As if the price of eggs, heating and gasoline were not enough you can now add your auto insurance bill to list of things about to cost a whole lot more. Just about every auto insurance carrier in California has announced plans to increase auto insurance rates in 2023. Here is a quick example of just a few; USAA filed for a 6.9% increase, Farmers has filed for a 20% increase, Berkshire Hathaway has filed for a 20% increase, Wawanesa is set for a whopping 39% increase, Travelers for a 6.9% increase, etc. The list goes on and on and your auto insurance company is probably on it.
Have all the insurance companies in California met recently in a dark smoky room and decided to increase their profit all at once? That certainly looks like the case but, these insurance companies would be happy with any profit at all. So far in 2022 auto insurance companies in California have paid out $1.05 for every dollar of premium collected. That number is worse than the $1.01 in expenses per dollar of revenue paid out in 2021. You don’t need to go to have gone to Wharton Business School to know you can’t collect a dollar of income and then pay out $1.05 in expenses, at least not for very long.
There are four primary items driving these increases in claims expenses and therefore your premium.
Reason 1: Cars cost more to fix. Remember when a scratched bumper might cost $200? That was before car bumpers had more sensors than a smart phone. Replacement parts on vehicles are up 13% since this time of year in 2021 (Insurance information institute).
Reason 2: Your phone. One in four accidents in California are caused by distracted driving (NHSTA) and that’s the number that is provable, the likely number is even higher. Between 2020 and 2021 alone the number of fatality accidents caused by distracted driving grew by 31% (California Office of Traffic Safety). Our constant texting and scrolling is the most likely contributor to collisions being up 42% in just one year.
Reason 3: Social inflation. “Social inflation” in the insurance industry term for larger and larger court judgements. The size of personal injury judgements in the past 5 years has grown at twice the level of inflation and another fun fact, the economic costs from tort lawsuits now equal 2.13% of our national GDP (U.S. Chamber of Commerce). Part of this issue is due collision “severity” (meaning how “bad” an accident is was) is up 43% this year over last year and most alarmingly fatalities are up 26% year over year.
Reason 4: Regulation. Our golden state does things a little different. A lot of the variables that are used in other states to reward low risk drivers (like a high credit scores) are unlawful to use in California. The regulatory environment in California also makes it a tough place for insurance operators to operate which means less options for consumers.
That all being said, unless you plan to take Uber, ride a bicycle, or take public transportation everywhere you will need insurance, it is the law after all. So what can you do to reduce your insurance rate as much as possible? The list is short but effective; ask your agent if you are getting every possible discount your carrier offers, ensure you are bundling your home or renters insurance with the same company as your auto insurance, avoid filing small claims at all costs regardless of fault and make sure your auto insurance carrier is tracking your mileage so you don’t get charged for miles you don’t drive. On second thought, maybe I’ll go check the tires on my bicycle.
For more information, please call (866) 624-4012 or visit gasparinsurance. com.