The Poverty Line

By Author: Marcus Stalder
Total Articles: 491
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Every year, the Census Bureau publishes a report on the distribution of wealth in our great country. The consistent trend over the last few decades has been the widening of the income gap. The rich are getting richer while the rest of us get relatively poorer. This has been so in both the boom and the bust years. Many of the wealthy can go through a recession and hardly notice it. An average family can take several years to repair the holes in their finances. The most recent report paints a depressing picture. The average household income has dropped again to $49,445. We have some 15% of our people living below the official poverty line - that's $22,313 for a four-person household - and the unemployment rate refuses to fall consistently below 9%.

This is now probably the worst recession and the slowest recovery since the Great Depression back in the 1930's. The aggravating factor this time around was the loss in the value of both property and stocks. Our government has been encouraging more of us to own our own homes so, when their value falls, we all feel the pain. Similarly, more of us own stocks through the 401k funds. ...
... Saving for our retirement is the responsible thing to do but, when stock values fall through the floor, it can take years for our nest eggs to recover. There's a final factor. In previous slumps, most job lesses were temporary. This time, there's no sign of any big push from the private sector to take on more people. We look as though we're stuck with high unemployment.

Why should all this affect the insurance markets? Well, with the average household income falling, two things happen. The priorities come down to a roof over your head and food on the table. Everything else is secondary. Second, when necessity meets the law, it's often the law that loses. During the boom years at the start of this century, the people felt confident, credit was freely available and many traded in for a new car every year. It was a good time to be a motor manufacturer. Now people are keeping their vehicles for longer. As they are also paying down their debts, auto loans are paid off. So more families now have older vehicles that are free of loans. For insurance, that means there's no need for anything more than basic liability cover. Whereas the middle class used to spend a good percentage of their household income on collision and comprehensive cover, insurers are now finding their margins are under pressure as more people opt for the minimum cover. Where even the minimum cover is too expensive, families are now driving without insurance. In some states the percentage of uninsured drivers is pushing up toward 20%.

So there you have it. While the economy tanks, we all suffer but, by one of these quirks of fate, it's the slightly better paid people who suffer the most. To maintain their profits, insurers increase the car insurance rates. Because the number of uninsured drivers rises, they strongly encourage their insured to buy uninsured/underinsured cover. Those who can pay end up paying more. So when the next round of car insurance quotes comes in, remember to support job creation and the Buffett Tax on millionaires.