Auto Insurance Rates Keep Climbing—Why?

One of my insureds called nearly three months ago to advise that her husband had “tapped” the bumper of the car in front of them. Police had come and prepared an accident report. The insured took pictures of the two cars while still at the scene showing no apparent damage. No one at the scene indicated any injuries. Her next question was “what impact will this have on our rates?”

That’s not a simple answer. While RI law says that a loss where damages for all vehicles involved, any other property damaged, and all injuries collectively totals under $1,500, the driver’s motor vehicle record is not charged with having had an “At Fault Accident”. That does not mean the insurance company won’t raise your rates though.  Company rating plans give you a discount for no accidents in 3 years or 5 years. Many companies allow you to purchase the option of having “accident forgiveness” to avoid being charged higher rates for your first accident but that may not apply fully if the accident was your fault or if damages were above a certain threshold. I explained that despite my efforts to convince her that “Accident Forgiveness” was a promotional gimmick, she wanted it and I added it to her policy.

Then earlier this week I called her to advise that her renewal was coming up and their rates were going up 5%. Before making the call I had checked into why. That other driver now has a TV lawyer demanding $50,000 for his client’s injuries. That car now has a repair estimate of over $5,000. The accident is no longer a non-chargeable At Fault Accident. But, their accident is not even being considered in the rate increase…yet! This increase was an across the board increase; next year they may be hit with having an At Fault Accident.

Rhode Island has the 3 highest auto insurance rates in the country. Over the last 2-3 years insurance companies have been approved for 5-20 rate increases by the RI Department of Business Regulation. Those increases are not being granted without the insurance companies jumping through major hurdles to prove the proposed rates were actuarially sound; that is to say that the losses and operating expenses experienced by the companies must prove that the increase is necessary. If anything, the rate increases are inadequate to cover their cost which forces the companies to keep hitting you year after year for increases.

If rates went up in the same proportions to the US Consumer Price Index, none of us would have much of a case to blame the insurance industry for excessively gouging the consumer. The reality is that there are a lot of factors that are culminating to make these rate increases steeper than we would like.

During my conversation with the insured, I brought up the issue of distracted driving, the epidemic use of cell phones, and the resulting impact on accident frequency and their severity. She then asked me how I knew that her husband had been on his cell phone at the time of the accident. I didn’t, but it served to prove my point.

              Travelers Insurance recently released the “2019 Travelers Risk Index”. Among the many conclusions presented, it showed that despite the known risks associated with distracted driving, breaking this habit is going to be very difficult. Work pressures and the desire to multitask are reasons the distracted driving trends will continue. Proving the point, 12% of executives surveyed were willing to admit that they do not worry about the liability associated with a crash caused by an employee’s distracted driving.  20 % of the employees responding felt pressure to always be available.

                Now consider the cost to fix a late model car, whether from a distracted driving accident or any other accident. It is causing the severity of accidents to increase. An insured backing into her garage knocked the passenger side mirror off her car; a very common accident. In years back that might have cost $50-$200. The bill to replace it was over $2,000. That simple mirror is no longer a single function fixed part of the car. Most today are set up with remote controls to adjust your view; they have turn signals; they have defroster elements; they detect the presence of a vehicle in your blind spot; and most a color matched to the body of the car.  The high tech nature or cars today mandate that your Auto body technician today also an electronics expert.

The legitimate cost to fix a car today is skyrocketing, but what about the impact from the illegitimate body shop. As my conversation continued with the insured who “tapped” the other car, I learned of the pictures she had taken. She sent them to me, and I then passed them on to the Adjuster assigned to the claim. The damage to the car isn’t close to the damage now showing up on this car. Rhode Island has had a history of body shops operating as “chop shops”, using salvaged car parts and billing for new, or the common practice of swallowing client’s deductible. These and a variety of other tricks of the trade are giving the legitimate shops a bad name and force a high level distrust upon the industry. Had this insured not shared her pictures with me, the insurance company would have assumed the damage was legit and paid the fraudulent $5,000 repair bill.

Such examples of insurance fraud serve to increase the cost of insurance; not just to detect but also to legally pursue such a case through the courts.  I am confident that this carrier will challenge this case.  But, there’s another disincentive for the insurance community. Our statutes provide that from the time a claim is filed, until settlement, the final judgment is adjusted upward by 13% compounded annually. With the prevalence of court ordered binding arbitration, the cards are stacked against the insurance company and you.