When the COVID lockdown happened, auto insurance companies quickly realized that people were driving less and claims costs were going to drop. Most major insurance companies have lowered their rates or refunded premiums in the form of participations.
When COVID restrictions were lifted, people who had been locked in their homes started driving more. They went to work, they went on vacation and they had more complaints. The auto insurance industry has responded to increased driving by raising rates.
At the same time, inflation reached its highest level in 40 years and supply chain problems caused delays in vehicle repairs and increased the price of used vehicles.
Motor policies have been assigned on each section of the coverage they provide. When there are delays in repairs, the insurance companies responsible for the repairs now pay more for reimbursement of rent. The cost of parts has gone up and the cost of labor is up. Totaled vehicles (determined as unrepairable) now receive higher payouts. More vehicles are totaled due to higher repair costs. The simple cost of towing a vehicle has increased due to the cost of gas and labor costs.
An article recently appeared in The Wall Street Journal that the theft of catalytic converters is 10 times higher than in 2019. Converters used to reduce pollution in automobiles contain precious metals, and sophisticated rings have been formed to steal them.
Medical payments increased due to higher costs in hospitals and nursing facilities.
Weather-related events also increase the number of claims. I read recently that 50,000 to 70,000 cars were destroyed by Hurricane Ian.
Finally, litigation costs have increased. Defending policyholders against lawsuits when they are involved in an accident is now more expensive.
When insurers meet, they always discuss two things: frequency and severity – kind of like the perfect storm. More claims, higher costs, higher rates.
Here are some tips on how to manage your rate increases.
Call your insurance agent and review your current policy. Make sure you have the right drivers and use the vehicle properly. If you’re only driving 5,000 miles a year, make sure your insurance company knows that.
If you have older vehicles, make sure you’re not paying for comprehensive and collision coverages. You could pay more than the value of the vehicle.
Ask about discounts such as loyalty and multi-policy discounts. Most companies offer discounts if you have home or renters insurance policies tied to your auto insurance policy.
I’ve written before, but telematics is the future of auto insurance. If you have a smartphone and an email address, you are eligible. By downloading an app and placing a beacon in your vehicle, you can save 10-30% on your premium. This program can only lower your rates.
Finally, shop around the big companies and see what they offer, but be careful. Some companies offer discounted rates for new customers but these discounts disappear on your next renewal. We recently had a client who purchased a condominium and convinced himself that he could save money on the condominium policy by switching to another company. He saved $80 on the condo policy, but his car insurance went up by $1,200.
His new business had been in business since 2019 and did not offer car insurance.
When we got the paperwork, the address the new company was using for the location of the property was a mall.
Caveat emptor is Latin, which means “let the buyer beware”.
Bob Hollick is a Washington-based State Farm Insurance agent. His column appears every other Friday in the Observer-Reporter.