INSURANCE MATTERS

By Russell C. Janecka

 

Auto Premiums Are Rising Due To Claims Demands Put On Insurance Companies

Methods you can use to manage your risk. 

Rising costs in auto insurance have been causing rising emotions. Everyone was tickled back when auto insurance premiums were dropping. This came as a result of tort reform legislation and competitive pressures. Due to multiple reasons though, premiums are on the rise again. I'll explain some of these reasons and give you a few ideas on how to handle your rising costs. Individuals should not feel angry about being `singled out.' A price increase does not mean yours is the only policy that is being affected, usually it is the whole company - and sometimes it could be the whole industry whose pricing is going up. Just because your premiums are rising, don't think you must jump to another company. They may undergo their own price adjustment soon after you've made the move. Besides, getting mad a the insurance company is like shooting the messenger - they are merely passing along increasing claims payments that are being demanded from them. Three major factors causing these increases are the rising costs of repairing vehicles, fraudulent claims, and the rising costs of medical services.  Some increasing costs can be attributed to past legislation and continuing litigation. While the intended up-front benefit may have been for claimants, the cost for expanded claim payments are passed right along to those paying premiums. The current industry average loss ratio for property/casualty insurance is about 110%. This means that for every dollar of premium a company takes in, on average it has paid out $1.10 in claims. They make up some of the difference in investment income. But in the long run, premiums should be adequate to pay claims for a company to be sound. We all have felt the rising costs of health services. These increasing expenses for medical care have a large impact on auto bodily injury claims. In some instances, doctors are practicing defensive medicine, which further drive up these costs. They authorize additional tests or treatments, which are of marginal added value to the patient but cover their backs in the event of subsequent lawsuits. The judicial aspect has been a mixed bag as well. The recent decision to disallow generic aftermarket auto parts as acceptable replacements has hit hard on claims costs. The court has chosen to disregard the high standard set by CAPA (Certified Auto Parts Association) which certifies auto parts.  Auto manufacturers' parts do not undergo such stringent certification nor public disclosure for their failure rate as do CAPA parts. Any reasonable person could accept CAPA parts as a high quality, lower cost alternative, yet the courts and media have put them in a bad light. Get online to www.capacertified.org and read more about CAPA parts for yourself. Buying manufacturers' auto parts to rebuild a car could cost three times its original purchase price.  We all pay a higher price for those uninsured motorists (between 30% to 40% of all Texas drivers) who ride the system. They obtain insurance to renew a vehicle registration and then let it lapse on its second premium invoice. The resulting claims affect the premium that responsible insureds are paying.  I've written before about fraudulent claims. The cost in America is in the billions, both for false (or staged) claims as well as inflated claims costs. Some of it is due to mob involvement, or just dirty lawyers, doctors, but some of it comes from everyday people who feel justified in padding their claim. The result is the same, we all pay more. So what should a person do? First of all, I should stress that the wrong time to shop for insurance is right after you have suffered an automobile accident. When being considered for new business companies will review your driving record for tickets and accidents. For discounts they will also consider whether you own a home, have good credit, which county you live in, the number of cars you own, whether you have another policy with the same company, and the presence of a vehicle alarm or recovery systems or anti-lock breaks. You should comparison shop. Get at least three quotes from different agencies or companies. Don't buy on price alone. Take into account what kind of service you'll receive. I always say to look at the real bottom line, how much coverage you have at claim time will be much more important than whether you paid a little more premium. Ask for higher deductibles for collision and comprehensive coverage. Increasing your deductible from $200 to $500 could reduce your cost by 15% to 30%. Drop collision and/or comprehensive coverage on older cars. It may not be cost effective to have collision or comprehensive coverages on cars worth less than $1,500. Before you buy a new or used car, check into insurance costs. Cars that are expensive to repair, or that are favorite targets for thieves, have much higher insurance costs.  Russell Janecka is a Certified Insurance Counselor. He is the owner of Janecka Insurance Agency in Victoria, and serves on the board of directors with Germania Insurance Companies. (361) 573-4475 e-mail: info@jiavic.com