Imagine a middle-aged adult who spent the last several decades assuming his car insurance rates would plummet once he reached his 50s. Yet here he is paying more than he did in his 30s. If this sounds like your experience, you are not alone. Car insurance rates have steadily climbed over the last few decades.

It turns out that insurance companies have to factor in lots of variables when determining rates. They have to look at driving record, coverage levels, the make and model of the car, where the driver lives, and so forth. But even drivers whose circumstances have not changed in more than a decade are still seeing higher rates. What gives?

The hidden reason car insurance keeps heading north is found in the cost of the cars we drive. Not only are modern cars more expensive to purchase, they cost a lot more to repair too. Insurance companies have to keep raising their rates to keep up with ever-increasing claims. View here for more exciting revelations 

Auto Insurance Losses

The money paid out by car insurance companies is defined in the industry as loss. Numbers showing losses from 2014 through 2018 don’t paint a pretty picture. In 2014, car insurance companies paid some $45.3 million in collision claims. They paid out in excess of $58.7 million in 2018.

Likewise, average claim costs rose significantly during the 10 years ending in 2018. Back in 2009, the average claim was $2,869. It was up to $3,841 by 2018 – a nearly 30% increase with only a negligible increase in the number of claims filed.

What Makes Cars So Expensive

Understanding that car insurance companies are paying a lot more to settle claims leads to the inevitable question of what makes a modern car so expensive. In a word, technology. For starters, imagine a car company using just a few carbon fiber body panels to achieve some weight savings. Those panels cost a lot more than comparable aluminum panels. And after a crash, they cannot be pounded out and filled. They have to be replaced entirely.

Salt Lake City’s Rock West Composites explains that carbon fiber’s cost is one of the reasons car companies are not making entire car bodies with it. Doing so would be too expensive to justify for a typical passenger car.

Moving on, all of the smart features that make modern cars so safe are powered by an array of sensors and complex electronics. Damage sensors in a minor fender bender and what would have cost just a few hundred dollars to fix 20 years ago now cost thousands.

For the ultimate squeeze on your wallet, combine carbon fiber with electronic sensors. An accident could have your insurance company paying to replace both. It is a double whammy that increases their costs considerably. The only way they can survive more expensive claims is to pass the extra costs on to customers.

It Is All About Risk

Safety features like lane assist and rear cameras are all about reducing accidents. That is good news for insurance companies whose entire businesses revolve around risk. But there is another side to the safety equation. Even though safety equipment can reduce accidents, it will never prevent all accidents. The trade-off is a more expensive car that costs more to repair when accidents do happen.

Car insurance companies now have to weigh the risk of having to replace expensive carbon fiber parts, sensors, complex electronics, and more. If the last 10 years of automotive claims are any indicator, it is not going to get any cheaper for them to underwrite policies. That means higher rates for all of us.

Clare Louise

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