Auto Insurance Premiums: The Annual Creep

Auto insurance premiums often increase annually, even if you haven't filed a claim. This can be influenced by a range of factors, including inflation, an increase in claims in your local area, and the rising cost of vehicle repairs and replacements. Premiums are also impacted by individual risk factors, such as changes to your driving record, address, or vehicle.

Adding vehicles, drivers and coverage

Adding Vehicles

If you add a vehicle, your premium will increase because there is now something additional to insure. Even switching to a different make or model can cause a price increase if your insurance company deems it less safe or more expensive to repair. Newer cars are typically pricier to insure because they have a higher value and depreciate faster.

Adding Drivers

You should add any licensed driver who lives in your household and has access to your vehicle to your insurance policy. This could include a spouse, partner, teenage or college-aged children, roommates, or other relatives. Adding a new driver to your policy could increase your premium, especially if they are inexperienced or have a poor driving record. Insurance companies consider inexperienced and high-risk drivers more likely to file a claim, which results in higher rates.

Adding Coverage

If you increase your coverage limits, add optional coverages, or reduce your deductibles, your premium will go up. This is because you are now paying for more comprehensive protection.

How to Add Drivers and Vehicles to Your Policy

Most major auto insurance providers allow you to add drivers and vehicles to your policy by logging into your account online or through their mobile app. You can also call the company and speak to an insurance agent. Information you will need to provide about the additional driver includes their name, date of birth, driving history, license information, and vehicle identification number (VIN) if you are sharing a policy covering both your vehicles.

Cost of Adding Drivers

While some insurance companies may charge a small administration fee to update policies, there is usually no charge for adding a driver. However, your premiums may change. Your premiums may increase if you add an inexperienced or high-risk driver, but they could also decrease if you add a more experienced driver with a clean driving record.

Discounts

Be sure to ask your insurance agent about any discounts that may be available to you after adding a driver or vehicle to your policy. You may be eligible for safe driver or good student discounts, as well as multi-policy discounts from bundling your coverage, such as buying insurance for your home and car from the same company.

Driving record

A driver's record is one of the most influential factors when it comes to auto insurance premiums. Insurance companies rely on historical data to assess the level of risk associated with insuring a particular driver. A clean driving record with no accidents or violations generally results in lower insurance premiums. Conversely, a record marred by accidents, traffic tickets, or other infractions can lead to higher rates.

Accidents and Insurance Claims

A history of accidents, especially those deemed to be the driver's fault, signals a higher risk to insurance providers. If a driver has been involved in multiple accidents, insurance companies may perceive them as a higher liability and adjust their premiums accordingly. Drivers with a track record of accidents are more likely to file insurance claims, which translates into increased costs for the insurer. Even accidents where the driver was not at fault can result in a price increase, depending on the insurance company's rating plan.

Traffic Violations and Moving Offenses

Traffic violations, such as speeding tickets, reckless driving, or running red lights, are red flags for insurers. These infractions indicate a disregard for traffic laws and responsible driving behaviour. Insurance companies view these violations as indicators of increased risk and may raise premiums as a result. Multiple violations can have a cumulative effect, amplifying the impact on insurance rates.

Driving Under the Influence (DUI) or Driving While Intoxicated (DWI)

A DUI or DWI conviction is a serious offence that significantly impacts auto insurance premiums. Such convictions signal a high level of risk and demonstrate irresponsible behaviour behind the wheel. Insurance companies may respond by substantially increasing premiums or, in some cases, refusing coverage altogether due to the elevated risk associated with these offences.

Insurance Points and Surcharge Systems

In some jurisdictions, insurance companies use a point-based system to assess a driver's risk. Insurance points are assigned for accidents, violations, and other driving-related offences. Accumulating points can result in premium surcharges, meaning insurance rates will increase based on the number of points on a driver's record. The severity and frequency of offences determine the number of points assigned.

Mitigating the Impact of a Poor Driving Record

While past driving infractions can have a lasting impact on insurance premiums, there are steps that can be taken to mitigate their effect over time:

• Completing a defensive driving course can demonstrate a commitment to safe driving and potentially qualify the driver for insurance discounts.
• Maintaining a clean driving record for an extended period can gradually improve insurance rates, as insurers consider more recent driving history as a positive indicator.
• Shopping around for quotes from multiple insurance providers can be beneficial, as different companies may have varying policies and rates for drivers with infractions.
• Improving one's credit score can indirectly help lower insurance costs, as credit scores are considered when determining premiums in some states.

Inflation

In addition, inflation can indirectly influence premium prices through its impact on vehicle repair and replacement costs. As the value of cars rises, so does the cost of repairs and replacement parts, which are often more sophisticated and technologically advanced. This increase in repair costs is then reflected in higher insurance premiums.

The pandemic also played a role in rising insurance rates. Due to a global shortage of computer chips and supply chain issues, new vehicle prices spiked, and dealers faced inventory challenges. This resulted in higher car values and, consequently, higher insurance rates.

Furthermore, inflation can affect individual risk factors that influence premium prices. For instance, inflation may lead to an increase in the number of miles driven as people take advantage of lower gas prices. More time spent on the road increases the likelihood of accidents, which is a significant factor in determining insurance rates.

While inflation is a significant contributor to rising auto insurance premiums, it is important to note that other factors also play a role. These include individual driving records, accidents, traffic violations, and changes in vehicles, drivers, or coverage. However, inflation's impact on the broader economy and specific aspects of the automotive industry significantly influences the upward trend in insurance premiums.

Insurance fraud

Auto insurance premiums can increase every year, even if you haven't filed a claim or had any traffic violations. This can be influenced by several factors, such as inflation, rising repair and medical costs, and an increase in claims in your area.

Now, let's discuss insurance fraud in detail:

Types of Insurance Fraud

Common Fraud Schemes

One of the most prevalent fraud schemes is premium diversion, where an insurance agent or broker embezzles policyholders' premium payments instead of forwarding them to the insurance company. Other diversion schemes include selling insurance without a license and collecting premiums without settling claims.

Illegitimate insurance companies and dishonest agents may also defraud consumers by offering bogus policies at significantly lower prices, with no intention or ability to pay out claims. These fake companies often provide realistic-looking documents, and their policies may even be represented by legitimate agents who have been deceived.

Warning Signs of Fraud

Consumers should be vigilant for warning signs that an insurance company may be illegitimate. These include aggressive sales tactics, significantly lower premiums compared to competitors, and difficulty in obtaining the company's contact information. It is recommended that consumers verify the legitimacy of an insurance company before purchasing a policy.

Fighting Fraud

Vehicle value

The value of a vehicle is a key factor in determining the cost of insuring it. A car's value is determined by its age, size, safety features, accident rating, and other factors.

Insurers consider the cost of repairs, the likelihood of theft, engine size, and the overall safety record of the car. Older cars are generally cheaper to insure because they are less valuable and cost less to replace. However, larger vehicles often have higher price tags, which correlates with higher premiums.

When it comes to repairs, cars with expensive specialized features or certain makes, such as Volkswagens, BMWs, and Audis, tend to be more costly to fix. Safety features, on the other hand, can help reduce insurance rates. The higher the safety rating, the better the insurance rate.

The likelihood of theft also plays a role in insurance rates. Some makes and models are more prone to theft than others, and this can result in higher premiums.

It's worth noting that insurance companies use esoteric valuation methods that are difficult for consumers to challenge. These methods take into account various factors, including depreciation, wear and tear, mechanical problems, cosmetic blemishes, and supply and demand in the local area.

Frequently asked questions