The world economy comes up and down numerous times in a year, but overall, it fluctuates and sometimes, we are getting good and bad news in a single TV program. The economic experts show concerns all the time to keep us on foot while taking any financial decision. Normally, they have numerous reasons and factors due to which the economy suffers and we need to take preemptive decisions to manage the situation accordingly. This fluctuation keeps us conscious even in the better situation because we have no confirmation whether it will spend some time in the market or disappear suddenly.
The changes in the economy affect the industries overall, but some industries face more challenges while other ones bear it quite easily. Sometimes, the change occurs in one part, but it affects other numerous industries because mostly, the industries are interlinked and sometimes, their performance depends on the performance of others.
Let’s explain it with an example.
Normally, the economic condition depends on the petroleum prices. The lower prices help the economy behave well, while higher prices make the economy stagnant. When there are low petroleum prices, it will affect the automobile industry and prices will increase. It will increase the road accidents because congestion will increase on the roads. More people will go for buying the general auto insurance policies and there will be a boom as well. although it is quite difficult to correlate all the above-described variables, the fact is that the correlation is always there.
The same impact comes when there is a downturn. With the hike in prices,the majority makes some major changes in the financial operations. They plan to sell expensive vehicles, implement a cut on their gas use and try not to pay the premiums regularly during this time. It impacts a lot on the automobile and insurance industry and both the industries suffer directly.
It is the time to explore both types of impacts on the general car insurance industry, so let’s start.
The Impacts
More job opportunities mean more vehicles on the roads
When businesses are flourishing, they need more people to manage the business operations and financial services. Therefore, they hire more people and it increases the income of the individuals. When people have more money, they buy cars because making the transportation better is only through a vehicle. While you are buying a car, you also need to buy a car insurance policy as well. The insurance industry flourishes due to another reason and that is due to increased car accident ratio. Why do car accidents increase? Well, it is due to congestion on the roads.
Low petroleum prices help people travel more
When fuel prices are in control, people use their vehicles more and travel a lot. Lower petroleum prices make the traveling affordable. This increase also encourages the people to buy a vehicle and enjoy with it. If it happens, the buyers of car insurance will also increase.
Lower unemployment rates encourage the drivers to buy insurance
The drivers spend less on car insurance when their job is atthe stake or they are unemployed. So, if there would be lower, unemployment rates, more drivers will come in the insurance market to buy the general auto insurance policy.
The better economy increases the percentage of car accidents
When you have money, you want to travel and for that, you need a vehicle. When the number of vehicles increases on the roads, the chances of accidents also increase. These chances multiply when you have a party, drinks and speedy drive. All these activities not only help the insurance companies get business by selling their policies but also increase the business of car mechanics as well.
All these decisions can be reversed when there is a downturn. Now, we will discuss those decisions that people take to control the expenses.
- They drive less and use public transport for moving one location to another.
- They replace the luxury car with a standard car. If they have two cars, sell the second one.
- They lower or cancel their insurance premium. It helps them get relief in the worst economic condition. It affects a lot on the insurance industry and the companies need to revisit their marketing policy, give incentives to the buyers and offer discounts.
- They cancel the policy. The companies try to convince the buyers that if they may face the car accident, they will face the most complicated situation in case of bearing extra expenses in the form of repairing their accidental vehicle.
What insurance companies do when they are facing this situation?
The insurance companies offer numerous solutions to their buyers in the downturn. We will discuss them in details to encourage the buyers to keep in contact with you and continue to pay their premiums.
The buyers must consider some steps that can help you keep your favorite car with you and continue your car insurance as well. These steps will be better than the losses in case of a car accident on your uninsured car. Using public transport and minimizing the use of your own vehicle can be a wonderful decision, but nothing can be worse than the cancelation of your car insurance policy.
Due to the difficult financial position, people take some bold steps. They must understand that these will affect their insurance premium, so before taking the decision of cancellation, they need to consult their insurer. We will discuss them with you in details as well.
Moving from one place to other
It becomes necessary when you want to downsize your home, plan to buy a new home according to your convenience, for enjoying low-interest rates or due to some other factors on which you have no control. This activity affects a lot on your auto premiums. When you take these decisions, you normally forget that the zip codes and your parking lots also change the auto premium amount. These costs also vary when you move from one state to another. So, when you have a plan to move, you need to consider all these things and take decision accordingly.
Changing your vehicle
Buying a car is normally the second largest financial activity after buying a home. Here, we are basically discussing beyond living expenses and in these decisions, auto insurance must not be included. When you own a car, you need its insurance as well to bear the loss to manage the expenses.
You must understand that all the models and makes have different insurance rates and therefore, you must need some of the general insurance quotes to identify the difference and take the decision after observing the rates. Furthermore, you need to understand that the insurance rates of lower priced cars are cheaper. If you are adding a new driver, want to include your teen driver or have bought another car, the rates will differ again. You must be aware of the discounts as well to control the auto insurance expenses.
You are swapping jobs
Unemployment is still at a higher side in most of the countries and it means that leaving a job is quite a risky task. Generally, people switch their jobs for getting higher wages and salary. If you have an insured car, you must understand that it will impact your auto policy. Driving habits are another big concern for many insurance companies because it changes the insurance rate as well. If you have not got a job, you need to change your habits. Most probably, your first decision was to cancel your auto insurance policy to face the financial crisis with some confidence. However, you must remember that reinstating your insurance policy can be very high rates and along with that, you will face the higher risk to insure and small discounts because you have lost the loyalty.
You are driving less
All the insurance companies consider annual miles driven as a factor for calculating the premiums. So, if you are not driving much, you will pay less. Normally, people avoid driving to control the expenses and use public transport more for daily movement. Some people share their rides so everyone gets the opportunity to drive less and control the expenses. Sometimes, it becomes the need to drive less and become eligible for a low-mileage discount. There are some insurance companies in the market that provide the opportunity to enjoy discounted rates by following “pay as you go rate” rule.
Credit score also matters
During the recession period, people cannot pay their credit card bills timely and sometimes, do shopping from these cards. It hurts a lot to your credit score. You must be informed that the insurance companies consider credit score a tool or indicator that tells them the chances of loss. So, the best way to continue your insurance policy, otherwise you will need to buy the insurance policy at higher rates in the future.
Concluding Remarks
For a car insurance company, there must be more cars on the roads because this factor increases the chances of risk, which means higher insurance premiums. The experts claim that there was an increase of about 10% in claims and loss ratios in 2014. With the increase in traffic, the chances of accidents increase and when the vehicles are insured, they try to recover their bottom line in any case. It increases the value of car insurance among the people and they are ready to buy an insurance policy when they finalize a car for them.