Donald Trump’s presidency has been nothing if not controversial. His polarizing campaign has drastically increased interest in politics not only in the United States, but around the world as well. While increased political involvement is oftentimes a good thing, “Trump-mania,” as it is often called, has not always been a positive phenomenon.
In his short time at the helm, Trump has already made his mark on the world. His divisive travel ban has sparked many conversations regarding freedom and security, while his attempt to overturn Obamacare caused similar waves across the news and social media.
But what about the smaller impacts of Trump’s leadership? When there is such a seismic shift in the political landscape, it will usually have impacts throughout the economy and in every industry. This in turn has very real effects on the way that we live our lives every day – from the cost of bananas to what’s on the TV.
Sometimes these changes are as a direct result of policies or laws that our leaders introduce. In other cases, they are simply correlations that are brought on indirectly by countless moving parts and variables.
This latter scenario is likely what has led to the fastest increase in auto insurance rates in over 13 years. This is a perfect example of how decisions cast down from on-high can impact real Americans in unexpected ways. But just how can a change in leadership have an impact on something so seemingly disconnected from the Whitehouse? Let’s consider the possibilities…
Accidents Have Risen
The auto insurance industry will often refer to the term ‘claims severity’. This describes the average size of claims, which according to industry analysts has been steeply rising since Trump came into office.
What could be causing this? Very possibly, it could be a result of increased panic and frustration among Americans. Despite winning the electoral vote by a decent majority, Trump’s victory brought to light some clear and deep divisions throughout the nation. The fact of the matter is that most Americans did not vote for Trump and his victory was more a result of where his most ardent followers were located geographically and what proportion of the vote they accounted for.
The bottom line is that many Americans were deeply upset by the outcome of the recent election and those same individuals have only gone on to become more concerned by recent actions such as the travel ban. This could very well lead to an increase in the frequency and severity of accidents, which in turn inflates the cost of insurance.
In fact, one agency spokesman Chris Goetcheus told the Boston Globe that ‘distracted driving’ was likely to be one of the biggest causes. It would seem strange that people would suddenly become so much more distracted and so we have no option but to look at other things that have changed recently and try to identify some correlations. What immediately jumps out is that people started to become much more ‘distracted’ ever since Donald Trump came to power.
The end result is that a simple windshield replacement has increased in cost from about $350 all the way up to $700.
Companies Are Concerned
But it’s not just the American people that have cause for concern. Businesses might also have significant reason to be alarmed and thus they might be starting to collect their nuts for winter. There is no shortage for example of economists warning that Trump will likely bring on another recession.
One New York Times columnist, Paul Krugman, wrote that the election result would be the ‘mother of all adverse effects’ and that it would bring ‘a regime that will be ignorant of economic policy and hostile to any effort to make it work’.
The thing to understand is that anything that causes panic can in turn lead to increased prices and living costs for normal Americans. When a politically inexperienced businessman with a poor track record (Trump faced bankruptcy several times in his life) ends up in power, this understandably causes concern among businesses and consumers.
The result is that we become more cautious. Businesses begin to invest less money in advertising and marketing and to keep more money aside for that rainy day fund. Meanwhile, consumers start to make fewer expensive purchases such as expensive sports cars that would be expensive to insure.
Fewer expensive sports cars on the road means higher insurance premiums for the rest of us because the insurance companies lose the money from those big customers. That means they need to make up their profits elsewhere, which means that they need to increase the cost of their insurance premiums for everyone else.
Trump Trade and Transportation
One way in which we might see Trump impact on our car insurance more in future is through his plans for international trade. Trade has been on Trump’s radar in a big way and in January he pulled out of the TPP – the Trans-Pacific Partnership.
The TPP was a trade deal between America and 11 other nations around the rim of the Pacific Ocean. This was one of the most significant deals signed by President Obama which managed to remove many trade barriers and tariffs to reduce the cost of imports and unify regulations regarding goods and services.
This is big news for the auto insurance industry and the automobile industry as a whole. Many cars, car parts and crucial resources come from overseas, which in turn means that it will now be harder to get hold of foreign cars and parts. But this ignores the reality that many people prefer German, Japanese and English vehicles.
Trump pushing manufacturers to build cars in the US and has likewise criticized auto makers for building cars in Mexico and other regions. Moves like this enable companies to double their production capacity and in short, it’s likely that the manufacture of vehicles will be crippled to some extent going forward.
This is especially true seeing as the slowing auto sales leave many companies reluctant to open up new plants. All this could again mean fewer cars on the road and fewer expensive cars on the road, which again might mean fewer insurance policies and thus more expensive insurance policies.
As it is then, many changes that Trump has made or that he plans to make have already had a potential impact on the auto insurance industry. Moreover, the political and economic fallout of his presidency alone have potentially led to an increase in accidents and a rise in prices.
But what can we expect going forward?
If you think the impact that Trump has had on auto insurance is shocking now, then consider that things might be about to get a lot worse. Just one hour after Trump assumed his new role as president, his administration suspended a pending rate cut for mortgage insurance required for FHA backed loans. FHA backed loans are very popular with first-time home buyers and buyer with bad credit and thus, this resulted in many potential buyers being unable to get the insurance they would need to buy a new property.
The policy was originally announced by Obama and by reversing it, Trump prevented thousands of property investors from potentially cutting their premiums by hundreds of dollars a year. This will cease the robust growth that the FHA-backed loans had seen during Obama’s time in office and could result in an increase in the cost of loans and slow-down in the property market.
If Donald Trump is so readily willing to hit the housing market this way and to make changes impacting the prices we pay for home insurance, then it should come as no surprise if he makes similar changes to the auto-insurance industry.
Moreover, it is also suggested that Trump’s presidency might be the cause of rising inflation and this is likely to continue throughout 2017. Contrary to popular belief, inflation is not entirely a bad thing for an economy and is actually part of a regular cycle. Inflation is very damaging though when it gets too high.
But either way, more inflation means higher rates for insurance and for everything else. Inflation means that the American dollar becomes worth less than it previously was and that in turn means you need more of them in order to afford the same amount of coverage.
And again, this can have a lot of additional knock-on effects. If we pay more for our insurance and for everything else, then we will be less likely to choose expensive vehicles or comprehensive policies which will force the industry to respond by raising prices even further.
Is it all doom and gloom? Not necessarily – Trump is also making some positive changes for business and at this stage it is far too early to say what will happen once he settles into the role. All we can say for now is that there is a clear correlation which has increased the cost of our car insurance and there are some very reasonable ways in which we might suspect Trump to be the cause. Going forward, it’s also very likely that this trend will continue rather than diminish.