The first question that I ask consumers who are shopping for insurance is, “why are you shopping for insurance today.” The responses that I get differ, but there are a few reoccurring ones that come up from time to time. The most common response is, “My insurance rates keep going up, and I have never had a claim!”
This usually sparks a very in-depth conversation detailing the way the insurance companies rate risk. Most people believe the insurance basis risk on the clients driving habits. Although this is included in the risk factor, there are many uncontrollable factors that insurance companies use.
Many of these uncontrolled factors are self-explanatory. Demographics, the age of the driver, the age of the vehicle and others are used to determine the risk. However, several additional factors affect insurance rates that we do not think about.
More Drivers and More Miles
In 2008 the economy hit a major recession that caused layoff, unemployment, a decrease in sales, and an overall slow economic movement. People spent less money and took fewer trips. They were more cautious about when and where they traveled, did not take vacations, and overall kept a tight grip on their money.
As we are starting to come out of recession, we see an increase in activity on the road. Unemployment is down, and steady income is beginning to flow again. People are traveling more and taking trips more frequently. We also see an increase in commercial and business travel. More sales calls are being made. Deliveries are increasing, and more drivers are being hired.
These activities are creating more traffic and more miles being driven. Both factors increase the risk of accidents. As a side effect, insurance rates are, in general, increasing.
Inexperienced Drivers on the Road
I have personally had issues with inexperienced drivers. In this case, I am not referring to civilian drivers, but instead commercial drivers with CDL’s. As a salesman, I am on the road a lot, and I have noticed a drastic change in driving behaviors of semi-truck drivers.
As the recession has ended, industrial companies are hiring more and more drivers. Many of these drivers are new to the industry and have little experience driving semi-trucks and commercial-grade vehicles. Also, the experienced drivers are starting to retire.
Truck driving is a difficult life, time demanding and stressful. This creates a high turnover rate in the truck driving industry. As they experienced drivers leave the industry, they are being replaced by drivers that are lacking experience. This is increasing accidents and claims.
There is a direct correlation between the cost of fuel and claim rates. The high gas prices in the past kept people off the roads. They found other forms of transportation such as carpooling, taking the bus, or even walking.
Now that gas prices have dropped, people are driving more often and longer. This increases the number of vehicles on the road, increases the risk, and ultimately has caused an increase in claims filed. The more claims that are filed, the higher the cost of insurance climbs.
Oklahoma recently passed a law making it illegal to text and drive. Though that is a good deterrent, it indeed has not illuminated the problem. Every day I see people texting and driving, talking on their cell phone while driving, and only not paying attention. We are getting new toys in vehicles as technology becomes more sophisticated. Bluetooth, DVD players, MP4 players, GPS navigation, and so on. Each one of these becomes a distraction and is increasing the likely hood of accidents.
This also brings rise to the issue of vehicle cost. Vehicles have more technology in them today than they did ten years ago. Moreover, the cost to repair a vehicle is increasing. In the past, replacing a bumper was simple. Now you have reverse sensors and backup cameras and all these other expensive items that enhance the cost of the repairs.
Ultimately technology does not just make repairs more expensive; they are causing distracted driving and growing the number of claims, along with the average cost of claims.
It is unfortunate, but today, people are being sued for almost anything. A minor fender bender in the past may have resulted in a quick bumper repair. Nowadays people see a claim to earn extra income and the same fender bender is leading to a claimant seeing chiropractors, doctors, taking time off work, hiring attorney’s and claiming pain and suffering.
Whether these individuals are indeed injured and need this high amount of medical treatment is not for me to say. But statistically, the financial demands on claims have drastically increased. The involvement of attorney’s in claims has sharply risen. Moreover, the number of claims that settle out of court has decreased over the past 30 years.
These factors; medical bills, chiropractic visits, x-rays, attorney fees, court cost, and other factors add up, and the insurance companies are having to pay more to protect the insured. This causes an increase in the insured's rates.
Increasing Medical Expenses
I talked about the growth of medical activity in the above paragraph. To add to that, the cost of medical expenses is growing as well. Doctors and physicians are concerned about the litigious society as well. To protect themselves and their business, they are running more tests to rule out any and all possibilities when diagnosing a patient.
As technology increases, these test and procedures become more sophisticated and cost more. This leads to a rise in medical expenses. Not to mention the inflation that the medical industry has overall. The cost of a doctor exam in 1980 for whiplash was a fraction of the cost it is today. Doctors would examine the patient with their hands, check for swelling, write a prescription for anti-inflammatory pills, and send the patient home.
That does not happen today. Today they are also given x-rays to make sure there are not any fractures in the spine. The patient is given anti-inflammatory for the swelling, pain medication for the pain, and medication to help them with the trauma of being involved in a car accident. Then the patient goes to a chiropractor and receives weekly chiropractic treatment for 3-4 months.
To add to the list of items, the expense for all these different treatments are drastically increasing. The insurance company is paying for these costs, but they are allocating the cost to the insured.
These six factors are increasing the cost of claims. As the insurance company pays more money on claims, they also must increase the cost of premiums. Unfortunately, the economic trend does not show any sign of letting up. I would expect the cost of insurance to increase gradually and continually. This is one of the critical reasons that prices on insurance are always growing even when you have not personally had a claim.