As 2009 turns into 2010, the winter ice and snow has been particularly hard this year. It even snowed in Florida which shows how climate change is starting to affect local weather patterns. Needless to say, the number of traffic accidents has been at an all-time high. No-one is ever ready for ice on the roads. Yet, all round the country, ice is coming through the mail boxes. The insurance companies are sending out notices chilling our desire to drive – premium rates are being hiked (again). And this time, it’s not just a few percent. In most states, it’s averaging at around 10%. So we are not talking peanuts. This is serious money while the US is in recession and millions of people are out of work. What’s the result likely to be? If it comes down to a choice between food on the table and an insurance policy, food wins every time. Everyone has to eat and everyone needs a vehicle – even in the bigger cities, public transport is a joke. So, when push comes to shove, more people will drive uninsured. That’s bad news for the rest of us. Our premiums will rise with fewer policy holders sharing the rising costs of claims. If only the insurers would hold the premiums steady, more people could pay, and rates would stay lower for longer. If only. . .

So why are insurance companies hiking the rates? There are two common problems. The first is the broken healthcare service. Whenever there’s a more serious traffic accident, most people go to hospital. The obvious injuries are treated. Bodies are examined to ensure there are no other injuries. Except, the moment anyone steps through the door of a hospital or clinic, the medical expenses meter starts to run. Despite the recession, the drugs industry and healthcare service suppliers have been increasing their prices. There have been some high-profile disputes between insurers and hospital groups in California and Connecticut. The current fight is between the Continuum Health Partners of New York and United Healthcare. The hospitals have agreed pay increases with the labor unions, new technology is expensive to instal and operate. They want more money. The insurer is looking for a reduction in charges of between 7 and 10%. It’s painful to admit but, in this fight, the insurers are actually protecting us policy holders.

The second problem is equally easy to explain. When we claim, the insurer should have the money to pay. This money comes from cash reserves and all the different state Insurance Departments monitor the amounts held to ensure there’s always sufficient set aside. It’s standard for insurers to hold this money on investment so, when the recession came, they were slow to move out of stocks and bonds, and all the larger insurers lost a slice of their capital. Commissioners are offering their local insurers a choice. Either reduce the number of people holding policies or add more to your cash reserves. This forces companies to raise premiums and so, sadly, it’s getting more difficult to find affordable auto insurance. Even with the use of this site’s excellent search engine, it’s hard to find policies with lower rates. When you get the multiple auto insurance quotes, check through to find those with lower premiums. For good terms, look at the discounts available from these companies. Think about accepting a higher deductible. Using the auto insurance quotes as a starting point, negotiate directly with the insurers. Affordable policies are out there. You just have to work harder to find them.

Let’s start off with a simple explanation of why fraud costs us all money. Insurance companies employ math-geeks called actuaries. They spend their time estimating how many traffic accidents there are likely to be and how much all the claims will be worth in a year. That total is divided among all the policy holders as the premium. It’s all guesswork but they are good guessers. Except that, when thousands of people make false claims, the insurers suddenly find themselves short of money to pay out. The result? Premium rates go up for all.

How bad is the problem? In New York, the number of suspected cases of fraud has risen by one-third from 2007 through 2009. Across the state, the insurers identified 13,433 probable cases of fraud in 2009 alone. To pay for this, the premium rates rose by an average of 6.3% in 2009. The most common frauds are staging an accident to claim medical expenses. This has caused the average value of each claim to rise to more than double the national average. That’s millions of dollars paid out and millions of dollars that have to replaced in the capital reserves. This problem is not, of course, unique to New York. It has become a well-recognized way of raising cash as the recession has deepened. So, if people find their household budgets under pressure, they can report their vehicle stolen or become the victim in a phantom hit-and-run. Ah, but you are saying all this needs support from attorneys and physicians prepared to push claims knowing or suspecting their clients are faking or exaggerating. Well, let’s keep this real. The FBI and local law enforcement agencies regularly run undercover sting operations to catch the fraudulent. In Philadelphia, for example, a recent operation resulted in long jail terms for an attorney and thirty-four individuals falsely claiming millions based on fake medical evidence. In Santa Clara County, California, the police recently prosecuted more than twenty body shops for supplying false estimates to insurance companies. An undercover officer driving an undamaged Honda Civic explained he had reported the vehicle vandalized to pay for a new paint job. The body shops supplied an estimate under $3,000 – insurance companies do not inspect damage for “small” claims.

The truth is there’s an epidemic of fraud and it’s not only established criminals or those on the fringe of legality like street racers. But, sadly, it’s also becoming a mom-and-pop crime. Why? Because the cost of investigating every claim as possible fraud is too expensive for the insurers. It’s cheaper to pay out all the smaller claims and absorb the losses. This is one of the main reasons why it’s getting harder to find cheap auto insurance. The volume of fraud is driving up the premium rates for everyone. But there’s a secondary problem. Outside California, insurance companies still use zip codes in setting rates. Where the levels of fraud are high in some areas, the rates reflect this. So, those who live in the Bronx and Brooklyn pay more than other parts of New York because there are more fake claims. This does not mean it’s impossible to find cheap car insurance. You just have to work harder, using a site like this, to identify those insurance companies offering good discounts. As another self-help step, you could report all those you know are making false claims. If the police and FBI cannot stem the flood of fraud, it’s up to every law-abiding citizen to step up to the plate. The result will be lower premiums for all.