Auto Insurance Rates Rise Due to Market Returns
Monday, April 20th, 2009A USA today article speculates that auto insurance rate increases have been driven by poor market returns by insurance companies. The writer speculates that rates will rise 4% on average in 2009 on top of the 3% average national increase in 2008.
Insurance companies’ fortunes are more directly tied to stock market and other investment success than other industries as they receive premiums up front (sometimes as much as a full year) and invest these upfront payments ( primarily in bonds, but some stocks as well) until they are needed to pay claims. If market returns are negative, it is not hard to see that insurance companies will struggle financially.
