Underwriting acts of human error, among other factors, has rates going up

To Benjamin Franklin’s axiom, “. . . in this world nothing can be said to be certain, except death and taxes,” Floridians could add a third item — that insurance premiums will surely increase. Whether homeowner’s or auto, those premium notices rarely bear glad tidings. Many Floridians blame the increases on the most recent hurricane to hit the state, even for auto premiums, but this simplistic view doesn’t capture the nuances of how insurance companies calculate rates.

Premium shock

Craig Lantz of Lee County received notice of his premium increase from Travelers Insurance in mid-September, so he knows his auto insurance didn’t go up because of Hurricane Ian. He owns a 2013 car and a 1995 truck, so he was baffled about why the annual rate went from $1,451 to $2,303. He’d been with Travelers on a home-auto bundle since 2020, after buying a house in Lee County after moving from the Boca Raton area. The move came with a surprise benefit: His auto insurance rate dropped nearly 50% because — at least at that time — auto insurance rates were lower in Southwest Florida than on the East Coast. He’d had no traffic tickets, but in the last year he had a repair claim when he minorly damaged a vehicle by driving too fast into a flooded street. He paid his $1,000 deductible toward the $1,200 that it cost to replace the engine shield under his vehicle, but the $200 that Travelers covered seemed hardly worthy of the 58% premium increase, especially given his vehicles were now both a year older.

“I called my agent, and they called back a day later after running comparisons with other insurance companies and said that really was my best rate,” Mr. Lantz said. “It blew me away since I’m carrying $1,000 deductibles on both for everything. I called around on my own for quotes and found the same thing. And this was all before Ian, so I can’t wait to see what the hell happens next year. I don’t understand why it would have jumped that much. There are obviously more people here — more traffic — therefore more accidents, but my vehicles are older so you’d think it would go down a little because replacement would be less.”

“I’ve driven in some good states as relates to auto, and some bad states, but I will tell you that the worst state that I’ve ever driven in — to the point I’m white knuckled — is Florida. People will say, ‘Well, that’s because they’re all old.’ No, it’s because people just do what they want to do, go as fast as they want to go, and one of my personal favorites I’ve seen is making a right-hand turn from the far-left lane. It’s insane.” — Deborah Sewell

Carmella Pacella of Collier County said she and her husband retired to Florida thinking they’d enjoy a lower cost of living, attracted by the lack of state income tax and their assumption that costs for things like auto insurance would be lower than back in traffic-hectic New Jersey. As a long-term customer of Farmers Insurance with bundled home-auto, she was shocked in December when their annual auto insurance renewal jumped from $2,970 to $4,258. They’d had neither claims nor tickets. They don’t even drive much, with under 22,000 miles on their 2018 mid-size SUV. (Their policy also includes a luxury German sedan that their middle-aged son drives, but he also doesn’t drive much.) Then two months later, they received a non-renewal notice for their homeowner’s insurance citing exposure management as the reason for the policy cancelation — they’d had no damage from Ian, but their home and its roof were now over 15 years old. Ms. Pacella said she didn’t think the auto premium increase reflected an unbundling from their homeowner’s insurance, since the letters came two months apart, unless Farmers had already decided to cancel their home insurance in December and hadn’t told them. She called her local Farmers agent for an explanation about the auto premium.

CORNELIOUS

“There really wasn’t any logical explanation,” Ms. Pacella said. “The agent said they had nothing to do with it, and this all came from corporate. I told her that I’d never heard of increases like this. I talked to my neighbors, and they’ve been increased a little, but nothing like this. I’m so shocked because we came here for no state tax and lower rates, and every time we turn around, we get hit left and right on either auto or homeowners. It’s crazy because we were paying lower insurance in New Jersey. We’ve been customers of Farmers for over 10 years, and we’re baffled by this increase and our homeowners’ termination. Are they targeting senior citizens?”

CHAPMAN

Lee County Realtor Dylcia Cornelious called GEICO’s 800 number when she received a renewal notice in November where her and her husband’s premium increased from $223 to $633 per month for their 2018 and 2021 Lexus vehicles. At a near tripling, the premium increase represented nearly a third car payment, and the rate wasn’t because of business usage because Realtors rarely taxi customers around in the post-Covid era, Ms. Cornelious said.

