When the economy is doing well, no one cares if prices rise because employers are making enough money to increase pay. This is called inflation and, so long as it stays under control, everyone benefits from slowly appreciating values. When it goes wrong, there are bubbles and 2008 shows what happens when a property bubble bursts. Once you get into recession, there should be deflation. Pay levels should fall so that business stays competitive and the prices of basic commodities should be stable if not fall. Taken as a whole, you would not expect to see major price increases in goods or services. Yet that’s what has been happening in the insurance industry. Health insurance rates in particular have been increasing quite sharply. This is partly political and partly a reaction to the increasing costs of medical treatment. So far, car insurance rates have not moved more than 1 or 2% in a single year.
What has happened in Ohio?
The Ohio Department of Insurance has just released average figures showing that rates in 2012 increased 4.1%. That’s the largest single increase since 2002. Indeed, from 2004 through 2007, rates actually fell. Up to now, Ohio has been the best possible advertisement for maximizing competition. There are 660 companies licensed to sell car insurance. That’s the third highest numbers of insurers in any American state. Naturally they were all trying to compete against each other on annual premium rates. In practical terms, some were obviously losing money on their car insurance portfolio. This year sees them trying to catch up.
What factors have influenced the rates?
As one of the northern states, Ohio gets poor driving conditions during the winter period. So how does this relate to the rate calculations? The following general factors apply:
• medical costs have been rising fast;
• the number of vehicles on the road has increased significantly;
• repair costs have been rising;
• as a large state, drivers travel more miles;
• weather-related claims are significant.
None of these factors is unique to Ohio. The question, therefore is whether other states are also reporting increases or is this a purely local response to historically low annual premium rates?
What’s happening in the rest of America?
According to the National Association of Insurance Commissioners, on an average basis, Ohio had the ninth lowest cost of insurance per vehicle in 2010. This calculation excludes uninsured vehicles and their drivers. Michigan drivers pay the eighth highest car insurance rates and their solution to keeping their own rates as low as possible is to disenfranchise themselves. Voter registration is tied to the driver’s license so people do not register to vote and give addresses in good zip code areas to qualify for the lowest rates. In Detroit which is going through bankruptcy, there are the highest number of people avoiding voter registration at a time when they should all be engaged voters. Fraud is facilitated by law. Michigan also has the seventh highest percentage of uninsured drivers on the road so that’s a problem Ohio avoids.