Why Does Auto Insurance Cost So Much?With auto insurance rates going up every year, one may wonder where all of your hard-earned money is going. Will your insurance company pay to repair or replace your car if it is involved in an accident or is stolen? The answer, in most instances, is yes. That is if the insurance company doesn't determine that you have intentionally damaged your vehicle or have been instrumental in the disappearance of your vehicle.
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It is true that driving records affect insurance rates for all drivers. Drivers having many driving violations on their record and drivers having accidents attributed to them, drive insurance rates through the roof for drivers with good driving records. In this way the insurance company doesn't have to front the cost for these unsafe drivers. All drivers, even safe drivers, pay the bill for careless driving habits. In fact, many insurance companies do not penalize careless drivers for accidents, even if it is their fault. Some insurance companies even advertise accident forgiveness. Does this mean that the insurance companies condone reckless driving so that they can raise rates for all insured drivers and seemingly justify it to any inquiries?
What if you do not have any claims in the past five years? If you do not have any violations or accidents on your record you might receive a whopping 10% discount on your auto insurance. This means that if you pay $150.00 a month you only get a $15.00 discount, not even enough to eat out at a fast food restaurant with your spouse. In the meantime, your rates may go up more than 10% since insurance companies consider themselves to be fortune tellers and predict that you will have a claim in the near future. Therefore you may have to pay for a predicted accident, whether or not you have one.
But is it really the cost of repairs from accidents or the cost of replacing a stolen car that determines how high insurance rates go? Or is it the exorbitant salaries and compensation packages paid to the executives of auto insurance companies? Or could it be the enormous amounts paid for advertising? Perhaps it would be prudent to do some research into where your insurance dollars are really going.
Insurance companies may use some of your insurance premium dollars to hire consultant firms such as Compensation Resources, Inc., to study and advise insurance companies how much their executives should be compensated. While the average American struggles from paycheck to paycheck during this recession, how much compensation are the executives of big auto insurance companies receiving? One only needs to look at some annual salaries and benefits of executives of two of the biggest auto insurers to answer that question. Forbes.comreported the net take home pay of Progressive's CEO, Glenn W. Renwick, for the year 2008 as $5,854,408.00, which includes his base salary of $778,846.00. This occurred in 2008, a year in which Progressive reported a net loss and declined to pay investors any dividends because of the claimed loss. Further, Renwick's accumulated wealth was reported as $80,940,311.00 by Equilar. On April 22, 2009, Forbes reported that the total compensation package for Thomas J. Wilson, II, the CEO of Allstate Insurance Company is $2.92 million. It was recently reportedby the Miami Herald that the new CEO of AIG, Robert Benmosche will receive $3 million in cash and $4 million in stock under his annual compensation package. The average American worker should be so lucky as to have such spendthrift firms such as Compensation Resources, Inc. looking out for them. Instead, the average American pays these outrageous salaries and provides inflated benefits to these gluttonous executives. Also it makes one wonder if these enormous amounts are paid to the executives so that the company can report a net loss and consequently not pay their fair share of tax.
What about all the money insurance companies spend on advertising? Insurance companies use some of your insurance premium dollars to hire high dollar companies to produce commercials and even more of your insurance premium dollars to air them. On January 11, 2009, Insurance Journal reported that Progressive bought the naming rights of the Cleveland Indians stadium, formerly known as Jacobs Field, for a paltry annual fee of $3,600,000.00 for sixteen years. Of course, that is quite a savings over the 30 second spots that cost approximately $3 million during the Super Bowl. This is why will you see two or more Progressive or Allstate commercials for every commercial break during your favorite games and your favorite television shows. It is very possible that during every commercial break during the Super Bowl, there may be a smirking pitchwoman asking a prospective customer if money is a bit tight or a pitchman stating that meatloaf and Jenga at home are more fun than an evening out. So the purchase of the naming rights to Jacobs Field by Progressive was a real bargain. After all, $3.6 million is only 1% of what Progressive spends on advertising annually.
Auto insurance companies do their very best to convince consumers that they are in business to provide the best coverage for the best price to their insured drivers. Perhaps Progressive's annual 2008 report to their shareholders best sums up their most important goal when it states: Progressive's most important goal is for our insurance subsidiaries to produce an aggregate calendar-year underwriting profit of at least 4%. It further states: Progressive is a growth-oriented company and management incentives are tied to profitable growth. Do those statements sound like the auto insurance companies are looking out for the best interest of their insured drivers and providing the best price to consumers or do they sound like Progressive is looking out for its bottom line first and foremost?
Monthly insurance premiums can be more than a monthly car payment or thousands of dollars a year, depending on the type of vehicle driven and the driving record of the insured. Auto insurance rates are at an insane level and you may wonder that since it is a law that you must have auto insurance if you own or operate a vehicle; shouldn't there also be laws to regulate how much insurance companies charge? No, there aren't any laws that limit how much an insurance company may charge for auto insurance, therefore insurance companies can take full advantage of consumers. But, isn't there a regulatory organization that monitors and oversees huge insurance companies' business practices? Yes, there is. Each state has a regulatory agency for insurance companies and each state has a different title for this regulatory agency. However, they do not regulate how much an insurance company may charge because insurance companies have convinced these regulatory agencies that it is not considered a right, but a privilege to operate a motor vehicle. Therefore, insurance companies can charge usurious rates and use your insurance dollars to line their executive's pockets and pay for excessive advertising.
Do consumers really believe what insurance companies have claimed for many years, that it is a privilege to own and operate a vehicle and that you must pay for that privilege? From the average consumer's point of view, it is not a privilege, but a necessity to own and operate a vehicle. This is due to the fact that public transportation is spotty and largely unavailable to most working persons. However, insurance companies apparently believe that consumers agree that it is a privilege to pay embarrassingly huge salaries to insurance company's executives and forfeit a big chunk of their hard-earned money to pay for the commercials that they bombard us with. But as you watch all those commercials while you write out that huge auto insurance check, just think of it as the commercials that you are investing in.
