Rising Rates and Questionable Criteria in the Auto Insurance Industry
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Rising Rates and Questionable Criteria in the Auto Insurance Industry

Tuesday, September 11, 2018By Richard Alexander

You may notice that your auto insurance rates have soared in the last few years. You are not alone. Statistics show that auto insurance rates have increased at over twice the rate of inflation. Premiums reached an average of $1,427 nationally according to an online source. Consumer advocates have expressed concern about this trend and more specifically about the inability of state regulators to control these rates. Moreover, insurance companies have come under scrutiny for using certain types of personal information, such as credit ratings, to determine insurance rates. Amid suggestions that these tactics attempt to bar lower income individuals from receiving insurance, many believe that the auto insurance industry and their regulatory bodies are in need of increased scrutiny.

Factors Contributing to Rising Rates

An annual report on auto insurance shows that insurance rates have risen more than 20 percent since 2011. In the most expensive state for car insurance, Detroit, the average cost of insurance is $1,464. Industry experts maintain that there are several factors triggering higher insurance rates. First, extreme weather situations in 2017 led to increased rates for insurance holders. Weather events can cost hundreds of millions of dollars in car damages, which auto insurers cover under comprehensive insurance. Insurance companies are now paying out more in comprehensive claims than they have paid over the last decade.

Another reason for surging insurance rates is the higher costs of accidents. The number of fatal crashes and the severity of injuries has been increasing steadily since 2011. The total number of deaths in 2016 rose 6 percent from 2007, which costs the insurance company millions of dollars.

Other factors leading to higher insurance rates include the cyclical nature of the insurance industry and the increase in the number of drivers on the road.

Using Consumer Data to Set Insurance Rates

Insurers use Big Data to determine rates for drivers. This involves a complicated formula that is not shared with the public and relies on various factors such as educational level and credit score. Using these criteria has the potential to discriminate against the low-income drivers who cannot purchase state-required insurance. In addition, regulators may fail to properly monitor the use of Big Data. These inconsistencies have led to calls for insurance reform.  

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