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Auto insurance premium hikes outpace inflation

Property and Casualty Insurance
by Glenn Tobleman
Auto insurance premium hikes outpace inflation
Auto insurance premium hikes outpace inflation

A lot of attention has been paid to the ways in which health insurance rates have risen sharply for just about everyone across the country. While people living in some states fared better than others, the general trend has been upward, and at a much greater rate than inflation. What is less often discussed - but still a major financial concern for many Americans - is auto insurance premiums are rising at similar rates.

In 2019, the average driver in the U.S paid $1,548 per year for their auto insurance, based on an analysis of some 73 million rates by The Zebra. While there are numerous factors that can determine specific rates, this number is up almost 30% (and about $350) since 2011. Over that time, only seven states have seen rates drop, while the other 44, including the District of Columbia, have seen them rise - in some cases by as much as 86%.

As recently as 2015, only 11 states had premiums north of $1,500 annually, but by the end of last year, that number had more than doubled. Over the same period, inflation ticked up about 13%.

Rising auto insurance costs are a major concern for many.Rising auto insurance costs are a major concern for many.

Areas for concern
Perhaps because of the seemingly ever-rising cost of cover, a growing number of American drivers are going without insurance, according to the most recent data from the Insurance Research Council, compiled in late 2017. As of 2015, about 13% of drivers - 1 in 8 nationwide - were without coverage. While that share was down from the all-time high observed in 2003 (at almost 15%), it was still up from the 12.3% observed in 2010. In fact, the number had been rising steadily from 2010 to 2015. These statistics also do not include people who are considered under-insured.

Of course, as with premiums, uninsurance rates vary from one state to the next here, as well. For instance, Maine had the national low in uninsurance rates at just 4.5%, but Florida's nation-leading rate was almost six times that number. Likewise, some states saw declines in uninsurance over that period, while others saw sizable increases - sharp enough to push up the national average. In all, five states had uninsurance rates north of 20%, and another 15 were between 13% and 19%.

Why is that a problem for insured drivers? Because uninsured drivers who get into accidents leave their insured counterparts to foot the bill; the average cost of a claim for an accident involving such a motorist is about $20,000. And that number doesn't include repairs for the vehicle.

Future solutions to consider
Auto insurance remains a rather competitive field - as evidenced by the commercial breaks during just about any sport on TV - and thus policy providers are always looking for ways to keep their premiums on pace with the rest of the pack. According to SAP, that could increasingly include the use of drones in the claims process. While the prospect may sound far-fetched, or the value of such an application difficult to gauge, there may be some real utility here.

For instance, dispatching drones to policyholders' locations can help in estimating costs, especially in terms of saving time and properly logging all potential damage following accidents. Few people are going to emerge from the traditional claims process - which can take weeks to complete - totally satisfied, especially when they have to get on the phone in the immediate wake of the accident. But if a drone can be dispatched day-of from a nearby office or other location, and complete a thorough assessment within hours or even minutes, rather than days or weeks, customer satisfaction could rise. These processes could even become automated over time.

Depending upon rollouts and implementation, use of drones could even have a positive effect in keeping premiums from rising as sharply as they have, especially if the accuracy and speed of claims processing is increased over time.

Approaches in the meantime
Solutions that could be years or more away from implementation may not provide a lot of relief for people who are already feeling the pinch when it comes to rising premiums. For that reason, it's vital for auto insurers to provide people with plenty of options to qualify for rate discounts, and make sure they know what those options are. According to the Insurance Information Institute, these could include increasing the deductible on coverage (which can be a good idea for some policyholders but not others), bundling auto insurance with other types of coverage, qualifying for low-mileage discounts, completing defensive driving courses, seeking group coverage and so on.

Giving people as many options as possible to keep their costs down as they continue to seek coverage is almost always going to be appreciated and could help insurers get a better understanding of their policy base overall.



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