How The Economy Can Affect Car Insurance Rates
There is a direct link between the economy and car insurance. Car insurance rates are based on several factors that are social in nature. When a large number of people are experiencing financial difficulty, car insurance rates tend to rise.
One of the first places where people tend to reduce their bills is by cutting back on the amount if insurance coverage that they purchase. Unfortunately, there is not a reduction in the damages that are caused by accidents while people are underinsured. This gap is where the insurance companies tend to lose money in a struggling economy. The insurance companies have to charge more for their services in order to provide adequate coverage for people who need to file insurance claims after an accident.
An indirect way that the economy and car insurance are linked is through an increase in criminal activity. Many insured individuals carry coverage for stolen vehicles. When the economy is in bad shape, the rate of car thefts tends to spike. This means that the auto insurance companies are paying out more theft-related claims to their customers. The increased cost of paying for more stolen cars has to be passed on to all of the customers who are insured by the company. Everyone experiences a slight increase in their car insurance rates in order to help the insurance company compensate for the higher rate of payouts.
Another way that people save money during an economic downturn is by reducing the amount of regular maintenance that they have done to their vehicles. Instead of having the oil changed every three months, people may choose to have the oil changed every six months so that they can keep a little extra money in their bank accounts. When vehicles are not properly maintained, they tend to break down more often. This is more expensive for a car insurance agency because there is a higher chance of people being involved in accidents when their cars break down unexpectedly on the road.
Even though auto insurance companies have to deal with higher rates of claims during an economic downturn, they also need to keep gaining new customers and growing their business. This can lead to insurance companies offering extra discounts for new customers so that people will continue signing up for policies with the company. Many companies begin large marketing campaigns to increase their customer base when there is a severe economic downturn. The discounts that are offered during these promotions can sometimes offset the extra expense of the rate increases imposed because of the poor economy, which is good for new and existing customers who need to save as much money as possible.