In June of 2015 I put together a message regarding trends in home insurance particularly with rising rates and deductibles from unprecedented claim payouts from wind and hail storms. My industry was going thru a transformation on home insurance that was big time affecting consumers. My message provided an education on why, plus a warning that we must watch our home insurance renewals closely because there are carriers that are sliding in dangerous and costly endorsements. I am happy to report that home rates have stabilized, but there are still carriers that are forcing high wind and hail deductibles as well as ACV (Actual cash value / depreciated) roof loss settlement endorsements. It is not uncommon when I am competing for a client that I point this out on their current coverage, and that potential client is surprised because their current agent spent no effort in making sure the poor endorsement was understood. “Buyers Beware” is still very much in play on home insurance.
I always like to remind people that I too am a consumer. I pay my insurance just like everybody else. My family has four drivers, two of which are teenagers, and my rate for four vehicles is a little over 6k a year. It’s crazy.
This message is about auto insurance and it is important, because like home insurance back in 2015, this is happening and will affect every consumer. I have sat back for the last 12-14 months reading reports and listening to industry experts. It is a fact that auto insurance rates are climbing at a record pace. There is not one carrier that has not already taken a rate increase and has more planned in the near future. If any agent or carrier says differently then they are not forthright or they are not paying proper attention. The loss ratios within the auto insurance industry are at all times highs. The numbers are real and they are scary. When a carrier is paying out $1.05 in claims for every $1.00 they collect in premium, things are not working and rates will go up.
Why is profitability in auto insurance so terrible? Here are the primary reasons:
- Distracted driving. This is an epidemic in America. The next time you are driving on the highway, look around at how many people are on their smart phone. My industry predicts that 36% of accidents could have been avoided if the at fault driver was not distracted with their smart phone. The number of claim incidents have tripled in auto insurance since 2010. Distracted driving is dramatically driving up the costs for teenage / youth drivers because the loss ratio surrounding around these young drivers is horrible. In fact, there are carriers that are just not playing and have no interest in competing on an account with young drivers.
- More litigation. Consumers are hiring an attorney and pursuing bodily injury settlements more than ever. Traffic fatalities are at a 10 year high.
- More new cars that are more costly to repair. In 2016 there were 17.6 million new cars sold which is an all- time high. These cars on average are $600 more costly to repair than cars built in 2010.
So what is my agency doing about this?
It’s business as usual for us in that we watch our client’s endorsements and renewals. If things are out of line, we shop that client with our arsenal of carriers; however, we are exposing and confirming particular discounts more than ever as our clients have life changes. We don’t just sit back and let policies renew without care. We know which of our carriers are competitive for certain risk characteristics, and we make sure the client is with the right carrier for the best coverage at the lowest cost. The notion of only doing auto / home packages is still very much alive. It’s the right thing to do and it is working for our clients. As the insurance industry travels through hard and soft cycles within auto and home insurance, the package concept allows stability and premium savings that are compelling. We are shopping and moving our clients around to a different carriers at an unprecedented rate. Our retention is still at 94%, but we have to work at it harder, which is ok. We are competitive and there is no doubt we are catching our competition “sleeping at the wheel” during this hard cycle. Our hit ratio on new clients is nearly 80% and we are saving people big money and fixing significant coverage problems.
Bottom Line …….
Auto insurance rates are going up. How much exactly is unpredictable and every client is different. I think it is safe to anticipate 20%. If you are an account with drivers under the age of 25 it will be more.
But …Affiliated Insurance Agencies will be there kicking, screaming, and working hard to push rates down as much as possible for our current and new clients along the way. If you look back at our 50+ years, we excel in hard cycles and we embrace the challenge.
Shawn P. McBride