When the letter or email comes about renewing auto insurance, there’s an inevitable groan that follows. For many, it takes up a significant chunk of their monthly budget and causes lots of stress each year.
According to the Consumer Federation of America (CFA), states should be providing more help in this regard. In a recent report, they revealed that there are certain steps states could take including;
- The removal of certain discriminatory factors on rates; examples include education and job title.
- The addition of an approval system for insurers wanting to increase premiums.
With these two changes, the CFA said that billions could be saved by consumers. Currently, insurers need government approval before increasing premiums in 13 states. While the rest of the country has experienced an 80% increase over the past three decades, these 13 states have witnessed a growth of only 45%.
The California Approach
One such state with regulations on premium increases is California. In the report, the CFA stated that drivers elsewhere could save $60 billion each year by following Alliance Insurance California’s example. Since the end of the 1980s, the national average for insurance rate increases is over 61%. California? Just 12.5%.
As well as the government approval system, insurers are also encouraged to reward safe drivers and those who travel fewer miles each year with lower insurance costs. In fact, there’s a third reason why California drivers are enjoying reduced premiums; insurers cannot pass on inefficient company costs. When an executive has a bloated salary, the state says this isn’t the responsibility of drivers. Other examples of these company costs include lobbying expenses and penalties/fines.
Driver v Insurer Responsibility
Who should be responsible for auto insurance? Carriers or drivers? According to J. Robert Hunter, Insurance Director at the CFA, drivers currently have the onus from states for auto insurance. He noted how the practices of insurers aren’t regulated and monitored closely enough considering insurance is a legal requirement for all drivers on the road (and drivers are therefore regulated heavily).
Interestingly, the report highlighted that profits aren’t affected in states with strong consumer protection, despite the increased efficiency of insurers.
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