AUTO INSURANCE RATES IN CALIFORNIA - GOING UP!

Auto insurance costs in California are on a steady rise.

Almost all, if not all, car insurance companies are increasing their rates. Auto insurance in California is becoming unprofitable, some companies have stopped writing new auto insurance business and few if any new companies are coming in to the state. I've never seen anything like it. Here are a few reasons:

The costs of paying claims, bodily injury and car damage, are increasing dramatically. We all know that medical costs have gone up and the cost of auto parts is also way up. The complex integrated computerized and robotic systems in today's cars means that a $70,000 car that sustains only $25,000 of body damage may be totaled-out because of the cost of those complex systems that would need be replaced in addition to the cost of body and mechanical damage repair. The total cost ends up being more than replacing the car and the insurance company declares the damaged car a total loss.

Frequency of accidents is way up. There are a number of reasons for this:

• The already congested urban areas are even more congested.

• People are more stressed than ever; we are having the craziest political and news cycles I've   ever seen.  Bonehead politicians are talking about nuclear war. Stressed people make mistakes.

• Increased use of drugs, legal and illegal, prescription and recreational. 

• Increased use of cell phones, texting and other sources of distracted driving.

• Modern car design with built in blind spots, presumably compensated for by complex camera systems that many people use instead of, themselves, looking around behind them.

Consequently, Loss Ratios are up and are unsustainable. Loss ratio is the ratio of claims-paid-out to premiums-received-in. There are major auto insurance companies that are operating at ratios close to 100%, where 58% - 70% is profitable. 

Competition among auto insurers has decreased. With the auto insurance market less profitable, some companies have stopped writing new business (I have lost 15 companies in the past 2 years) and new companies are not venturing to enter the California auto insurance market because it is not profitable, thereby strangling competition. Without competition the consumer is at the mercy of the remaining companies. 

Increasing government intervention, direct and indirect. This also deters competition and restricts the flexibility needed by insurance companies and businesses to respond to normal cycles or extreme events.  

This is a summary of reasons for your rates going up. There are some more technical and legal ones, but this should give you a good idea of what's happening in California regarding your insurance rates.

Stephen B. Groton

YourInsurancePal.com