Most Americans think insurance prices are calculated fairly, but many find paying a challenge: research

Consumers are facing rising auto and home insurance costs across the country, according to reports. (iStock)

Most Americans agree that U.S. insurers use a fair process to price their auto and homeowner policies. Still, nearly half of them struggle to pay for coverage, according to a recent Insurance Research Council (IRC) survey.

Insurers use rating variables to calculate risk of loss. Consumers generally agreed that the variables used by insurers to set home and auto insurance prices were fair, according to the survey. Variables directly related to the risk of the insured property were judged to be the most fair in determining value, but factors related to the insured’s personal profile were judged to be less relevant.

While they agree with how policies are priced, 47 percent of respondents say paying for insurance is a challenge, the survey said. Auto and homeowners insurance costs are either a major (12%) or somewhat major (35%) concern for household budgets.

Auto and home insurance prices have risen faster than inflation. Car insurance prices have already risen 17% in the first six months of 2023, and costs could rise another 4% by the end of the year, according to research from Insurify. Home insurance policy premiums increased an average of 21% at renewal, according to Policygenius’ 2023 Home Insurance Pricing Report.

“Given how inflation and other factors have driven up the cost of auto and homeowner’s insurance in recent years, the Insurance Research Council was not surprised to learn that paying for these essential coverages is a financial burden for a significant number of Americans,” the IRC said President Dale Porfilio. “Yet at the same time, consumers expressed broad support in our survey for the fairness of the rating factors used by insurance carriers to price their auto and homeowners policies.”

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These factors used by insurers are unfair

Eighty-five percent of respondents said pricing policies based on a driver’s previous driving violations were fair, the survey said. While 76% said using their claims history and 75% said using information obtained from telematics devices was a legitimate way to determine policy pricing. Telematics programs use connected devices, smartphones or an automaker’s mobile app to monitor and report details about driving habits and can potentially lower rates.

Only three – of 14 rating variables – did not secure majority support among respondents, which included:

  • 45% say using a driver’s level of formal education is unfair
  • 42% believe that using gender is also not a valid way to price insurance
  • 41% say using a driver’s marital status when pricing a policy is unfair

The factors used to set home insurance prices received even wider support, with all 19 variables insurers use considered fair by most respondents, according to the survey. For example, 86% support insurers using factors such as safety systems, such as smoke detectors, in pricing policies. Using the home’s overall physical condition, square footage, and the home’s roof quality are cumulatively considered very fair or somewhat fair.

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Insurers are leaving customers in the lurch

The higher cost of covering climate-related claims has prompted several insurers to exit markets with a higher risk of natural disasters, according to a report by Insurify. Last year, 18 climate disasters caused at least $1 billion in damage each to $165.1 billion, according to NOAA’s National Centers for Environmental Information (NCEI).

“We’ve all seen the headlines about insurers pulling out of states like California and Florida, where claims for catastrophic weather events were at all-time highs, but this pattern is playing out across the country, affecting thousands of homeowners in every state.” Brain Armstrong, director of insurance intelligence at JD Power said in a statement. “Insurers are redesigning their actuarial maps, confronting state regulations that increase limits and struggling with profitability.”

It’s not just home insurance that’s affected, according to Betsy Stella, vice president of carrier management and operations at Insurify. Cars are increasingly caught and destroyed by fires and floods, and severe cold snaps that bring ice make collisions more likely.

“This has resulted in motor insurers paying a higher number and higher cost for customer claims,” ​​Stella said in a statement. “As a result, customers are seeing higher premiums as insurers raise prices to cover these losses.”

If you want to save money on your car costs, you can consider switching your car insurance provider for a lower monthly rate. You can visit Credible to shop around and find your custom premium without affecting your credit score.


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