Vehicle Insurance Rates are Increasing. Will There Be More Money to Pay Claims?
If you haven’t noticed, vehicle insurance rates are increasing. The insurance industry blames rising costs and new risks for higher premiums, but they also make substantial profits. One way to maintain insurance profits is to cut costs, including claims payments. Will increased rates and solid profits result in higher settlement offers? Don’t count on it.
Satterley & Kelley, PLLC represents people severely injured in vehicle accidents. Nearly all the recoveries our clients receive come from insurers. Their concerns about their bottom line can directly impact how much they will pay to settle a personal injury claim.
Vehicle Insurance Rates Climb Upward
Vehicle insurance premiums increased by an average of 26% this year, pushing the average cost for full coverage in the US to $2,543 annually. This is up from $1,771 two years ago, reports Live Insurance News. The average cost for full coverage in Kentucky is $2,616, according to Bankrate.
Factors cited for the increase include:
- Prices of new and used vehicles continue to climb
- Increased repair costs
- More advanced technology in newer cars is more expensive to repair or replace
- More post-pandemic traffic and accidents
- More severe weather causing vehicle damage
- Rising number of vehicle thefts
The federal Bureau of Labor Statistics states that overall annual inflation was 3.2%, but car insurance rates spiked nearly seven times that amount, or 20.6%. Premium increases are expected to continue because risky driving, the number of accidents, and the severity of harm caused by accidents are also predicted to increase.
Investors Gain from Policy Owners’ Financial Pain
The pain for auto-insurance customers is quickly becoming investors’ gain. Insurance giants’ shares and profits are hitting records, thanks partly to steep rate hikes.
Travelers, considered a bellwether for the property and casualty industry, earned a record $2.991 billion in 2023, with $1.626 billion coming in the last quarter of the year. This came after charging double-digit rate increases to businesses and individuals, reports the Wall Street Journal.
After a punishing 2023, insurers have a path to profitability for their auto policies, which runs through your bank account. Significant rate increases improve their revenue, and inflation that boosted replacement and repair costs is easing. Losses due to climate change-related extreme weather are a big, long-term unknown, but the short-term looks bright for insurers.
Insurers enjoy a one-way street when it comes to rate increases. If companies aren’t profitable enough, rates increase. When they are profitable, rates don’t go down. The vehicle insurance industry did well during the pandemic because fewer people drove, and claims dropped.
Another factor favoring insurers is that state regulators are open to approving rate increases. Last year, Allstate was approved for a 30% increase in California and a 15% boost in New York. According to Carinsurance.com, the average auto coverage increase approved in Kentucky in 2022 was 8.5%.
How Do Claims Impact Insurance Carrier Profitability?
Insurance companies mainly generate income through sales to customers. They sell insurance policies and receive premiums as payment. Insurance companies make a profit by ensuring their premiums are greater than the claims against their policies. This is known as underwriting profit. Insurance companies also receive income by investing their premiums, known as investment income.
Insurers can boost their underwriting profit by limiting their claims payments. They may discourage claims by making claimants go through additional bureaucratic hoops. They can also deny more claims, pay less for them, or a combination of these tactics.
Insurance companies can do this within limits. They must comply with the terms of the policy, which is a legal contract with the customers. They also need to follow federal and state insurance laws. If they consistently “lowball” claimants, they risk more lawsuits being filed, higher costs in defending them, and judgments against them could be far more than what the plaintiff would’ve accepted as a settlement.
An insurance company treating its policyholders illegally risks a bad faith lawsuit, which, if successful, could be very costly to the company in terms of a jury verdict and bad publicity.
Talk to a Louisville Car Accident Lawyer Near You
We are your boots on the ground if you’re seriously injured in a Kentucky accident. Call our Lousiville office at 502-589-5600 (toll-free at 855-385-9532) or complete our contact form to get started.