The past few years have been tumultuous in the post-pandemic insurance world. For the first time in recent memory, the auto insurance industry is facing substantial loss pressures on multiple fronts. To maintain viability, rates have risen simultaneously with this increase in claims costs.
These changes are being driven by several factors:
Severity of Loss : While supply chain issues have mostly subsided, the rising cost of parts and labor directly translates into higher repair costs. Further complicating the situation are today’s vehicles and their built-in safety devices, parking sensors, integrated body panels, and vehicle construction designed to deform around passengers to absorb impact. What was once a “soft bump” in a parking lot that involved removing dents and painting now contains thousands of dollars worth of electronic components and requires specialized labor to install. This is measured as the severity of loss, or the average amount paid out on an average claim, and this figure has seen an 82% increase over the past decade.
Loss Frequency : Drivers emerged from the pandemic to busier roads and a more connected environment. Distracted driving is a major culprit and has driven accident rates to new highs, with more vehicle accidents per mile traveled. For the first time in decades, car accident-related deaths have also begun to rise. More accidents, plus more costly accidents, is a combination of higher premiums.
Medical expenses: Medical expenses are rising rapidly, leading to a higher rate of “big losses,” where policy limits are reached, often through lengthy court proceedings. These additional legal fees, medical expenses, and administrative costs have far exceeded the CPI.
Transportation costs: The time between claim opening and closing has been extended. Due to staffing limitations in the claims area and labor shortages in the repair area, claim files are taking longer, which has its own additional costs in rental and replacement vehicle coverages and storage fees.
Car insurance costs are currently the number one driver of inflation and make up a substantial portion of every household budget, and rates vary wildly from state to state. For example, the average in Georgia would be considered extremely high in California. As for relative average premiums, there are several reasons that influence this variation, and rates vary significantly from driver to driver. The primary factors that determine rates are location, years of driving experience, insurance and loss history, and driving record. A driver with a solid record of maintaining insurance, with zero or few claims, and 20 years of clean driving experience will see a much lower premium than a newly licensed driver or one with a poor driving record; however, that same driver with the lowest rate could see his or her rate increase simply by moving to an area with a higher frequency of accidents or to a state with higher weather risks.
Vehicle choice will also be directly related to premium rates. According to Ezra Peterson, senior director of insurance at Way, “The old wives’ tale that ‘red cars cost more’ is a complete fallacy. What matters is the cost of repair, along with accident statistics. A vehicle with specialized systems, unusual equipment packages, high theft rates, and electric vehicles will likely be more expensive to insure than a typical sedan, all due to the likelihood of loss and the cost of repair.”
All states require some level of insurance. However, no state requires coverage for your vehicle; all require some type of protection for damages a driver may be liable for due to his or her negligence.
Any driver looking to save on their insurance costs or find better coverage than they currently have should consider what they need to be protected against when considering which coverage options to choose, along with their own driving habits, which may have changed dramatically in recent years. If the vehicle is owned by you and would not represent a significant loss in the event of theft or collision, it may make sense to reduce coverage to the state’s mandatory liability. If it is the only vehicle in a busy household and would represent a significant disruption if it were no longer available, you may want to stretch that budget to make sure all situations are accounted for.
