According to Insurify, the cost of auto insurance rose 12% last year. This year, the average national cost to insure a vehicle is expected to increase another 5%, bringing the annual cost of coverage to $1,707 annually, up from $1,663 in 2021.
Unfortunately, the rising auto insurance premiums are unavoidable. For an insurance professional, having to explain to clients why they are being charged more for coverage is an unpleasant task —especially if there has been no claim activity on an account.
The fact is, most insureds don’t understand what’s behind auto insurance rate increases. According to a recent report by the National Association of Mutual Insurance Companies (NAMIC), the largest property/casualty insurance trade group in the U.S., auto insurance rates are largely determined by external forces over which carriers have little control.
Understanding the key causes behind auto insurance rate increases can help you have informed conversations with your insureds regarding their coverage. It can also create an opportunity to review policies with your clients and discuss possible solutions to help offset risks. Here’s what you need to know regarding auto insurance cost trends this year:
- Longer commute times in large cities. Many Americans who must travel for work are having to go greater distances, especially in population-dense cities where daily commutes typically exceed one hour. Major metropolitan areas coincide with increased traffic, auto theft, vandalism, and rates of uninsured drivers – that all contribute to the cost of coverage.
- Speeding, crashes and fatalities are increasing. Reckless driving, such as speeding, has led to a steady increase in crashes, which continues to rise nationwide each year. According to the National Highway Traffic Safety Administration, more than 6 million crashes occur yearly in the U.S. — a number that has gone down only once in the past decade.
- The number of distracted drivers is growing. Every type of distracted driving increases the risk of an accident, injury, and even death. For example, reaching for an object increases a driver’s risk of crashing by 800%. A driver survey conducted by The Zebra revealed that most drivers agree that using their mobile device hinders their ability to drive safely. Shockingly, however, they admit to using their cellphone while driving to talk, text, take photos and video chat. “A cell phone violation can increase insurance premiums by 21.38%.” (Source: The Zebra.)
- Drivers nationwide are getting behind the wheel impaired. According to the National Highway Traffic Safety Administration, more than 10,000 lives were lost in 2019 to alcohol-impaired driving, resulting in more than one life every hour of every day. In addition, cannabis-impaired driving is also presenting challenges for insurers, such as technological barriers to being able to consistently measure a driver’s level of impairment. The Insurance Institute for Highway Safety reports that there appears to be evidence for the fact that when states legalize recreational use and retail sales of cannabis, crash rates go up.
- Newer cars are expensive to diagnose and repair. Today’s technology has equipped new vehicles with a multitude of safety and convenience features. However, diagnosing and repairing these vehicles come with a hefty price tag. According to the NAMIC, changes in automotive technology have had an impact not only on the number of components required in various assemblies but also on the individual cost of parts. For example, between 2017 and 2021, prices have increased nearly 30% for vehicle grills and 38% for headlamps. The increase in popularity of front-facing millimeter wave radar sensors and the move toward LED lighting technology are the primary drivers of this change.
The long and short of it is that when auto insurance companies are forced cover more liability and property damage costs due to an increase in accidents, thefts, and expensive parts and repairs, they’re spending more money. To recover those expenses and to remain in business require an increase in premiums.
There are several things that can factor into the price of auto insurance that are beyond the insureds’ and the insurance companies’ control. And like any business, auto insurers can’t survive if they are losing money. And in today’s intensely competitive insurance environment, carriers simply can’t afford to provide anything less than exceptional risk management and services as they strive to attract new policyholders and retain existing accounts. This year, it’s more important than ever to be proactive in helping your policyholders understand issues that can impact their rates and working together to better manage risks.
It’s a new year. If you have waited until the last minute to complete your continuing education credits, don’t worry! At FastrackCE, we make it easy for insurance professionals like you to maintain current CE licensing requirements online and at your convenience. When you need us, we can help. For more information, call 800-544-3605 or visit us at fastrackce.com.