Insurance Premiums are Skyrocketing (California & Florida Aren’t Helping)

Car insurance premiums are SKYROCKETING… Unless you live in California… Where your policy may be canceled altogether. Here’s why.

Many people wrongly assume that insuring a sports car like the Corvette is insanely expensive. But hit a certain age with a clean driving record and premiums become mostly about replacement costs vs miles driven. And those costs, as it turns out, are driving car insurance premiums up dramatically all over the United States.

If this is news to you, you’re not alone. Thousands of Americans are being blindsided after receiving notifications from their insurance companies about skyrocketing new premiums unrelated to past claims, tickets, or accidents. Here’s one example, posted to THIS THREAD right here on CorvetteForum —

My car insurance just shot up 56%. No kids. No accidents, no tickets, easily last 35++ years. My agent told me my home insurance will probably go up 50% as well when it renews year end.

Another member posted THIS LETTER from Allstate in New Jersey stating that rates are likely to go up 51% for liability-only policies and 39% for full-coverage policies. Here’s an excerpt —

So what’s behind the rising rates?

The TLDR is this — pandemic-fueled economic factors [insert political opposition blame here!] made an expensive baby with rising rates of fraud, litigious law firms, and catastrophic weather events. Basically, everything costs more and takes longer to fix.

And insurance companies wanna make bank, bro. (And drive a Range Rover.) So we have to pay.

Here are several of the key, contributing factors:

More People are Dying in Crashes

Photo credit: Kaidog posted to CorvetteForum
(driver lived in this particular crash)

The first question to ask is, are more people crashing, causing insurers to have to pay out on more claims? Compared to 2020, yes. According to the National Highway Traffic Safety Administration, Police-reported crashes increased from 5.3M in 2020 to 6.1M in 2021. But if you look back at other years, say 2019, that number was 6.7M, which seems to be a high point. (2011 was relatively low, also at 5.3M). Over the last two decades, the number of reported crashes appears to be seesawing rather than increasing.

However, the number of fatalities has been growing steadily, from under 30,000 in 2011 to almost 43,000 in both 2021 and 2022. Despite the fact that modern vehicles have never been safer.

Car Values Hit Historic Highs

Photo credit: Steve McCarthy for CorvetteForum

When the pandemic shut down the global economy in 2020, auto manufacturers had the brilliant idea to save money by ordering fewer semiconductor chips. Then, in the wake of changing consumer habits and a cash-infused economy [insert political opposition blame here!], soaring new-vehicle demand smacked right into a global supply chain meltdown, preventing the manufacturing of new cars and many other goods. Pricing, for everything, went accordingly nuts and brought on a nasty case of inflation.

Whoops.

Couple said inflation and supply chain woes with all sorts of new features and technology — safety monitors, enhanced cruise control systems, magnetic ride control, front-lifts, active valve exhausts, carbon fiber everything, cameras everywhere, over-the-air updates, the most powerful naturally aspirated V8 of all time — and you end up with the most expensive new cars ever made… that, until very recently, were also selling at or way over MSRP.

Which left/leaves insurers on the hook to the bank for the whole thing (assuming the owner got gap insurance) should they crash.

Soaring Parts Prices (if You Can Find Them)

Photo credit: RpEnterprises, posted to CorvetteForum

But let’s say you don’t total the car. You can fix it, right? Yes! … But it’s going to take a lot longer and cost buckets of extra cash.

Why? Global supply chain problems also impacted replacement parts for new cars. So let’s say you’re in a minor fender-bender and need a new bumper; guess what’s not available and costs more? Yep. Car parts.

Things seem to be improving in 2023, but according to Automotive Fleet, last year at this time, car parts pricing had risen 20% to 30% since the start of the pandemic… If you could actually find parts to buy. This I experienced personally when swapping an LS3 into a Roadmaster Wagon for LS1Tech.com. In 2021, major components were delayed by up to six months. But, by the end of 2022, anyone looking to buy the same LS3 E-ROD Connect & Cruise system would have had to pay an extra $2,000. (And that’s just one example.)

There’s also the EV factor to consider. According to Forbes, EVs cost roughly 53% more to fix than similarly priced gas vehicles in the same class. Yes, fully electric vehicles are still a relatively small part of the industry with less than 1% of vehicles on the road in total. But EV sales hit a 5.6% market share in 2022, and seem to be increasing. (They were 7.1% of new car sales in January this year.) And with more and more of them traveling the roads, the more expensive they’ll all be to fix when they wham-bam Teslacrash.

No One Wants To Be An Auto Repair Technician

Photo credit: PLRX, posted to CorvetteForum

Another reason repairs cost so much? Rising labor costs. There aren’t enough good, well-trained mechanics. So shops have to pay more to find good techs and craftsmen, which means the shops have to charge more for repairs. Fox Businessreported last month that, according to the National Automobile Dealer Association, 76,000 auto mechanic positions open up each year, but there are only 39,000 students graduating from technical colleges or training programs.

Rising Rental Car Reimbursement Costs

Photo credit: Hertz

While auto manufacturers were dumping orders for semiconductor chips, rental car companies offloaded un-rented vehicle fleets. And you’ll never guess what happened a year or so later. Demand for new cars (and travel) surged, which meant that rental car companies had a hard time buying new fleet vehicles at ever-rising prices. This translated into limited availability and higher daily/weekly rental costs. Hertz says this equates to roughly $35/day more on average versus 2019.

