Auto Insurance Premiums: When And Why They Increase

There are many factors that can cause your auto insurance to go up. Some of these factors are within your control, such as your driving record, age, and the type of vehicle you drive, while others are outside of your control, such as inflation, repair costs, and severe weather trends. One of the main reasons for an increase in auto insurance rates is the higher cost of repairs, which is due to part shortages, increased labor costs, and higher vehicle replacement costs. Additionally, comprehensive claims have increased due to severe weather events and vehicle thefts, which have also contributed to rising insurance rates. Industry trends, such as the increase in auto thefts and severe weather events, have also played a role in the rise of insurance rates. When it comes to driver-specific factors, insurance companies take into account your driving record, age, insurance-based credit score (depending on the state), and gender. Moving to a different location, adding a new driver to your policy, or making changes to your coverage can also lead to higher insurance rates. It's important to note that insurance rates don't always increase and can sometimes decrease due to factors such as age, a clean driving record, or switching insurance companies.

Accidents and violations

At-Fault Accidents:

At-fault accidents are those where you are deemed responsible for the incident. These types of accidents will almost always lead to an increase in your insurance rates. The exact increase will depend on various factors, including the severity of the accident, your insurer, and your state's regulations. Some states have specific laws that dictate when insurance companies can increase rates after at-fault accidents, such as New York, where insurers can only raise rates if the accident involves more than $2000 in property damage or any bodily injury.

No-Fault Accidents:

Even if you're not at fault in an accident, your insurance rates may still go up. This may seem unfair, but insurance companies view not-at-fault accidents as an indication of a higher likelihood of future accidents. Additionally, in no-fault states, all involved parties typically file claims with their own insurers, which can lead to rate increases regardless of fault. However, some states, like Oklahoma and California, prohibit insurers from increasing rates if you were not at fault.

Comprehensive Claims:

Comprehensive claims cover non-collision incidents such as car theft, vandalism, fire, cracked windshields, and acts of nature. These claims can also lead to higher insurance rates, as insurers consider them an indicator of a higher risk of filing future claims.

Accident Forgiveness Programs:

Some insurance companies offer accident forgiveness programs that waive the surcharge for certain types of accidents, especially for first-time accidents or minor incidents. These programs vary by state and insurer, so it's essential to review the specific guidelines of your insurance provider.

Duration of Rate Increases:

Accidents usually affect your insurance rates for at least three years, but this can vary depending on your state and insurer. The farther the incident is from your policy renewal date, the longer you may experience higher rates. In some cases, such as accidents involving serious bodily injury or multiple violations, you may be required to obtain high-risk insurance (SR-22) and face license suspension.

Strategies to Mitigate Rate Increases:

There are several strategies you can employ to mitigate the impact of accidents on your insurance rates:

• Shop around and compare rates from different insurance companies, as they use different algorithms to calculate quotes.
• Look for available discounts, such as safety or anti-theft feature discounts, reduced mileage discounts, or good student discounts.
• Share a policy with a driver who has a clean record and experience.
• Bundle your homeowner's or renter's policy with your auto insurance.
• Avoid filing a claim whenever possible, especially soon after another claim, as it can result in a more significant rate increase.
• If you have an older car, consider dropping comprehensive and collision coverage, as well as unnecessary add-ons like rental car reimbursement and roadside assistance policies.
• Improve your credit score, as it can impact your insurance rates in most states.

Inflation and repair costs

The cost of repairing or replacing a car that has been damaged in an accident has sharply increased due to snarled supply chains, parts shortages, and a tight labour market that has led to rising wages for auto mechanics. According to Sean Tucker, senior editor at Kelley Blue Book, even a minor accident can now be very expensive due to the advanced technology in newer vehicles. A simple fender bender can damage cameras, proximity sensors, and other technologies used for safety features such as cruise control, parking, and emergency braking.

In addition to the rising cost of repairs, the frequency of accidents is also contributing to higher insurance premiums. The number of fatal auto accidents increased sharply in late 2020 and early 2021, and while accident rates have since declined, they remain higher than pre-pandemic levels. This increase in accidents is due in part to riskier driving habits and distracted driving.

The cost of auto body repair and medical care for injured crash victims has also increased at a faster rate than inflation. Medical and legal costs associated with accidents are also contributing to higher insurance premiums.

Furthermore, natural disasters fuelled by climate change are also driving up insurance costs, not just in areas prone to hurricanes or wildfires but also in other regions experiencing severe weather events such as hail storms. These events lead to an increase in comprehensive car insurance claims, which cover damages from non-collision events such as hail, fire, flooding, and falling trees.

The combination of inflation and rising repair costs has had a significant impact on the auto insurance industry, leading to higher premiums for drivers across the United States.

