This is one of the questions we answer pretty frequently. Because it seems to make sense from a “first glance” kind of logic, we assume that it should be true.
Rate setting is quite a science. There are many factors that are involved. Some of them involve the car. Some involve the driver. Some involve the claim experience of “the group” within a region or territory. Overall trends involving thefts, costs for repairs, medical payments coverage…all of these figure into the science of setting a rate.
While the car may be worth less, the cost to repair it is usually more than last year. Many claims are partial losses, not “total” losses. Thus, the cost to repair it involves parts and labor. The parts for an older car are not necessarily cheaper. In fact, sometimes they are harder to find. Further, the labor costs continue to rise year after year. So, if you had your bumper repaired in 2006, it probably cost a bit less than today.
Some of the technologies have vastly improved. The quality of today’s paint repair is amazing. Slick, glassy and “like new” finishes make it look like the accident never happened. However, the products and the labor are more costly than before.
Sometimes a tiny little dent requires a full bumper assembly to be replaced. It doesn’t always work like it did years ago when they just fixed the dent. Even fairly minor accidents can bring in a bill of $1500-2500.
If you’re hurt in an accident, the medical care in the ER costs more today than it did in the past. Again, technology has provided options for more extensive testing than ever before. Years ago, you might have gotten an icepack. Fast forward a bit, maybe an xray, too. Now, CT and MRI scans are often ordered. The costs associated with these studies also funnel into the overall picture for claims expenses.
The carriers in our agency have shown incredibly stable and steady rates. That’s why we choose to represent them. There are always going to be carriers in the market who come on the scene with rates that look “too good to be true”. Unfortunately, if they are not pricing properly, one of two things may happen. Either they go out of business because they can’t cover the true costs of their claims. Or, they surprise you “big time” upon renewal.
As noted before, there are an incredible number of factors that come into the picture to explain why a rate is what it is. This article addresses just a few of the things many of us have never considered. Hopefully, it helps explain why the “logical” answer isn’t always absolutely correct.
We always welcome your specific questions about your policies. We can often find solutions to help you save some money. We understand that you want your program to be affordable AND protective. It’s our job to help make sure it is.