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What’s Driving Auto Rates?

Auto insurers dealing with the “pandemic price”

Across seemingly every news outlet, it’s hard to escape reports of inflation and rising consumer prices.

And, like other goods and services across the economy, auto insurance rates are a part of the conversation. Currently, many carriers are raising prices to account for unexpected costs—but what’s driving those decisions?

You guessed it. It’s primarily pandemic related, but perhaps not in the ways you might think. As you have conversations with your clients about rising auto insurance costs, the following may help you better explain what’s driving rates to help them better understand the situation.

A return to “normal”

Of course, we’re hardly back to “normal” as the world continues to wrestle with the pandemic, but driving behavior, particularly vehicle miles traveled, has essentially “normalized” and returned to pre-pandemic levels.

At the outset of the pandemic, miles driven dropped, claims fell, and insurers issued refunds/credits, lowered rates, or both. As 2021 unfolded, driving behavior picked up as did claims frequency and, in turn, insurers’ costs.Most auto insurers subsequently found themselves underpriced.

Rising repair and replacement costs

For insurers the past predicts the future. Generally speaking, insurers review historical data and trends to set prices for future expected costs. The pandemic, however, upended expected repair and replacement costs in ways that were challenging to anticipate. Case in point: unpredictable pandemic-related supply chain disruptions and labor shortages have driven claims costs up substantially.2

In fact, the Bureau of Labor Statistics reports that average expenditures for vehicle repairs have risen more than 4% over the last year, while used car and truck prices have skyrocketed by more than 40% over the same period.3

When you combine the uptick in vehicle miles driven and the related increase in claims with rising costs to cover those claims, carriers are paying a “pandemic price” that will affect rates throughout the auto insurance industry in the near term.

How agents can help

Knowledge is power, and while rate increases can be difficult for consumers to accept, as their trusted, expert adviser, you can provide valuable information and context to help your clients understand what’s driving these rate changes.

Consumers choose independent agents for their knowledge and guidance, and in challenging times like these, agents can help clear up confusion, provide expert counsel, and deliver the peace of mind consumers crave in uncertain times.

  1. U.S. Federal Highway Administration, Vehicle Miles Traveled, Monthly Report: June 2021.
  2. Insurance Information Institute, “Auto Insurance Rates Impacted By Labor Crunch, Supply Chain Disruptions,” June 2021.
  3. U.S. Bureau of Labor Statistics, Consumer Price Index, Table 2: July 2021.
  4. Manheim, Used Vehicle Value Index: June 2021.

Article written by: Keith J. Mita, CIC CPCU AICProgressive Insurance Sr. Sales Representative – Personal Lines

NFIP Flood Insurance Changes

Flood Risk Rating 2.0

925 Partners Insurance

Austin Williams, VP Personal Division

The National Flood program will start implementing its new Flood Risk Rating 2.0 starting on 10/01/2021 for new policies and 04/01/2022 or later as each policy comes up for renewal. While there are quite a few changes with this new rating system I have highlighted the biggest changes below:

  • How the rates are derived. FEMA will use both FEMA sourced data and other outside sources as well as the cost to rebuild, new rating variables, and flood frequency to calculate rates under Risk Rating 2.0. Each property has their own individual rate based on their flood risk. Prior to the change the address, value of home, or flood frequency were not used to calculate rates. Currently, policyholders with lower-valued homes are paying more than their share of the risk while policyholders with higher-valued homes are paying less than their share of the risk. Because Risk Rating 2.0 considers rebuilding costs, FEMA can equitably distribute premiums across all policyholders based on home value and a property’s unique flood risk.
  • Another big change is New Business with effective dates after 10/1/2021 will not require an Elevation Certificate, but if one is entered and more beneficial, it will be used. If the Elevation Certificate is not as beneficial as the information determined by FEMA, the policyholder will not be penalized, it will simply not be used. Prior to this change if the property was in a high-risk flood zone (A, AE, VE, V) then an elevation certificate was required to get flood coverage.
  • Rates will be calculated per thousand, opposed to per hundred previously, this means coverages will need to be in thousands.
  • No longer including basements, enclosures, and crawlspaces in the number of floors. Prior to this change a crawlspace was counted as a floor so rating was from the ground level. With this change, homes on a crawlspace or elevated enclosure could see premium reductions as they will now be rating from the next higher floor/actual first floor.
  • Prior claims variable applied at renewal of a policy, AFTER the first loss reported under Risk Rating 2.0.

While there are quite a few changes, some things are remaining unchanged:

  • Existing statutory limits on annual premium rate increases require that most rates not increase more than 18% per year.
  • The current flood maps will still be used in determining flood zone and if flood insurance will be mandatory for purchase with a mortgage.
  • FEMA will continue to offer premium discounts for pre-FIRM (homes built prior to the area being mapped for flood zones) subsidized and newly mapped properties.
  • Policyholders will still be able to transfer their discount to a new owner by assigning their flood insurance policy when their property changes ownership.
  • Discounts to policyholders in communities who participate in the Community Rating System will continue. Communities will continue to earn National Flood Insurance Program rate discounts of 5% – 45% based on the Community Rating System classification. These discounts are earned by the communities based on initiatives and being proactive in their flood plain management and vary by community. However, since Risk Rating 2.0 does not use flood zones to determine flood risk, the discount will be uniformly applied to all policies throughout the participating community, regardless of whether the structure is inside or outside of the Special Flood Hazard Area.

Quite a few home insurance carriers and other stand-alone private carriers offer flood insurance and those programs remained unchanged by the National Flood Program changes mentioned above. If you have further questions on how these changes will impact your home or business, please call/email us and talk to one of our flood insurance experts. We can be reached at 855-925-1200 or admin@925partners.com

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