Why am I Paying More for Auto Insurance?
Inflation causes the price of all insurance policies to rise; however, you might notice that your Auto insurance rose more than general inflation. Why is that? In the early 2010s, insurance companies fought to gain market share, which led to a consumer-friendly (“buyer’s”) market. Since then, many external factors changed, and insurance companies reevaluated their rates to account for higher risks and loss ratios.
More Drivers Lead to More Accidents
Gasoline prices fell under $2 per gallon. Employment rates (pre- COVID-19) were strong. Combine those two factors, and you find more drivers are on the road. More divers on the road leads to more accidents. When insurance companies have to pay out for crashes many companies pass along this cost to you by raising your premiums.
To avoid a large backlog, the Wisconsin Department of Motor Vehicles decided to waive road tests for teen drivers during the coronavirus pandemic. This allows an additional 10,000 new drivers to hit the road, and insurance companies need to account for external factors like this as well. From an insurance company’s perspective, inexperienced drivers are 1.6 times more likely to have an accident. That’s a new exposures for you and your family even if you don’t have an inexperienced driver on your policy.
The number of accidents isn’t the only factor affecting auto insurance claims: the average pay out from an auto claim has increased as well. In Wisconsin, if you’re judged at-fault, you are responsible for the other driver’s medical payments, funeral expenses, loss of wages, loss of support, and loss of companionship. The cost of healthcare alone has skyrocketed that in recent years.
If that was not enough, the cost of repairs and auto parts have also increased. For example, ten years ago, if your car had to get a windshield replaced they would just swap out the glass. Now, they need to swap out the glass in addition to all the censors that it has and recalibrate each sensor and safety feature that interact with the windshield. Body shops struggle to afford the special equipment and training required to perform repairs on newer technologies that often come stand on new vehicles.
While Auto insurance is required to drive a car in Wisconsin, approximately 13% of drivers drive uninsured. On average, uninsured claim payments have risen by 75% over the past 10 years. This is largely because they might take out a policy and stop paying for the insurance, might not add household members or vehicles to their policy, etc. Sadly, it falls on responsible people who maintain their coverage who end up paying the price under the uninsured portion of your Auto policy.
Insurance is meant to protect you and your family when you experience a genuine loss. But not everyone uses insurance ethically. It is estimated that insurance fraud costs the United States $32 billion each year. In most cases, the fraud takes the form of a policyholder faking an injury or property damage and blaming a third party. Unfortunately, much of this cost is transferred to all policyholders.