| Why
Insurance Rates Go Up and What You Can Do
About It As
renewal notices go out in the mail,
policyholders across California are finding
that their homeowner and auto insurance rates
have risen.
Unfortunately,
several factors have caused the auto and
homeowners insurance markets to harden
nationwide. Bob Hartwig, Ph.D., chief
economist for the Insurance Information
Institute, estimates that the cost of both
auto and homeowners insurance coverage will
increase by nine percent in 2003.
Auto
Insurance
California law
requires insurance companies to set auto
insurance rates based on four factors:
motor vehicle record, the number of years
driving, the number of miles driven, and other
factors determined by the California Insurance
commissioner. However, rising medical
costs, higher vehicle-repair costs, and
skyrocketing jury awards are now driving up
the cost of auto insurance.
Medical
Costs: The
latest statistics collected in 2000 by the
California Office of Traffic Safety (OTS) show
that a traffic collision was reported every
one minute and two seconds. Among the
500,000 traffic accidents reported, OTS
reports that 201,679 of these accidents
resulted in either death or injury.
Medical costs are a major component of the
price of auto insurance.
Court
Decisions:
One recent decision banned the use of
aftermarket parts, which forces insurance
companies to pay higher costs for brand-name
auto parts. Another 2001 Georgia Supreme
Court ruling requires insurers to pay
consumers the diminished value of a car, even
if it is fully repaired.
Jury
Awards: According
to the Insurance Information Institute, the
average jury award in auto liability cases
rose 44 percent in 2000.
Homeowners
Insurance
Several factors
are contributing to rising homeowners
insurance rates. Insurers are paying out
more in claims than they are collecting in
premiums. From 1997 to 2001, the number
of non-catastrophe losses paid by insurers per
insured home climbed more than 10 percent and
the cost of an average claim skyrocketed by 29
percent.
As a result,
it cost insurers on average 42 percent more to
provide insurance for a home in 2001 than it
did in 1997. During the past decade,
homeowners' insurers have paid out $1.18 in
expenses for every dollar that they have
earned in insurance premium.
Water
Claims: California
insurers paid roughly two billion dollars
between 1997 and 2001 to satisfy claims for
household water damage - more than most
natural disasters. The cost of
water-related damages - including mold - has
climbed dramatically in a short time, with the
average California water damage claim
escalating to $4,730 in 2001 from $2,537 in
1997.
Home
Building/Repair Costs: Though
inflation has been relatively stable in recent
years, the cost of home repair has not.
While the Consumer Price Index (which measures
the cost of living) increased by 8.4 percent
from 1999 to 2001, the cost of home repair
escalated by 17.3 percent during the same
period.
Catastrophes:
During
the 1990's, the frequency and severity of
natural disasters such as earthquakes,
wildfires, and storms increased
dramatically. During the past 12 years,
insurers have paid more than $100 billion in
catastrophe claims.
How
You Can Save Money
Although
insurance prices are currently on the rise,
there are several things you can do to control
costs.
Ask About
Discounts: Alandale offers many
discounts to our customers, including rewards
to longtime customers of certain companies and
clients who buy several policies.
Maintenance:
Keep your home well maintained.
Regularly inspect and replace water hoses and
other fixtures that might leak or spark.
Home
Security: Installation of certain
home security devices and systems may qualify
homeowners for an insurance discount.
Deductibles:
Consider raising your deductibles, and to
file insurance claims only in the event of a
major loss.
Maintain
Good Credit: A good track record of
financial decision-making can help save money
on the cost of insurance.
This article
is for information purposes only.
Alandale offers no express or written
guarantee that your premium will be affected
by the items in this article.
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