Every so often we see reports on the news that some auto insurers have closed the year with a loss. This happens when the claim payments are higher than the premiums collected. Not being able to control the overhead related to running business contributes to these losses as well. In another word, an auto insurer who mainly sells policies online and have a great website to deal with most concerns can be more profitable than an another one who relies on high street presence.
If there is a continued trend that large insurers keep losing money every year the rate increases can be inevitable. Auto insurance market in the United States of America is highly dominated by few companies. The largest ten companies collect about 70% of the premiums every year. Those companies achieve such success because they offer competitive products to their customers.
However, such dominance coupled with losses suffered may persuade them to increase premiums. They would count on the fact that they are well recognized and most policyholders would bear the increase and stay. This is probably the case as people are reluctant to changes. And there would not be any good reason to do so if several other companies follow the practice of increasing rates.
There are several angles to it before drivers start warring about these premium increases. First of all, rate increases have to be approved by each state insurance department. So, it may increase in California but stay the same in Texas. It is unlikely that a state commissioner will refuse a reasonable increase demanded by a company who paid more for claims than premiums collected.
The most comforting developments are that auto insurers are finding new ways of assessing risks accurately. That is why good drivers have been seeing considerable rate cuts in the last 7-8 years. Underwriters have been using credit scores, education, profession, homeownership and similar data. The better your background and financial status is the lower rates go.
On the other side of pendulum drivers get penalized for failing to manage a good financial budget. Furthermore, single parents, poorer neighborhoods, people with low income jobs and below average credit scores would pay more than the first group. Policyholders are clearly being differentiated based on many other factors now.
These developments suggest that companies are trying to penalize bad drivers more and more. And good drivers keep getting great rates all the while. Following this logic suggest that first rate increase would be levied on high risk drivers. Companies would try to either clean them up by offering rate increases. And if they still decide to stay they will have to pay higher premiums demanded.
Therefore, drivers are urged to pay attention to these new factors influencing their rates. Also pay extra attention not to get involved in accidents and not to pick up traffic tickets. Even when they lose their jobs people can still manage to keep a good credit history by being extra mindful who they organize their payments. It is important that they keep paying premiums as usual without any delays. In that case, current car insurance companies will have no reason to check their credit history. And they will not be penalized for deteriorating credit score immediately.