San Diego Union-Tribune (Sunday)
CAR INSURANCE IS ABOUT TO GET MORE EXPENSIVE
San Diego has the third-highest projected average increase among 25 metro areas; state-approved rate hikes and higher repair costs are part of the reason for the big jump
Auto insurance premiums are projected to rise considerably in San Diego in 2023, and they could grow more than in almost every other large metro area in the U.S., according to a new study of auto insurance premiums by Bankrate.com.
Even as inflation has calmed in recent months, San Diego drivers should expect to pay on average around 15 percent more for car insurance in 2023 over what they paid last year, bringing their annual premiums to $2,270, according to Bankrate’s research.
But there are two silver linings for drivers here: even with the forecasted increase, San Diego’s cost of car insurance is lower than in other California cities; and this increase is the first after years of stable prices.
Cate Deventer, the report’s author, said San Diego’s projected increase was one of the highest across the U.S.
“It was the third-highest increase that we saw of the 25 metro areas,” Deventer said. “Only Phoenix and Orlando had bigger increases than San Diego. So it was definitely pretty substantial, and it’s a bit of a higher increase than we’re seeing on a national level as well.”
To estimate 2023 premiums, Bankrate’s analysis used a third party’s quote estimates for a 40year-old hypothetical driver with good credit in different cities and states.
Deventer said geographic variations can be hard to explain.
“It’s really hard to say exactly why one area has increased more or less, or has higher or lower rates,” Deventer added. “What we can say for sure is that when rates are higher in any given area, it generally means that that area is presenting more of a risk to the insurance companies.”
What’s driving up premiums
Base rates and premiums are both expected to rise in San Diego in 2023. The base rate is what an insurer charges for coverage of its pool of drivers. The premium, or what portion each driver pays, takes into account the individual’s specific circumstances: is the car typically parked on the street or in a garage? Is the driver considered high-risk because of previous accidents?
Two national trends explain why San Diego’s premiums are expected to go up: people are driving more miles and they’re driving less safely. In parallel, it costs more to pay for claims.
Regarding claims: To understand how companies decide what to charge, look at the cost of what insurance pays for, said Bob Passmore, a vice president with the American Property Casualty Insurance Association, a trade group.
“Your premiums are primarily driven by what it costs to pay for the things auto insurance pays
for. And when repairs cost more, when rental cars cost more, when medical care costs more, then there’s only one thing that can happen to auto insurance,” he said.
For example, the Federal Reserve Bank of St. Louis’s passenger rental car price index rose 65 points over three years, from around 200 index points in July 2019 to around 265 points in July 2022.
Regarding safety, people are driving about as many miles as they were before the pandemic, but they’re driving as if they were not used to sharing the road anymore — taking risks, speeding, not using seat belts and generally being distracted or reckless behind the wheel, he said.
“So we started seeing more fatalities per mile traveled,” he said.
What this means for insurers: U.S. drivers are a lot riskier to insure now, compared to during the pandemic. The insurance industry’s data backs this up. Loss ratios for passenger vehicles — which compare losses to premiums (not counting insurance expenses) were the highest in 2022 in more than 20 years, according to the association.
The average loss ratio before the pandemic, from 2016 to 2020, was 65 percent.
All the above explains why rates are expected to rise in California and nationwide. But why would prices rise more in San Diego than in other cities?
Deventer, Bankrate’s insurance analyst, said San Diego’s drivers might be changing. An influx of new drivers, for example, would drive up the local average premium. Or it could be that repairs cost more here.
“It’s a higher cost of living area. So those accidents are probably going to cost more,” she said.
Wayne Mccormick, the owner of San Diego-based Mccormick Insurance Solutions, said if premiums go up in San Diego, that’s a reflection that this region’s claim costs are catching up to the rest of the state — in terms of frequency and severity. (San Diego’s rates are typically lower than in other California cities.)
“I think from an actuarial standpoint, it’s probably just simply the insurance companies are starting to figure out that they’re having greater, more expensive losses in San Diego,” he said.
There are a few reasons why that might be happening. One is tied to San Diego’s growing density and congestion. A second reason, albeit a minor one when it comes to calculating insurance premiums: increased auto thefts and catalytic converter thefts in San Diego County.
California: boon or bust for car insurers?
California’s two-year rate hike started thawing last fall, when the state started allowing car insurers to raise prices again. And insurers, Deventer said, are playing catch up — especially after inflation made claims more expensive at the same time rates were capped.
The California Department of Insurance, which vets proposed insurance rate hikes, froze prices during the pandemic as people stopped driving, road risk went down and consumers suffered financial hardships. Premiums were still able to rise — if a driver changed vehicles or got a DUI — but the base rates were unchanged.
“We do think it’s probably likely that rates are going continue to rise, just to catch up with the 2022 inflation,” she said. “And then again, specifically in California, to catch up with those few years that they weren’t able to take those rate increases.”
Geico’s 2.1 million California customers will pay on average $125 more per year, following a 6.9 percent approved rate hike. Allstate’s approximately 992,000 customers will also pay 6.9 percent more. (Hikes of more than 7 percent trigger a public hearing, so asking for less is a way around that.)
Even though inflation is slowing, there’s a lag between when rate request increases are filed and when they’re approved.
While these increases might sting, there’s an upside, Mccormick said. Rate increases keep the state attractive to insurers, which translates to more competition and, paradoxically, lower prices.
With rate increases on hold and inflation striking, “they’re way behind in what they need to collect for rates,” Mccormick said. “And it’s forcing some companies to leave the state and others to mitigate their exposure to losses by writing less business. And that hurts you and I as consumers because there’s fewer companies to compete for the business.”
He added he’s not worried about a mass exodus, but that some key players “could potentially leave if the rates continue to be unfavorable.”
Halting insurance rates for several years has presented “a double edge sword” for California insurers and consumers, Deventer added.
“It’s a really interesting situation,” she said. On one hand, not paying more for car insurance during a period of inflation and economic strife brought relief for consumers. “But what happens to the insurance companies then is when we have rapid inflation like we did in 2022, they aren’t able to adjust their rates to make sure they can pay out those claims. So you have insurance companies viewing California as a bit of a higher risk because they know they might not be able to charge actuarially sound rates.”
But Carmen Balber, the executive director of Consumer Watchdog, an advocacy nonprofit, said insurers sounding an alarm about profitability are “crying wolf,” because the rate approval process is intended to look out for both drivers and insurers.
“The purpose of this oversight is not only to make sure that Californians aren’t paying too much, but it’s also to make sure that insurance companies have the money they need to cover the claims that they have to pay,” she said.
The pandemic was very profitable for insurers, she added, because they only partially refunded premiums to drivers who drove less and had fewer accidents during the pandemic.
“Just the top companies overcharged more than $5 billion to California drivers,” Balber said. Around $2 billion was returned, she estimated. “They gave a little bit of that money back, but not nearly enough.” She continued: “As insurance companies are coming in now, seeking rate increases, some of which have already been approved in California, those overcharges have never been accounted for.”
Balber said insurers have a strong incentive to stay. “California’s market is so large that insurance companies are harmed if they leave it,” she said. “So the idea that if we give insurers the room to make more money than they need, then they’re going to be more interested in California’s market just doesn’t really play out in the real world.”
Drivers who get rate increases should look for a better fit from one of the state’s more than 130 auto insurers. Some discounts are problematic, Balber said. Some companies give discounts for certain professions, which her group has called out as a discriminatory practice because the jobs that are favored by insurers tend to be higher income, white-collar positions.
“It makes sense to shop around. Because the characteristics one insurance company might value, another insurance company might not,” she said.