Auto and H/O Rates to Rise in Kansas, Missouri

People are worried about the drops they see in their IRAs and 401(k)s, but the credit credit crisis could also be affecting auto and home insurance premiums. Some of the blame for rising auto and homeowners falls on the swooning financial markets. Insurers invest some of customers' premiums in stocks and bonds to make money and give them additional cash to pay claims. 
 
"No question what happened on Wall Street has impacted us," said Dick Luedke, a spokesman for State Farm, one of the largest auto and homeowner insurers in Kansas and Missouri. 
 
Indeed, some insurance rates are already going up in Kansas, Missouri and across the country. If the declines in financial markets continue the remainder of this year, the rate increases could get worse. 
 
The latest statistics complied for auto, home and similar insurers show the financial crisis' effect even before the tumultuous last few weeks. Investment income fell to $25.8 billion in the first half of the year from $30.3 billion in the same period in 2007. 
 
The investment income decline came on top of higher claims that occurred before the end of hurricane season. In the first half of the year, insurers' claims and expenses totaled $1.02 for every premium dollar compared with claims and expenses of 93 cents on every premium dollar for the first half of 2007. 
 
Damage from the spring storms in Kansas illustrates the point. Those storms caused nearly $600 million in losses compared with $325 million in losses for all of 2007, according to Kansas Insurance Department estimates. 
 
Given the investment declines on top of higher claims, premiums "may likely go up," said Don Griffin, a vice president with the Property Casualty Insurers Association of America, a trade group. 
 
Insurers may need to raise rates to have enough money to pay future claims, said University of Iowa finance professor Tyler Leverty. 
 
"It's not as if insurance companies are punishing policyholders," said Leverty, who specializes in insurance. 
 
Consumer advocate Bob Hunter said he would not be surprised if insurance rates rose 3 percent to 5 percent. 
 
"I'd expect to see a bump," said Hunter of the Consumer Federation of America, "but it shouldn't be a major bump." 
 
Since July 1 in Kansas, auto coverage increased on average nearly 4 percent and nearly 6 percent for home insurance, according to rate changes filed with the Kansas Insurance Department. 
 
In Missouri, changes in premium rates were mixed with auto coverage increasing on average about 3 percent and home coverage declining 1 percent since January 1, according to the state Department of Insurance. 
 
Nationally, auto premiums rose 3 percent and home premiums 2 percent this year, said Robert Hartwig, chief economist for the Insurance Information Institute. 
 
In the last few weeks, the financial troubles of some insurers have made headlines. AIG received a federal government bailout, and the Hartford Financial Services Group Inc. got a $2.5 billion capital investment from another insurer, Allianz. 
 
Yet Hartwig said customers should not be worried about the industry. 
 
"People should not read into this that insurers are in trouble financially," he said. He pointed to statistics that show insurers had $505 billion to pay claims as of June 30. 
 
He also noted that insurers' investment strategies lessen the effects of financial market swings. Insurers put most of their money in bonds, which are less volatile than stocks. 
 
Whether individual companies raise premiums will depend on their financial condition and their strategies, experts say. Some companies have more money than other companies and will not feel the full brunt of the market's slide, which could translate into small premium increases. Other companies may decide to cut their profit margins and even lower rates to pick up business.