For most of the car insurers, 2015 was a difficult year. A significant rise in claims and subsequent pay-outs coupled with sluggish bond markets, there is no other way left for insurance companies but to hike premiums for drivers in 2016-2017. Huge number of drivers took to roads last year and this invariably resulted in an increased number of accidents.
This forced insurers from across America to settle large number of claims and see their fund reserves going down drastically. This is evident from reports appearing in media which say that almost 14 out of the 20 large insurance companies in U.S. reported losses more than 100%. Only firms such as GIECO, Travellers and Progressive accounted for losses which were less than 100%. Alternatively, it implies that these insurers had sufficient premium fund accumulations for payouts and other related expenses.
Most of the states prescribe minimum liability coverage for bodily injuries to drivers and victims as well as property damages resulting from accidents involving insured cars. And medical costs have increased manifolds these days and as a result, insurers face increased risk of shelling out more money to cover up for these rising costs. Consequently, they may think of hiking premium rates and the pinch is likely to be felt by drivers.
Even repair costs for cars have gone up significantly and so when an insured car meets with an accident involving another car, the damages can be extensive. Property liability coverage can cover the costs that are likely to be incurred on repairs of other person’s vehicle and these have gone up considerably over the past few years. Nevertheless, property liability limits could vary from state; check that in your state.
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The main reason for which companies are considering hiking average car insurance rates for the next year is that they are facing the problems with hospitalization costs incurred by drivers. Besides, new cars with advanced technology have become expensive to replace or repair and these have added to claims settlement costs meaning thereby that the payouts were high and funds depleted.
Premier auto insurance providers like GEICO have reported losses during the first nine months of the year 2016 on account of settlement of claims arising out of car accidents and resulting claims because of bad weather conditions. One can conclude that depletion of funds for other insurers may be much greater than GEICO. The result is a pending premium hike.
Apart from increasing operating costs and claims settlements, one more problem faced by auto insurance firms is decline in bond yields. Insurers invest funds in bonds with the hope of realizing 4 to 6% annual returns every year. But with the collapse of the market in 2008, the interest rates have dropped and so has the yield that was expected.
Most of the companies are about to hike car insurance rates by about 12% to 19% for the next financial year. The impact of increase in premium rates will vary from state to state but its effect will be felt by drivers across the United States as they need to be ready to shell out more money from their pockets.