So car rental prices are up AND it’s taking longer to repair cars because shops can’t get parts, which means insurance companies are paying more for customers to be in rental cars for longer periods.

Systemic Insurance Fraud

#gallery-1 {
margin: auto;
}
#gallery-1 .gallery-item {
float: left;
margin-top: 10px;
text-align: center;
width: 100%;
}
#gallery-1 img {
border: 2px solid #cfcfcf;
}
#gallery-1 .gallery-caption {
margin-left: 0;
}
/* see gallery_shortcode() in wp-includes/media.php */

Photo credit: Richard Newton (rfn026), posted to CorvetteForum,
(pictured vehicles were NOT alleged to have been involved in fraud) 

Any time lots of people are struggling financially, fraud rates rise in tandem. And the last three years have been a wild ride of mass layoffs and furloughs that transitioned into soaring inflation, leaving many facing financial difficulty. (Not to mention a whole bunch of people who spent big money buying more car than they could afford.)

Car insurance fraud is multifaceted, of course. People destroy their own cars to avoid payments or get cash. Auto repair shops scam customers for unnecessary repairs. Dealerships sell branded titled vehicles with clean titles. Thieves stage accidents to file false repair bills and fake medical claims. And there’s even “soft fraud” which involves paying customers inaccurately insuring themselves to save money on premiums.

Basically, if a scam exists, somebody’s doing it. And while the insurance companies, and the government, are attempting to minimize fraud, insurers are still paying out millions to fraudsters. And so we get to pay high insurance premiums because of it. (What’s that story about a free lunch?)

Higher Medical Costs

Photo credit: VCU Libraries,
Distributed by Creative Commons Attribution 2.0

Over the ten-year period of 2009 to 2019, the average costs of personal medical expenses went up 4.5% annually. Well above inflation. In 2020, that figure surged to 10.3% alongside pandemic expenses. Why do Americans pay so much money for healthcare? Harvard University’s David Culter believes the core factors are three-fold —

1. Healthcare administration (looking at you, insurance companies)
2. Good old fashion greed and gouging (looking at you, hospitals & drug companies)
3. Overuse of newer (expensive) medical technologies

Toss in an aging population and hospital staffing shortages, not to mention that fraud we mentioned earlier and rising medical malpractice insurance premiums, and you’ve got a recipe for the most expensive healthcare in the world. And insurers are passing the buck to their customers.

Lawsuit-Factory Law Firms

Photo Credit: Brandonrush,
distributed by Creative Commons Zero, Public Domain Dedication

It’s hard to say if lawsuits are on the rise, per se. Because America has been an extremely litigious society for years. Regardless, the problem apparently stems from the fact that lawyers in the U.S., unlike many other countries, can take cases on contingency. No doubt this helps the less fortunate fight when they couldn’t afford representation in lawful cases. But it also leads directly to an increase in lawsuits because the only way some firms get paid is by winning lawsuits. (Think about how impossible it is to go for a drive without seeing a billboard for one of these lawsuit-factory law firms.)

This system naturally leads to more fraud. But even if it doesn’t, any time the lawyers step in, prices go up accordingly, which ultimately gets passed onto the customers of insurance agencies in the form of higher premiums.

Extreme Weather — California & Florida Aren’t Helping

Photo credit: Ozzy Trevino for CBP Photography,
Public Domain

I know this is going to infuriate some folks, but even according to Fox News, weather-related billion-dollar disasters are on the rise. The short version is that more people with more expensive things now live in more places that are more vulnerable to increasingly dangerous weather. (There’s a perfect storm joke around here somewhere.) Think California wildfires or Hurricanes in Florida.

In California’s case, wildfires in 2017 and 2018 wiped out roughly 25 years of insurer profits. Meanwhile, Florida homeowner’s insurance rates are six times the national average, which many say is caused by storms, fraud, and lawsuits. This problem started as a homeowner’s insurance crisis. But since people tend to park cars in garages that burn to the ground and/or flood, it’s now a big car insurance problem as well.

Oh, and while the population-dense sunshine states get most of the hate on this issue, consider how few, if any, places are genuinely safe from every imaginable disaster. Plus, we can now expect, whenever certain types of disasters become more common in certain places, insurance agencies to exit coverage in affected locations.

California Premiums AREN’T Skyrocketing (This Might Be WORSE)

Photo Credit: Adoramassey, 
distributed by Creative Commons Attribution-Share Alike 4.0

In the late 1980s, Californians put a law into place — called Prop 103 — that limited the rights of insurance companies to raise rates without first getting approval from the state’s insurance commissioner. Generally speaking, this has been pretty good for customers. In fact, if you live in California right now, you might have seen rate increases, but nothing along the lines of 56%.

The bad news? This might be worse.

Instead of rates rising by shocking amounts, some Californians are losing insurance altogether.

Now, most of the bad news on this topic has focused on homeowner’s insurance, with major companies, including State Farm and Allstate leaving California altogether. The mass exodus isn’t quite the same for auto insurance, however.

For example, the insurance commissioner recently granted a $263.7M rate hike for State Farm. But it’s a growing crisis that may well end up following homeowner trends. More specifically, it’s harder than ever to buy a new policy. People with late payments are being dropped. There are longer wait periods until coverage begins. It’s a mess, looming and current.

Conclusion: Why are Insurance Premiums Rising?

Very simply, rising costs, labor rates, insurance company profit loss, and changing weather patterns are, according to the insurance companies, threatening profits to such a degree that these companies are either jacking up insurance premiums dramatically. Or leaving certain markets altogether.