New/additional drivers

Adding a new driver to your car insurance policy can be a complex process, and the impact on your premium can vary depending on several factors. Here are some key points to consider regarding new or additional drivers:

Teen or New Driver

The addition of a teen or new driver to your policy will likely result in an increased premium. Insurance carriers consider new drivers to be at greater risk of accidents, which leads to higher insurance costs. The surcharge for a permitted driver will be applied to the policyholder, but it will transfer to the driver once they receive their license. After the driver gains some experience, the insurance cost should reduce annually until they are no longer considered a new driver (typically after six years).

Adult Driver with Established Record

Adding an adult driver with driving experience can be less predictable. If the adult driver has a poor driving record or falls into an age group considered high-risk by the insurance company, your premium will likely increase. On the other hand, adding a driver with a clean driving record could lead to a decrease in your premium.

Ways to Save Money

• Bundle your policies: Combining your auto insurance with other personal insurance policies, such as homeowners or rental insurance, can result in significant savings (typically 5-25%).
• Multi-car discount: Insuring more than one car with the same insurance company or under the same policy can also lead to discounts.
• Shop around for rates: Insurance prices vary across companies, so it's worth obtaining quotes from different providers to find the best deal.
• Payment methods: Paying your premium upfront or through electronic funds transfer/automated clearing house can eliminate billing fees and save you money.
• Higher deductible plan: Opting for a higher deductible plan will lower your monthly payments, but ensure you have enough savings to cover potential damages in case of an accident.
• Discounts: Explore various discounts offered by insurance companies, such as those for safe driving, good grades, membership in associations, and charitable donations.
• Remove optional coverages: Review your policy for any optional coverages that may not be necessary for the new driver, such as collision insurance or substitute transportation insurance.
• Telematics: Enrolling in a telematics program can provide discounts of up to 30% for cautious or low-mileage drivers.

Higher-risk locations

Where you live can have a significant impact on your auto insurance rates. If you live in an area with a high number of claims, your location can bump you into a higher-risk category with car insurance companies. For example, if you live in an area with a high rate of car theft, vandalism, or severe weather, this can result in a higher-than-average number of claims, making you riskier to insure.

Insurance companies determine the cost of your auto insurance by using historical data to predict potential future losses or claim payouts. If your location has a high number of claims, insurance companies will offset this by increasing your annual rates. This is because insurance companies need to collect as much in premiums as they spend on losses and expenses to be able to pay claims.

As a result, your auto insurance rates can increase even if you have a clean driving record and no recent claims. For example, if you live in an area with a high number of accidents or weather-related claims, your rates may increase to reflect the higher risk associated with that location.

In addition, if you move to a new address, your auto insurance rates may increase mid-policy, even if you have not made any changes to your coverage, vehicles, or drivers on your policy. This is because changing the address where your car is garaged is considered a significant factor in determining the risk associated with your policy.

Overall, higher-risk locations can have a significant impact on your auto insurance rates, and it is important to consider this when choosing a place to live or when reviewing your auto insurance policy.

Policy changes

Adding or Removing Vehicles and Drivers

You may need to update your policy if you purchase a new vehicle or if there are changes to the drivers on your policy. Adding a new vehicle, especially a more expensive one, can increase your rate as it may be more likely to be stolen or cost more to repair or replace. Similarly, adding a new driver, especially a teenage or high-risk driver, can drive up your insurance costs. On the other hand, removing a vehicle or driver from your policy may result in lower rates.

Relocation

Changing the address where your car is typically kept overnight can impact your insurance rates. Insurance rates vary by ZIP code and even by neighbourhood, taking into account factors such as traffic patterns, accident rates, and other location-specific risks. As a result, moving to a new location, whether within the same state or to a different state, can lead to changes in your insurance premiums.

Life Events

Significant life events, such as getting married, buying a home, or having a child, can also lead to policy changes. In some cases, life events can result in insurance discounts. For example, married couples often see lower insurance rates as insurers view married drivers as being involved in fewer accidents and obeying traffic rules more often. Additionally, bundling home and auto insurance policies can lead to significant savings. Similarly, having a teenager leave for college, especially if they don't take a car with them, can reduce your insurance costs.

Changes in Coverage Needs

Over time, your coverage needs may change. For instance, if you've finished paying off your car loan, you may no longer need full coverage insurance. Instead, you may opt for minimum liability coverage, especially if your car is older and you can afford to pay for repairs out of pocket. Alternatively, if your financial situation improves, you may choose to increase your coverage limits or add additional coverage options for enhanced protection.

Changes in Insurance Company

If you're unhappy with your current insurance company or believe you're paying too much for your policy, you can always switch to a different insurance provider. Shopping around and comparing quotes from multiple insurers can help you find a better rate or more suitable coverage options. However, be sure to review the terms and conditions of your current policy to avoid any cancellation fees or penalties.

Frequently asked questions