| Car Insurance Costs May Be Decreasing |
| Written by Fred McConnell | |
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Car insurance rates, driven up by the recent recession's impact on insurers, have begun to recede in the United States, leading to improving conditions for insurance customers.
There's no denying that the recent economic recession, which began in December 2007, has had an impact on car insurance rates in the United States. The recession's impact has touched nearly every section of U.S. industry and commerce and the car insurance industry has been no exception. Since the onset of the recession, the price of car insurance has increased in nearly every state of the Union. The rise in rates can be attributed to several factors including regular inflationary pressures, increased claims, decreased payments due to the recession's impact on consumers, and perhaps the largest factor, a decrease in insurance company reserves from investment income related to the rapid devaluation of investments insurers made prior to the recession. Last year was a tough year for consumers, as insurance premiums rose by about 8 percent over the previous year. According to industry experts, the average price to insure an automobile increased from $1,810 to about $2,000. Last year was the first year that overall rates increased since 2003. The rate hikes were steepest in the beginning of the year and tapered off in the waning days of 2008. Among the top 10 states for rate increases were the District of Columbia, Utah, Colorado, Delaware, Wyoming. Washington D.C.'s automobile insurance premiums were actually up by more than 10 percent. Reasons for the rate increases were a matter of elementary economics. Much of the money that insurers use to pay out claims comes from the income they make from investments made with the money that they're paid in premiums. When a catastrophic collapse of stock prices occurs, such as what happened last fall, insurers pool of money for claims and profits fall, putting insurers at an elevated risk for insolvency. When this happens, insurers must raise cash by raising premiums, which is exactly what happened over the last year or so. The rise was especially pronounced because of the severity of the economic downturn and the rapid and harsh drop in the stock market. The good news is that the economy, and stock prices, are beginning to recover, thus replenishing insurers reserves as their investments become more valuable. The Dow Jones recently hit 10,000, an important psychological barrier in the minds of investors, suggesting to them that the economic recession is almost over. Adding to the downward pressure on car insurance rates is increased competition generated by insurers’ Web sites. According to industry insiders, because it’s more easy than ever to compare rival insurers policies against one another and to do business with national chains, insurers are under intense pressure to make their rates as competitive as possible. The after effects of the recession are actually beginning to help insurance rates drop. Because money's tight and fewer people are working, folks are driving less often and more carefully, leading to a reduction in claims. This reduction in claims is reducing pressure on insurers' reserves, thus allowing them to lower rates. About 18 states are currently reporting lower year-to-year car insurance premiums. These states include California, Connecticut, Indiana, Iowa, Kentucky, Montana, New Hampshire, New Jersey, New YorkNorth Carolina, South Carolina, Rhode Island, Texas, Utah, Washington, West Virgina, Wisconsin and Wyoming. What's going on in the U.S. isn't being paralleled in other countries. Car insurance in the United Kingdom is growing at an extremely rapid rate, with average premiums for full coverage leaping by almost 6 percent from July to September of 2009. This leap has been described as the most rapid rate hike in more than a decade. Annual rate increases are also hitting new highs, and are expected to peak at about 14 percent for this year. According to industry insiders overseas, rates are being driven up by an increase in fraud and crime-related claims, and the aftereffects of the recession. In order to take advantage of decreasing automobile insurance premiums, drivers should shop around and use the many online quote comparison sites to determine who can offer them the best policy for the lowest price. A long-term relationship with an insurer isn’t the same as a marriage, and shouldn’t deter clients from taking their business elsewhere when something better comes along. |
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