Typically, when auto insurance companies suffer consistent losses due to an increase in auto insurance claims, they adjust their auto insurance premiums upwards to return to profitability. From an increase in distracted-driving car crashes to record-breaking natural disasters, here is a look at four common reasons why auto insurance premiums rise.
The Insurance Information Institute says that auto insurance claims have spiked significantly over the recent past, causing auto insurance companies to pay out large amounts of money for bodily injury, collision, and damage liability claims. Most car crashes on U.S. roads occur due to distracted driving, with cell phone use while driving being the number one culprit, accounting for about 1.6 million car crashes in the U.S. every year. Texting while driving contributed to a quarter of all car crashes in the U.S., according to the National Safety Council. Typically, as the number of car crashes increases, you can expect auto insurance claims to increase and, consequently, higher auto insurance premiums.
Besides auto and property damage, a typical car liability insurance policy also offers medical expense coverage for the driver and passengers. Medical expenses coverage is a big component of car liability coverage. Keeping this in mind, rising medical expenses generally lead to auto insurance premiums increasing. According to the Health Care Cost Institute, from 2008 to 2017, the cost of an emergency room visit in the U.S. increased by around 176%. Meanwhile, between 2006 and 2016, auto insurance premiums rose about 50%, as reported by the U.S. Bureau of Labor Statistics. In essence, to keep up with rising medical expenses and protect themselves from potential losses, auto insurance companies generally raise their auto premiums.
Thanks to technological advancements in the auto space, most cars today come with sophisticated and expensive equipment and components. For example, in accordance with the National Highway Traffic Safety Administration regulations, all new cars sold in the United States after May 2018 must have backup cameras (rearview video systems). Because of this expensive and sensitive technology, modern cars tend to be more expensive to repair than older cars because they require particular expertise and equipment. Consequently, previously inexpensive auto repairs, such as bumper replacement, are now more expensive, causing auto insurers to incur losses. In turn, this has led to higher auto insurance premiums for policyholders who own modern cars, especially cars equipped with expensive technology.
Natural disasters are common in various parts of the United States. However, over the recent past, these disasters have been particularly deadly, destructive, and costly. For example, according to the National Oceanic and Atmospheric Administration (NOAA), 14 separate billion-dollar natural disasters struck the U.S. mainland in 2019 alone. These disasters included 1 wildfire event, 2 tropical cyclones (Imelda and Dorian), 8 severe storms, and 3 major inland floods. On the auto coverage front, comprehensive car coverage usually covers auto damage resulting from such disasters. The increase in the number and magnitude of natural disasters over the recent past has led to a rise in comprehensive claims, meaning greater losses for auto insurance companies. In turn, this has caused auto insurance premiums to rise.
These are some of the common reasons why auto insurance companies raise car insurance premiums. For assistance with your auto insurance coverage, contact the experts at Mike Leonard Insurance. We can connect you with our top carriers, including Kemper, MetLife, Nationwide, Travelers, Safeco Insurance, Progressive, and American Strategic Insurance, to find the right insurance policy.