April 7, 2011

Understanding How Earthquakes And Other Disasters Fit Into Auto Insurance

Natural disasters carry tremendous costs for every industry, and the insurance industry is no different. Auto insurance companies often suffer heavy losses during an earthquake or other types of natural disasters, and as a result, auto insurance rates can rise significantly. As this can affect all drivers, it can be helpful to understand how disasters affect the insurance industry and how insurance companies plan and react to them.

Auto insurance companies are primarily affected by earthquakes in the number of claims that they have to payout. Earthquakes and other natural disasters are usually covered under "acts of God" in a vehicle's comprehensive coverage. As felled trees, tidal waves, and other environmental factors often cause a great amount of damage to vehicles after a natural disaster, auto insurance companies often have to deal with a large number of comprehensive claims in a relatively short amount of time. They prepare for this possibility, under ideal circumstances, by keeping cash reserves for major payouts due to natural catastrophes, but even so, an insurance provider will have to raise its average auto insurance rates in order to make up for the costs that they will incur after an earthquake or other disaster.

Many auto insurance companies are owned by banks, and unfortunately, this means that they're also affected in the amount of money that they can use to back new policies. They are often forced to become more selective about the customers that they take on, following a large catastrophe. High risk drivers may find it very difficult to find a protective policy at an affordable price. Unfortunately, these drivers have little recourse; insurance companies feel the economic impact of a natural disaster more seriously than many other industries. There are a few things that drivers can do to overcome rising rates and force the cost of insurance back down to an affordable level.

For example, drivers can try to use the market to their advantage by shopping around for auto insurance quotes as quickly as possible after a major disaster. Ideally, a driver will look for insurance quotes well before a major disaster, but in any situation, looking for multiple quotes makes it easier to pick out a high quality policy. This means cheaper car insurance for the driver. A policy holder can also ask his or her insurance company about potential discounts. Most insurance companies offer some type of discount for drivers who take safe driving courses, for instance, or comprehensive insurance discounts for drivers who keep their vehicles in garages. In any case, drivers should look for the best possible insurance policies as soon as possible, preferably before a major natural event increases car insurance premiums.