Car insurance rates to keep on rising
In the good old days, insurance companies were able to pull in millions of dollars as premium payments, invest that money and earn very good rates of return. Since the recession hit, this additional source of income has been denied the insurers. There has been little capital appreciation as stock values have remained low and dividends have been cut back. Worse, the Fed has been maintaining a low interest rate policy. That may be good for those who can still borrow, but it's terrible for those looking for a safe place like bonds to park their cash. Now add in the major losses due to the adverse weather conditions. The result has been predictable rises in the premium rates. Once insurers find their profit margins under threat, the only way of bringing in additional revenue is by raising the rates.
The Insurance Information Institute monitors rates and its review of 2011 confirms an almost 3% increase in rates over the year. This means the average cost of insuring a vehicle was $840. This news comes as some of the major auto insurance companies are announcing premium hikes. Although the spread of the pay-as-you-drive policies will mean many of the safest drivers will pay less, it also means the less safe will pay more. This will hit the poor significantly harder than the middle and upper class drivers, and explains why so many of those below or on the poverty line risk the fines and penalties of driving uninsured. Quite simple, the days of cheap auto insurance are long gone for many drivers.
Since Ben Bernanke has now announced the Fed will keep interest rates as close to zero as possible until there's a measurable improvement in the unemployment situation, the insurance industry will not find any additional revenue coming in from its investments. In turn, the next set of car insurance quotes will be sent out with higher rates. This vicious cycle will continue until the national inflation rate begins to rise. At this point, the Fed will be forced to increase its rates.