Auto insurance premiums are rising dramatically, but agents can help client minimize their costs.
After more than a decade of steady rates, auto insurance premiums are trending upward. The Consumer Price Index reported a 6% year-over-year increase in auto insurance prices this April, following a 5.1% rise in February and March. The April surge is the largest monthly climb since October 2003.
Recent studies mirror those statistics. In its “2017 U.S. Auto Insurance Study,” consumer research firm J.D. Power estimates that 26% of auto insurance owners have seen their rates rise this year. The firm also reported that the number of consumers charged with an annual rate increase of more than $200 has more than doubled in the past four years.
Jim Lynch, Chief Actuary for the Insurance Information Institute, told CNBC that he expects insurers to raise rates between 5% and 10%. “The vast majority of them,” he said, “have been seeking an increase over the past year or two.”
Some of the largest escalations came in Georgia, where Allstate boosted prices by an average of 25%. CNBC also reports that several major auto insurers requested and received price hikes averaging about 7% in California, while drivers in Florida have had to pay premium increases of 10% or more.
Dwindling Profit Margins
Several factors have prompted insurers to raise premiums. Foremost among these reasons is a record number of American drivers, a product of near full employment throughout the country. While that appears to be a good thing, it also inflates the likelihood of accidents — especially as drivers are increasingly distracted by high-tech devices in their hands or on the dashboard. According to Nielsen, 22.2% of households filed at least one auto insurance claim in 2017, an increase from 20.5% in 2014. It predicts that the percentage will further rise to 22.5% by 2022.
When crashes occur, repair and medical costs have skyrocketed, forcing insurers to pay more for each claim. Weather-related damage has also contributed to accelerating payouts and, consequently, rising premium prices.
A review of insurers’ combined loss ratios — the proportion of expenses to revenues — reflects how all of these circumstances have squeezed profits. Ideally, auto insurers strive to keep the combined loss ratio under 100%. Any percentage above that level results in fewer earnings.
When ValuePenguin analyzed the combined loss ratios of ten major auto insurers in 2016, it found that only two — Berkshire Hathaway and Progressive — reported combined loss ratios under 100%. Topping the list was State Farm, which had a combined loss ratio of 117%. Perhaps in response to this development, State Farm has raised premiums by 7.25% since 2015.
Finding Better Rates
In an effort to regain profitability and lower the combined loss ratio, insurers have raised premiums. Of course, hefty rate increases are never pleasant for your clients. J.D. Power reported that customer satisfaction declines significantly when rates ascend by more than $200.
However, Greg Hoeg, Vice President of U.S. Insurance Operations at J.D. Power, said insurers can overcome consumer dissatisfaction with rising premiums by demonstrating value through superior customer service, efficient claims processing, and a wide array of products and services. Agents, too, have a role to play in helping clients find the best auto insurance deals.
Shop Rates Often: Insurers frequently change their rates, so checking every six months or so for cheaper prices could help your clients lower their auto insurance costs.
Update Any Life Changes: Moving to a new neighborhood, getting married, or even reaching a certain age can lower premiums.
Credit Score Upgrade: All states except California, Hawaii, and Massachusetts take credit scores into account when calculating rates. If your client’s credit score has improved, he or she may be eligible for a better rate.
Bundle Policies: Your clients may receive a discount if they bundle home and auto policies from the same insurer.
Consider a Usage-Based Policy: If your client drives fewer than 10,000 miles per year, he or she could save money by purchasing a usage-based or per-mile insurance policy. According to J.D. Power’s research, using telematic devices that bases premiums on miles driven and safe driving habits improves price satisfaction scores even when premiums increase.