“I pitched a fit — I’m really good at pitching fits,” she said with a chuckle. “First, most people don’t know what GEICO stands for — it’s Government Employees Insurance Company — and my husband is a retired federal agent, so we’ve been with them since before the general public could be a part of it. So, I told them, ‘We’ve been with you forever, so how is this OK?’ They told me, ‘Well, it’s Lee County, and you had a lot of hurricane damage.’ Yeah, but I didn’t have any, and I didn’t file a claim. But it doesn’t matter, that’s how it is, and it’s going up.”

Source: Quadrant Information Services, 2023 / Bankrate.com

What’s driving rates?

If it’s not all hurricane-related, as the people who received their premium spikes pre-Ian can testify, then what’s driving up auto insurance rates in Florida?

“In property insurance, you’re underwriting to acts of God, but in automobile, you’re underwriting to human error,” said Deborah Sewell, a Bonita Springs retiree who worked multiple positions in insurance brokerage and national accounts risk management for four decades, to include writing the policy manuscripts that some insurance companies use for issuing insurance policies.

She said while these are completely different concepts, the same basic items factor into rate structures. Insurance companies still have operating expenses, they still purchase some reinsurance to protect their own loss exposure for auto as they do for property insurance, and they still track historical loss experiences.

“A lot of things are the same, but here’s the big difference when it comes to loss,” Ms. Sewell said. “I was on the road a lot with my job. I’ve driven in some good states as relates to auto, and some bad states, but I will tell you that the worst state that I’ve ever driven in — to the point I’m white knuckled — is Florida.

People will say, ‘Well, that’s because they’re all old.’ No, it’s because people just do what they want to do, go as fast as they want to go, and one of my personal favorites I’ve seen is making a right-hand turn from the far-left lane. It’s insane. I won’t drive during season — I make my husband drive me. Just the recklessness and the seriousness of the accidents we have in Florida are, from what I’ve seen, a lot higher. Now, I have not seen the actuarial data of auto in Florida — I’ve seen it on a national basis — but Florida has an increased risk just based upon its loss experience.”

The free Florida Market Assistance Plan matches people shopping for insurance to participating local licensed Florida insurance agents who may be able to write the requested insurance policy. COURTESY OF FLORIDA MARKET ASSISTANCE PLAN

Ms. Sewell said the main difference between homeowner’s and auto insurance is that insurance companies can typically predict their maximum risk of loss with homeowner’s insurance. Because it primarily insures property, the company knows the value of the home and therefore know the most they risk losing. And while there is a property loss aspect to automobile insurance in terms of the value of the car, auto is primarily insurance against liability. Once someone files a claim for injuries caused by an auto mishap, how much could those medical costs run? What if the wreck caused long-term medical problems or disabilities that require expensive, ongoing medical care? What if the person hires a lawyer? The insurance company no longer has a predictable loss the way it does with the property damage portion of auto insurance, where it knows its maximum exposure would be the replacement cost of a car — a knowable number.

“The insurance company could have a client whose vehicle is involved in an accident, and a person is hurt and files a claim, but we don’t know what that (medical) claim is going to end up being in two to five years, so the company can’t quantify it,” Ms. Sewell said. “In actuarial terms, the insurance company comes up with loss development factors to look at the losses that occurred during this policy year to try to come up with what they’ll look like in five years. That factor could be as high as 500%, and it gets attached to every claim that happened this year for what it could develop out to in three to five years. So, a $100,000 claim could become a $500,000 claim, and insurance companies have to put the money aside — technically — to cover that. You look at the loss experience in Florida, the elderly population, the historical frequency and severity of claims in the state, and that’s how your rates are looked at and propagated over the period of time.”

Brian Chapman, CEO of Chapman Insurance Group, an independent insurance agency with offices in Charlotte and Lee counties, concurs that the unpredictable nature of liability claims is affecting auto insurance premiums.

“With auto, litigations are a big component of insurance,” he said. “I don’t have one auto carrier that we write with right now that isn’t looking at taking rate increases somewhere in the 8% to 12% range, so that’s just the driver of the size of the claims and the legal cost associated. ”

He said another factor is that even a modest car costs more now than it did a few years ago. While it isn’t the primary factor behind premium increases, insurance companies must account for the increased cost of replacing or repairing damaged vehicles into their cost of doing business.

“Everything has gone up so much that there’s no such thing as a ‘minor’ accident,” Mr. Chapman said. “Nothing’s minor in auto anymore because everything (costs) so much more.”

