April 5, 2011

How The Insurance Market Will Change After A Large Natural Disaster

There are hundreds of factors that could affect the auto insurance market. Cheap auto insurance may be plentiful depending on the time of year, a driver's location, and a number of other specifics. However, it's generally true that auto insurance companies will charge more when their costs are greater. Things like a poor economy can make it difficult to find cheap auto insurance, and a large natural disaster can be a particularly significant event from an insurance company's point of view.

When a natural disaster occurs, an insurance company receives a great number of claims all at one time. This stresses their claim department, but as most of the claims will be verifiable, it means a large number of simultaneous payouts. By law, auto insurance companies are required to pay for these claims, and while they often have safeguards in place to pay for costs from a large disaster, insurance companies do need to raise their insurance rates to avoid taking enormous losses. Basically, they need to avoid running out of capital, and the best way to do this is to take on less risk by taking on fewer new insurance policies.

However, the auto insurance market is less affected by a natural disaster than the home insurance market and similar types of insurance, because not every driver pays for coverage from acts of God and natural disasters. Comprehensive car insurance coverage, which covers these types of damage, is not legally required in the United States. It may be required by a loan agreement that a driver sets up with a bank, but even so, many drivers don't ever buy comprehensive coverage and as a result, insurance companies don't have to pay out anything when these drivers' vehicles are destroyed by a large scale natural disaster. This limits the impact of large natural disasters on the auto insurance market; although car insurance rates are still certain to rise after such an event. There's no other way for insurance companies to keep costs down.

Drivers can protect themselves from the possible consequences of a large natural disaster by paying for comprehensive car insurance coverage. While this is one of the most expensive forms of insurance, it can provide enormous protection and can help a driver get back on his or her feet after a disaster. Drivers should also keep an eye on the auto insurance market by searching for car insurance quotes on a regular basis. This is a good way to plan for the future and to avoid paying excessive amounts for auto insurance, ensuring a steady, appropriately priced policy whether a driver is every involved in a natural disaster or not.