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.

As you get older, the mortgage is paid off and the kids have grown up and left the nest, there’s a temptation to switch off. You feel you have done all the heavy lifting. The pension will be coming soon when you retire… What’s wrong with this picture? Well, the majority of people were trading in property and, when the bubble burst, they are looking at negative housing equity and the threat of foreclosure. Even those who stayed in their own homes over the years, often borrowed heavily against them. With the recession, all those investments in the retirement fund have lost their shine. Unemployment is a more real threat to middle and upper class families. Children seem to be staying in the family home for longer. And all this at a time when life expectancy is increasing. Ten years ago, people might have dropped their term life insurance policies and found themselves with more disposable income. Now the decision is more difficult.

With the credit crunch, the pressure is on to keep paying the mortgage, reduce the outstanding household debts and put food on the table. Those of you with permanent or cash-value life insurance policies have a slightly easier path to follow. Premiums will be fixed but, if you stop paying, the policies may remain valid. The decisions are to:

• keep paying, which builds up the investment value and protects the family by maintaining the death benefit;
• stop paying and leave the cash value untouched;
• withdraw or borrow some of the cash value; or
• cancel the policy which usually involves a big tax bill.

If a term life insurance policy is falling due for renewal, here’s how the choice looks: if you renew, the premiums will be higher because, suddenly, you’re older; but, if you let the policy expire, your family could be hit hard if you die unexpectedly. Many of you may have bought term life cover when you were younger. Perhaps you thought you would convert to permanent policies or simply drop the cover when your children had grown up. Now that retirement funds are shrinking, it’s time to take another look at term insurance.

Allowing for inflation, the premiums have actually been falling over the last ten years as life expectancy has been improving. Go back fifty years and only a small percentage of people lived beyond seventy. Now, many people live into their eighties and beyond. This has prompted competition among companies who offer cheap life insurance to attract business from older people. As long as you are physically fit, you are likely to find the rates little changed from the ten, fifteen or twenty year term policy that is due to expire. Naturally, there will be a health exam to ensure you will live a reasonable number of years before a claim arises, but the option to continue a term policy or to convert to a permanent policy are better than you might imagine. This is a good time to start talking to the life insurance companies to see what your options are.

Often, California has been in the lead when it comes to legislating for fairness. When a service industry is acting in an arbitrary way and damaging the interests of consumers, you can usually rely on Sacramento to do something about it. So, for example, the Insurance Commissioner instructed auto insurance companies not to rely on ZIP codes when writing policies. The real basis on which to assess risk should always be the individual driver. It’s fair to look at the person’s experience, driving record, how far he or she drives every year, etc. That way you reward the good drivers with lower premiums and hit the bad drivers with higher premiums. This ends the discriminations of higher premiums for people living in predominantly black or Latino communities.

It would be great if we could see this change sweeping across the US, not just in auto insurance, but for all classes of insurance. Unfortunately, the insurance industry has fought the change tooth and nail wherever it has been proposed. Lobbyists with deep pockets have been able to keep the legislators at bay. The ZIP code approach remains the norm.

The most recent piece of research comes out of Chicago and relates to health plans. It seems it’s cheaper to live in the suburbs. The research used just over 3,000 ZIP codes in the Chicago area and, when analysing the rates charged, found that people living in the blue-collar suburbs west and south of Chicago paid almost 25% less for their insurance than those living in the downtown areas. Similarly, the residents of the northern suburbs paid about 15% less. Spread the net more widely and it turns out that everyone living between 15 and 25 miles from the downtown area pays an average of 13.5% less, while those who have moved 25 to 40 miles out of the city pay an average 25% less.

There are obvious explanations. The hospitals and clinics in different areas attract doctors and healthcare providers with different levels of experience and expertise. Operating costs will also change with local conditions. The level of support for public facilities and programs from local government naturally varies depending on the local tax take and political factors. These affect the rates for services the insurers can negotiate with the local provider networks. And then there are all the intangible factors based on the wealth or poverty of an area, the percentage of people without current health insurance, and so on. Put everything together and profiling by geography may produce very different results. This leaves us with an uncomfortable reality. As it stands, the health insurance industry is unregulated. It can charge what it likes using whatever factors it wishes to consider significant. As and when the healthcare reforms pass through Congress, some practices that produce unfairness will disappear, e.g. no more discrimination based on gender, no more discrimination by denying coverage to people with pre-existing conditions, no more caps on lifetime benefits, and so on. But the ZIP code abuse will not be affected. No matter where you live, you will be judged not on your actual health records but the “accident” of your address. Perhaps you should consider relocating to a better area to get the best health insurance rates.