Las Vegas already has a well-deserved reputation for having among the highest auto insurance rates in the US. Although Nevada, overall, is not considered to have abnormally high auto insurance pricing, Clark County NV and Las Vegas, in particular, is typically ranked in the top 25 highest priced areas.
One of the questions we hear from our customers, on an almost daily basis, is why have my auto insurance rates increased, despite having no tickets or accidents? The answer is fairly straightforward, although not particularly popular. Let us examine the myriad of factors that affect and increase the overall price of auto insurance rates.
The insurance industry goes thru pricing cycles that are called “hard market” and “soft market”. Soft market cycles happen when rates are typically holding flat or falling at renewal. Business insurance was in a soft market cycle from about 2007 until the middle of 2012. Most business owners saw their overall premiums fall in real dollars during that 5-year period. Auto insurance rates have likewise been in a soft market cycle for the last 4 to 5 years. During soft market cycles, insurance companies tend to “loosen” underwriting criteria and accept a much broader range of customers.
Hard market cycles are just the opposite: increasing rates and tighter underwriting standards.
What drives the market cycles? Many factors are involved including competition for a particular insurance product, investment income, overall profitability, regulatory oversight, and company leadership. Not all insurance companies are in the same cycle at the same time. Consumers may find that smaller regional insurance companies are lowering rates while larger national companies are raising prices, or vice-versa.
Vehicle Values and Repair Costs
The average price of a new car in 2012 was just over $30,000 which is an increase of about $1,200 from 2011. In 2002, the average was just under $19,000. Obviously, this means the cost to settle a total loss has increased by the same percentage. The cost for parts and labor to repair vehicles has risen along the same lines. That is the effect inflation has on the price of goods and services in general and insurance companies are not immune.
Fixed Insurer Expenses
Insurance companies have operating expenses just like any other business. These expenses include payroll, sales commission, office expenses, and utilities. Just like vehicle repair costs, these expenses tend to increase over time. Employees need pay raises, office expenses increase in price and utility bills are going nowhere but up. These set of costs are often referred to as the insurer’s “expense ratio” and typically consume about 25-30% of overall revenue.
This should not be a shock to anyone, but medical bills have been on a meteoric rise the last several decades. Injury claims tend to be the most expensive part of an auto accident and the cost to settle them is increasing dramatically every year.
Las Vegas has one of the highest percentages of attorney representation for auto accidents in the country. While hiring an attorney might be beneficial for accident victims, especially if the other party is disputing the facts or fault, it does drive up the cost of settling auto insurance claims. Those increased legal expenses are factored into auto insurance rates and passed on to consumers.
Regional Claim Results
Insurance companies increase rates regionally (e.g. by State, City or ZIP code) based on the overall claim results of that particular area. Claim results is another term for insurer profit or loss. In other words, if the insurance company is making a profit in a particular locality, rates will tend to stay flat or even drop. If that particular area is not profitable rates will go up.
Changes in Rating Factors
Auto insurance companies have adopted some extremely complicated rating models in the last few years. Dozens of factors that affect your overall rates are thrown into the rating model, including many that you might not be aware of. For example, your credit score is now considered a major factor in your auto insurance rates. Some insurers also consider occupation and educational background. These factors change over time and, consequently, rates tend to move up and down for individual customers
The Independent Agency Advantage
As an independent insurance agent, Safeguard Insurance has the advantage of being able to shop around for our customers. We represent several auto insurance providers and leverage our multiple company relationships to find our customers the best value for their auto insurance. Our loyalty is to you, our customer, not any one particular insurance company. We constantly monitor the renewal premiums of our policyholders and look for other options that might save them money.