Posts
Recently the National Insurance Crime Bureau did a study on Florida questionable claims and came up with the following findings:
1) 22,679 questionable claims were referred to the bureau for further examination in 2010
2) This represented a 34% increase from 2009
3) 84% of these claims were auto insurance related
4) Miami was the worst city in the state for fraud, followed by Tampa and Orlando respectively.
The reader may find this interesting but question what it has to do with him, an honest insurance consumer. The answer is it has everything to do with your Auto Insurance premium. First we need to understand what Insruance is, and why it is important and effective.
Insurance as a concept spreads the financial risk of an accident among many that the individual could not bear. As an example, there are many drivers but relatively few serious accidents. One person bearing the costs of a serious accident could bankrupt this individual or cause serious financial harm. If this risk of this relatively small amount of accidents was absorbed by a large group of drivers, each person could afford to pay a much smaller amount, decreasing the risk of financial ruin to the group.
Enter auto Insurance. Insurance companies access the risk, set the premium, collect the premium and administrative costs. It is normal for an insurance company to divert 30% or so of the premium to adminstrative costs and pay out roughtly 70% in claims. Often the entire profit of an auto insurance carrier will be the amount they are able to make while they hold your money, called investment income, but this is a subject for another day.
Some companies model the risk better, are more restrictive, or target certain groups, hence the variance in costs and why your neighbor may get a quote from your company and say it is more than he pays, but if you call his company, it may be more than you pay. Confusing, yes.
The company's administrative costs are fixed, or relatively fixed. when there is an increase in fraud, or frequency of claims, the company will increase the premiums to THE ENTIRE GROUP it insures. Insurance companies break the risk down in macro and micro territories. So if Florida as a group loses money, the entire state will see rate increases. If certain areas are problem areas, they will see even larger increases.
This brings us back to the current state of affairs. Unfortunately auto Insurance Premiums in Florida are rising, and companies are 'underwriting' for multiple claims that fit certain patterns. In insurance lingo, this is called a hard market, and we are in one now. I hope this helps the reader understand why their premium has risen lately, regardless of what company you purchase your insurance with.