As to personal factors affecting insurance premium rates, Mr. Chapman said that a safe driving history — no tickets, no accidents — still factors in, but not to the extent that it once did. Insurance companies now consider financial history, credit rating, education level, work profession, length of time with previous insurance companies, coverage choices with previous insurance carriers and many other pieces of information that increased technology has provided them with. This makes it difficult for Mr. Chapman to advise customers on what personal factors they could improve to score lower auto premiums.

“I don’t know that I necessarily know enough to tell you why I don’t like it, but I don’t like it because it’s a mystery,” he said. “When I started my career 20 years ago, we had five simple rate categories. Now there is no simple. As technology has gotten into cars, the carriers have tried to get more sophisticated as well. Some carriers now have thousands of components that create the rate, and they’re all proprietary secrets like the Coca Cola recipe, so it’s not like we can say, ‘Just pay off that debt, and your rate will be better.’ It used to be we could give a ballpark on what auto insurance might be, but the components are mixed like a soup and aren’t shared, so it’s difficult to understand why two people with the same credentials living next door and driving the same car the same distance every day would have the auto rate for one be $1,000 and the other $800. There’s no information that’s out there for you to be like, ‘OK, this makes sense.’ It’s complicated — that’s all I can say about that.”

Grabbing the wheel on your rates

With so many proprietary mysteries driving up auto insurance premiums, is there anything consumers can do to control the rates they pay since not even their agents can learn what causes the rates to go up? There are some strategies that people can try.

First, think like the insurance carriers and consider the amount of risk you’re willing to expose yourself to in order to guide how much coverage you purchase.

“Figure out what’s important to you, from a coverage standpoint, and (understand) there’s no such thing as full coverage — it doesn’t exist,” Mr. Chapman said. “When people say they have ‘full coverage,’ it means they have good limits, but every auto policy has limits, so buy those limits appropriately. Your auto is your biggest (liability) exposure you have because you use it every day, and you can drive it at 55 miles-an-hour — you can’t run or bike that fast. If you have assets (to protect) — multiple real estate holdings, watercraft — buy appropriate coverage. And an important section of auto insurance coverage is designed to protect you when you’re involved in an accident that’s someone else’s fault, but that (other) person doesn’t have enough coverage. That’s probably the most important coverage for people to buy. It protects your interests because (physically recovering from) an auto accident can be devastating.”

Increasing various deductibles on your auto insurance might lower your rates, but they increase your out-of-pocket if you ever make a claim. If you have a car loan, the lender will require that you carry sufficient insurance to protect their asset. But if you own your vehicle outright, you have the luxury of deciding if you’re willing, and can afford, to risk the potential expense of repairing or replacing a vehicle yourself if reducing or eliminating that aspect of coverage could lower your insurance premiums.

In exploring ways to bring down her new $633 monthly premium, Ms. Cornelious said she was reluctant to lower her coverage amounts.

“I refused to do that because, when you do, that’s always when something happens where you needed that particular coverage,” Ms. Cornelious said. “That’s not something I was willing to compromise on because, when you need it, then it becomes an issue.”

Mr. Lantz tried exploring how increasing his deductibles and lowering his coverages might impact his new $2,303 annual premium.

“I spent about a half hour on the phone with them going through all the components of the premium,” Mr. Lantz said. “If I’d gone bare bones up to a $2,500 deductible and carried minimums on everything, I was still looking at $2,000 or $2,100, so the savings weren’t worth it. And other companies quoted about the same or even substantially higher.”

Still, shopping around is worth trying because it could yield savings. Ms. Pacella tried it upon the advice of her local Farmers agent and found savings over her new $4,258 annual rate from an ironic source — Farmers Insurance’s own 800 corporate sales number.

“My agent referred me to another insurance company,” Ms. Pacella said. “I said, ‘Is (that) what you do — just blow your customers away and refer them to someone else?’ But then she told me I could try calling Farmers corporate, which is separate from them here even though it’s still Farmers Insurance. So, I called the 800 number, and the agent there was able to give me six months of insurance for $1,215. It’s crazy — I don’t understand how they can do that because the Farmers agent here wanted to charge me $2,129 for six months, and I compared the policies and they’re the same coverage. I called (the local agent) back and said, ‘Why couldn’t you do the same?’ She said, ‘My apologies, but corporate is different from us even though we’re under the same name. They’re able to give discounts we can’t.’ I don’t know what those discounts are because, as I’m reading, the discounts are the same as they were when I originally got my car insurance here. I called back to the corporate number (after receiving the homeowner’s non-renewal) to see if they would also do my homeowner’s and bundle, but they only do auto. So, this will be for six months, but I’m still going to have to look for someone who’ll insure both my home and auto so I can get some type of discount.”

