7A – Testing the Hypothesis, Part 1

Car insurance companies must increase their rates due to losses and inflation, but people are upset with these increases.

Opportunity: Car insurance companies are forced to increase their rates due to inflation and losses that the companies are impacted by, however, drivers believe that being claim free and over a certain age, they are safe from these increases.

The Who: Licensed drivers over the age of 16.

The What: License drivers are being hit on high rate increases

The Why: These rate increases are done to compensate the losses and inflation rates that have affected the area and the insurance companies

Testing the who: Every licensed driver in the world at one point has experienced a rate increase on their policies, even though they are claim free and are over a certain age. Inflation occurs everywhere in the world; therefore, the cost of living is not as cheap as it used to be. Some drivers may not be paying for their own insurance since they may be under another person’s policy, but the person who is paying for the insurance will become affected. This might not be the case if these people are uninsured. But specifically, in the United States, it is illegal not to have insurance, so we can assume almost everyone in the United States who is a licensed driver is affected.

Testing the what: There may be some boundaries to this test, because people may want insurance companies to justify their impacts, but insurance companies will never present their numbers towards the public. Licensed drivers who are not paying for their insurance since they are listed under another person’s policy will not become affected by this issue. Another issue is that most insurance companies who have obtained a “new business”, or new customer, they will be more than likely to give them a big “new business” discount for their first term, where customers are not aware of, therefore, they believe that another company is giving them a better deal, or that they are safe from rate increases.

Testing the why: Rate increases are necessary for insurance companies to stay in business. There are more cars in the roads, leading to more accidents and risks. Insurance companies are paying out so much that if they do not increase their rates, they would go bankrupt. In addition to that, inflation causes everything to become much more expensive. These things include the cost to repair a vehicle, such as labor and car parts, medical costs etc. Especially with newer vehicles, having a higher skilled worker is required to fix the vehicle, therefore the cost of labor will increase. Lower skilled workers are unable to change new cars since they may not be familiar with the new sensors, backup camera, new electrical system, etc.

Interviews:

·        My first interviewer was my 70-year-old neighbor, he is upset that his insurance rates have increased last month after renewal. He stated that he has been a loyal customer for years and is offended that his insurance company is forcing him to pay more because of other people’s accidents. He stated he called the insurance company to complain, but they told him about inflation, but he didn’t think it was a good answer since he got a better quote with another company. He ended up cancelling because another company got him a better quote.

·        My second interviewer was actually a co-worker of mine, she is in her 20’s and has worked in insurance. She informed me her insurance went up this year, and she is not actually upset about it. She understands the situation behind the issue, and that she felt like she didn’t want to keep switching companies because she knew it was going to eventually increase if she switches. She did mention that it would be nice of insurance companies only penalized the people involved in these claims, but they already do penalize them for that. Most of the time, these people end up cancelling because they do not want to pay these surcharges, therefore, the company would end up having to increase their rates anyways.

·        My third interviewer is also a neighbor of mine. She is a woman in her early 60’s, and she believes that her insurance company is the best! She told me that all her friends have been complaining about their huge insurance increases, whereas her premium only slightly went up. She mentioned she was going to stick with this company and believes other insurance companies are just ripping people off on purpose.

·        My fourth interviewer is my classmate. He is in his early 20’s and mentioned that his insurance rates are very high. He completely understands though, since he is under 25, his rates are going to be high since he is a bigger “risk”. He mentioned that insurance companies probably shouldn’t assume every 20-year-old is the same, and that they should be personally analyzed and observed, including driving records, to give them the best rate. He thinks that insurance companies only have the desire to rip people off.

·        My fifth interviewer is one of my good friends who lives in South Florida. She stated in the beginning she was very upset that her insurance rates went up after Hurricane Matthew and did not want to be penalized for others filing a claim. She decided to stay with that company because she didn’t feel like going through the process of setting up a new policy. However, she stated she had a change of heart ever since Irma hit Miami. She told me she now understands that had her insurance never went up, the company may not have been able to pay for the damages that occurred after Irma.

After interviewing everyone, I realized how upset people get and how much insurance rates really affect an individual. I believe that mainly it is because having car insurance is so important, and people are trying to find the best rates possible to fit their lifestyle. Most of my interviewers view insurance companies are “scammers” and they are out to get their money. Some of them provided me with ideas that they think would be beneficial, such as my fourth interviewer. It was nice to learn from my second interviewer, since she had insurance experience and gave me the peace of mind that not only people who file claims are paying the rate increases, but they are also paying an accident surcharge. Lastly, my fifth interviewee gave me another perspective of insurance companies after natural disasters. At first, herself believed that the company just wanted they paid for back, however, they had to increase their rates in order to protect not only their company, but you as an insurer too.