Effects of Recession on the Car Insurance Industry in the US

The median US income in 2007 was $50,233 dollars. But now, not only has this figure come down considerably, but the value of the US dollar itself has reduced in comparison with Euro and many other currencies. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. On January 26, 2009 a day dubbed "Bloody Monday" by the media, 71,400 jobs were lost in the US alone.

Reason: The global economic crisis. It struck the world in the later half of 2007, and now poses an alarming threat to all business sectors throughout the economy. In December 2008, the National Bureau of Economic research (NBER) declared that the United States had been in recession since December 2007. The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008.

According to National Bureau of Economic research, a recession is "a significant decline in economic activity spread across the economy, lasting more than a few months". Going by this definition, recession in the United States is not a forecast anymore, but an indisputable reality. Retail sales are down, stocks are falling, loans are hard to get, consumer spending has plummeted sharply, there is a credit crunch and layoffs on auto coverage are increasing by the day. Several economists are expressing their concern that there is no end in sight for the downturn. The effect that recession has on every aspect of the economy is undeniable. The world's greatest super power is also now a victim of this

The automobile industry in the US, for example, is feeling immense pressure. Some of the largest companies in the world, like General Motors (GM) are facing huge problems and are asking the government for some kind of bailout or assistance. After bailing out the banks with enormous amounts of money, the US is now wondering what will happen if all the industries hitting bankruptcy start coming to the government for aid.

Analysts say that the United States has entered what they anticipate will be the worst recession in more than a quarter of a century, marking the steepest decline since the recession in1981-82.

In October and November 2008, every industry was affected - even the newspaper industry. Major industries in the US such as the automotive, banking and insurance industries are falling prey to the economic crisis. In 2008, homebuilding was named the most troubled industry, but it has fallen to third spot for the year 2009. Studies conducted recently by bankruptcy and restructuring professionals in the US shows the auto industry to be the one hardest hit by the economic downturn. It is definitely at a downturn, with resulting in the US car CEOs taking a $15 billion loan from the US government.

Hundreds of people in the US are trying to reduce their auto coverage or have no coverage at all, in order to save the money spent for monthly premiums. As a result, insurance companieshike up existing policy holders' premium, in order to earn the extra money they require for claim payments. Florida State ranks fifth in the highest amount of uninsured drivers, with 23% in 2007, which is predicted to get worse. Customers of insurance companies are trying desperately to work out a deal with their insurance company to reduce their coverage. They are trying to steer clear of auto insurance to save as little as $1 or $2, while posing trouble to themselves and others following the law. Therefore, people are now trying to get as many free insurance quotes as possible from sources like the internet and compare rates between companies. This is known as "policy shopping", where customers start looking out for policies available at a discount.

Consequently, insurance companies are collapsing rapidly in an effort to retain their policy holders and customer loyalty. Well known insurance agencies like Allstate's Your Choice Auto program, are blindly dismissing employees who do not deliver customer satisfaction. This in turn results in increasing unemployment rates. It is a vicious cycle that is predicted to get worse, as the US plunges deeper into this economic downfall. Studies by the Insurance Research Council says approximately 17% of drivers across the United States may be driving without insurance by 2010. The insured drivers subsequently have to pay for injuries caused by the uninsured drivers.

The reason drivers and car owners try to cut down on their insurance, is obviously to avoid the extra expense. American economy being the largest economy in the world, car insurance can be expensive. Let us glance at certain factors increasing the cost of car insurance in the US. When you apply for car insurance, the cost can vary depending on:

* Location - It costs an insurance company more to insure a city driver, as accidents are more likely to occur in cities. So the bigger the city you live in, the more accident-prone you are and so the premium you pay is higher. * The model and make of car - If you own expensive, fashionable cars in the US, insurance costs are relatively much higher

This economic crisis has been called the Second Great Depression. The supreme status of the United States of America might now be indirectly worsening the present situation in car insurance, rather than solving the problem. Many suspect that this economic crisis might be a sign that the US may be losing its super power status, being affected by it just as much as any other third world country. But experts say that the crisis will end. The government is doing all it can to save the economy, but it is up to civilians all over the world to make the right decisions. While there is really no one who likes insurance, it is very necessary to watch out for the future, especially in rough economic waters. Money spent on insurance ensures the safety of the people and their families, and is definitely money well-spent.

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