Do we pay too much for auto insurance?
Auto insurance prices change in all states and mostly they increase. According to a new survey released by Consumer Federation of America, auto insurance rates in California actually declined 4 percent between 1989 and 1998 but they jumped an average 38.9 percent nationwide. The states where the insurance prices have increased the most are Kentucky, Arkansas, Nebraska, South Dakota, and West Virginia. The states where the insurance premiums have increased the least are New Hampshire, Pennsylvania, Massachusetts, Maine and New Jersey, according to the same survey. An average cost of auto insurance for consumers nationwide is around $700 per vehicle, and over $1,500 per household. The money, that the insurance policyholders pay annually nationwide, totals $100 billion, according to Consumer Federation of America.
Consumer Federation of America reports that in the last several years, insurers sharply increased premiums for homeowners and commercial insurance and reduced or eliminated coverage for tens of thousands of Americans in coastal areas. Insurers have succeeded in convincing Congress to continue taxpayer subsidies for terrorism losses and are seeking additional subsidies for catastrophe insurance. The study that was held by Consumer Federation of America released that balance sheets for property/casualty insurers are in better condition overall than at any time in history. Consumers have experienced a huge decrease in the amount of premium paid in benefits by the insurers, which went down from 72% in the late 1980s to only 60% today.
Insurance policy holders always want to know if the premiums they are paying for their auto and home owner insurance policies are overpriced and if the money is actually being used to increase the profits of the insurance companies. But the representatives of the insurance industry usually claim and try to prove that the high rates and premiums are very necessary as they help to compensate for the excessive risks the insurance companies bear. The representatives of the insurance industry also claim that insurance is a low-risk investment. The property and casualty insurance industry represents a below-average risk compared to all stocks in the market, and it is considered safer than investing in a diversified mutual fund, according to Consumer Federation of America. The same source also tells that in recent years, insurers have reduced their financial risk by making wise use of reinsurance and securitization. It is obvious that insurers will always try to make more money while the insureds will always try to save money.