Above, local South Florida news reporting on the impact of recent flooding on auto claims.
Below, this synopsis from April adds up the various forces at work to jack up auto rates – including more expensive cars and parts, more accidents due to cell phone distracted drivers, but significantly, climate impacts.
Climate change. Nearly 360,000 vehicles were ruined or damaged during Hurricane Ian.
Hurricanes, wildfires, and other natural disasters are making vehicle insurance more costly. Some people in climate-impacted areas are seeing more limited insurance options. Some insurers are pulling out of these areas altogether.
It’s not just auto insurance either. The Wall Street Journal recently ran a story about increases in property insurance:
The average annual home insurance cost rose about 20% between 2021 and 2023 to $2,377, according to insurance-shopping site Insurify, which projects another 6% increase in 2024.
Worst of all, home insurance premiums are soaring. Rates rose by more than 10% on average in 19 states in 2023 after a series of big payouts related to floods, storms, wildfires and other natural disasters across the U.S., according to an Insurance Information Institute analysis of data from S&P Global Market Intelligence. More Americans also moved to disaster-prone areas in recent years, increasing the exposure to these events.
So even if you have already locked in the price of your house and automobile, these ancillary expenses can still raise the cost of ownership.
Some would point to corporate greed as a reason for the increased costs but the numbers don’t bear out that thesis.
The combined ratio is a way to measure profitability in the insurance space. It’s essentially the losses plus expenses incurred by an insurance company divided by the premiums earned. The higher the ratio the worse off the profitability for insurers.
If the number is greater than 100 that means the insurers are losing money by paying out more than they’re taking in. If it’s below 100 that means they’re profitable.
Data from Standard & Poors shows personal providers of home and auto insurance have been losing money for a few years now:
So how will the auto insurance industry adjust to climate change? Stefan Kleinekoort, a trained mechanic and the founder of The Driver Adviser, believes consumers are likely to see new insurance products — as well as higher costs — as weather events worsen.
“Insurance companies may likely develop new coverages in response to the increasing frequency and severity of natural disasters,” Kleinekoort says. He adds that “insurers might shift some of their … costs onto consumers by raising rates for all auto insurance premiums.”
Michael Orefice, senior vice president of operations at SmartFinancial, doesn’t necessarily see car insurance companies developing new types of coverage, but he thinks deductibles will rise sharply.
“Californians, for instance, already pay a separate deductible for wildfires on their homeowners insurance policies,” he says.
“If states like California start to see increasing comprehensive claims for damaged cars caught in these fires, insurance companies may feel squeezed to their limits, and they may impose a separate and more costly deductible for wildfires.”
Put simply, the rapidly changing climate may make car insurance more expensive.
Looks like a big opportunity for future driverless cars with subscription ride service.
Even though it’s illegal, a lot of flooded cars that should be scrapped (or disassembled for parts) will be resold to poor folk in foreign markets.
This is analogous to inventory from smoke- or water-damaged stores and warehouses being bought up and resold online. If you go through an off-brand seller, you may end up with products spoiled by mold or the wrong storage temperatures.
Saw a story where a tradesman’s pickup, sporting his ‘name’ in large letters, went to be scrapped. Later was shown on the news as a gun totting technical in some poor shithole country still with the name displayed.