While bundling can bring savings, some insurance companies are reluctant to offer a full range of insurance in Florida. Some will write auto policies but won’t offer property insurance, or vice versa, so it reduces the number of carriers that consumers can shop if they insist upon a company that will cover both home and auto to achieve a bundled discount. Mr. Chapman pointed out that working with an independent agent who can shop multiple carriers offers consumers more options than working with an agent that represents a single company.

One little-known discount option novel to Florida is the mature driver course, with one study showing that fewer than 15% of eligible Floridians take advantage of this discount option. Drivers over 55 are eligible to take the six-hour course offered by a variety of providers, which are available at in-person classroom sites or online for as little as $15 to $30. State law mandates that those who pass the class must receive an auto insurance discount. While the law doesn’t stipulate the amount of the discount, many carriers offer between 3% to 15% off for taking the course. The completion certificate is good for three years before drivers must repeat the class to continue the discount.

“We discuss some specific scenarios to guide you in what is the best way to react to those situations, and it’s the law that insurance companies have to give a discount for the certificate,” said Benny Penn, office manager for the Safety Council of Palm Beach County, about the mature driver classes. “Sometimes communities will call us to arrange group classes, so we will send instructors out to those communities, but we also have different locations open to the public and a third-party provider for our online class. We also offer behind-the-wheel classes for teenagers, and that one is up to the insurance companies, but some give a teen driver discount if they complete the certificate.”

One other widely advertised option for lowering auto insurance rates goes by several safe driver monikers, depending upon the insurance company, but all of them amount to being a usage-based phone app or a telematics device in your vehicle that tracks your actual driving habits, such as where, when and how far you drive; your phone usage behind the wheel; as well as your speed, acceleration, turning and braking patterns. The companies compare your patterns to maps of speed limits and traffic control devices such as stop signs. While some advertisements tout discounts of 20% or 30%, Mr. Chapman cautioned to remember that this is marketing, and these programs amount to only one factor in the proprietary secret soup that companies use to calculate rates.

When he spent the half hour on the phone with his agent exploring the policy variables for lowering his annual premium, Mr. Lantz said the usage-based app came up in the conversation.

“I looked into those programs (with several companies), and the problem is you actually lose points if you don’t drive perfectly,” Mr. Lantz said. “Besides, I’m not a fan of the whole idea of electronic monitoring.”

Ms. Cornelious opted to accept the usage-based monitoring from her insurance carrier because it promised to knock $215 off her monthly rate.

“I managed to get it down to $418, which is still a ridiculous amount if you ask me, because I agreed to do it,” Ms. Cornelious said. “But I absolutely hate it — I don’t like anybody monitoring what I do.”

Rules for the usage-based insurance monitoring apps vary by company. Some companies simply reward safe driving habits with discounts while others actually raise premiums if drivers exhibit unsafe habits, and the length of tracking varies by company as well. These programs are probably better for people who don’t drive very much, such as retirees or home-based workers. And they’re also better for people who don’t have to drive far and can do so on lower speed limit roads. These programs probably aren’t great for those who must drive on interstates, where it’s often necessary to do some speeding to stay with the traffic flow because driving slow enough to obey speed limits seems it could actually cause a wreck.

“We recently had to make a trip on the interstate to Vero Beach and trust me when I tell you that I was driving 70 but they were zipping right by me going 95 miles an hour,” Ms. Pacella said. “People do crazy driving here. I’ve never seen anything like it.” ¦

In the KNOW

Possible ways to lower high auto insurance rates

Mature driver classes for auto insurance discounts

(There are providers in addition to these located throughout the state and online, but the Florida Department of Highway Safety and Motor Vehicle must approve the course for it to qualify for discounts.)

Safety Council of Palm Beach County

561-845-8233; www.safetycouncilpbc.org

Department of Highway Safety and

Motor Vehicle’s course directory www.flhsmv.gov/driver-licenses-id-cards/florida-granddriver

AARP Smart Driver Course

www.aarp.org/auto/driver-safety/locations

Florida Market Assistance Plan

This free state program matches people shopping for insurance to participating local licensed Florida insurance agents who may be able to write the requested insurance policy. 800-524-9023, www.fmap.org