Car insurance rate increases are one of those things that seem to be as certain as death and taxes. Rate increases happen for many reasons, but the most frustrating increases are those that occur when the policyholder has not had any traffic violations or made any claims and they have not made any changes to their policy that would cause a premium change.
As an agent, I can assure you that we hate rate increases also! Yes, I have had customers tell me that I am getting a pay raise every time there is a rate increase, but that is only partially true and is also temporary. When rate increases happen for no other reason than the insurance carrier raised them, it upsets customers and prompts them to contact their agent's office in an understandably bad mood. We spend our days explaining to customers why they have to pay more instead of doing other important tasks. Rate increases prompt loyal customers to shop for a better rate somewhere else which is never good for an insurance agency. Not to mention, if rates are higher it makes it more difficult for us to prospect and sell new policies. In the end, when rates go up, eventually, it results in an agency losing revenue instead of gaining revenue.
Now that we can agree that no one likes rate increases, let's go over some of the reasons why it happens. Indeed, there are the purely business reasons like profit margins, the need for insurance companies to please their shareholders with positive results, and the requirement that insurance companies maintain adequate reserves in order to settle future claims...blah blah blah. There are also some very important factors that you may not have thought of.
Car insurance companies by definition are there to pay for your loss or damage to your property and of course your injuries if you are hurt in an accident. When those losses happen, companies have to pay 
the going rates of services in order to get you back on your feet and back on the road. The average new car price in the US has nearly doubled in the last 10 years and was $37,185 in 2019. The average labor rate at a body repair shop is now around $150 an hour. The cost of parts, both new and used, continues to rise and all of the wonderful new technology that most new cars come with these days is extremely expensive to repair. Consumers demand back up cameras, bumper sensors, lane change assist technology and automatic braking to name a few. All of this technology comes at a price and the cost to repair or replace it gets passed on to your insurance company and eventually to you.
Beyond vehicle repairs, we all know how expensive medical care has become. With the cost of medical care far out-pacing inflation, medical treatment now accounts for 79% of all claims costs associated with automobile accidents. In 2015 the average bodily injury claim was $15,500. Multiply that by hundreds of thousands of claims and it doesn't take much to realize how medical costs don't just effect health insurance premiums, but auto insurance premiums too.
Going hand and hand with medical costs are rising legal fees. Insurance companies spend an incredible amount of money defending their policyholders against lawsuits resulting from automobile accidents. With more accidents occurring year after year, more and more lawsuits are happening as well. I am not one of those agents who rails against the need for legal representation due to injuries from car accidents. Hiring an attorney can be absolutely necessary at times, but the fact is that insurance companies pay out far more money for attorney represented claims and those costs end up getting passed on to policyholders in the end.
Distracted driving has undoubtedly had the most impact on insurance rates than any other factor in the last 10-15 years. Just as safety features in vehicles are making a huge impact on injury and fatality statistics, distracted driving came along and became a huge setback for traffic safety. Texting, talking, and other types of distractions now account for 8.5% of all accidents. Fatalities overall soared 7.2% in 2015 due in large part to distracted driving. It is believed that 391,000 people were injured and close to 35,000 killed where distracted driving played some factor.
Another huge factor that causes everyone's rates to go up is uninsured drivers and undisclosed drivers. When you are in an accident with an uninsured driver, your own policy provides coverage for your property damage and injuries. The problem is that insurance companies cannot raise your premium for these types of claims (nor should they, it's not your fault) so when it is estimated that 13% of all drivers on the road right now have no car insurance, there are tens of thousands of claims happening where the responsible party cannot be charged more premium thus every one of us ends up paying more. Undisclosed drivers are drivers that are not listed on the vehicles owner's insurance policy and therefore are not paying a premium for the right to drive. Often these drivers are a young driver with little driving experience whose parents choose not to add to their policy because the insurance premium would go up. When these drivers have accidents, insurance companies are forced to pay for the claim and again are not able to raise premiums for the person who actually caused the accident. 
It may seem that I am defending insurance carriers and justifying premium increases in most cases and I don't mean to. As an agent I am constantly straddling both sides of the fence when it comes to rates. I sometimes struggle to defend the actions of the companies I represent especially in times when I know people are hurting financially, but I also recognize that there are often sound business reasons that go into determining rates and I have to try to make sure my customers understand that. What customers need to realize is that insurance is a pool of all policyholder premiums into one big pot and that the actions of others can most certainly affect what you pay for your policy. It is not always fair, but the statistics don't lie and when companies cannot raise the premiums of the responsible parties enough to cover rising costs, there is no choice but to raise rates of all of their policyholders across the board.
A positive result of rate changes that occurs at our agency is that when we get a chance to talk to our insureds about the rates it give us an opportunity to review policy coverages, possible discount opportunities, and other possible changes to policies that might help to offset any increases and possibly result in our insureds having a better understanding of their policies in general. Some of these might include raising deductibles, taking full coverage off of an old high mileage vehicle, or signing up for paperless billing to get a discount.
As Independent Insurance Agents, Morris Insurance Services can also check your rate with several major insurance companies to see if we might find a better rate, or at least give you a comparison to see if your rates are out of line with what other companies would charge you. Sometimes switching companies for a few dollars is not always the best thing to do because insurance companies definitely consider long term customers when making certain underwriting decisions, or by giving you certain "perks" after you have been insured with them for a while, but it helps to check and we can do that for you.
In my next blog, I will talk a little more about ways to save including TELEMATICS and the need to embrace technology as a way to help keep premiums low.
Check out the video below for more info!