Minor Accidents, Major Insurance Increases: Why The Spike?

Car insurance rates typically increase after an accident, even a minor one. This is because insurance companies calculate premiums based on risk, and drivers who have been in an accident are statistically more likely to be involved in another one. A rate increase protects insurance companies from losing money. The exact amount that insurance goes up depends on a number of factors, including the driver's age, location, and insurance provider. Young drivers may experience the highest increases since insurers typically view them as a risky group to insure.

Severity of the accident

The severity of an accident is a key factor in determining the extent to which auto insurance rates will increase. While any accident, regardless of severity, will likely result in higher insurance premiums, the magnitude of the increase is influenced by the extent of damage and injuries caused.

In the United States, the national average rate increase is approximately 45% for accidents causing property damage and 47% for those resulting in injuries. These figures, however, are not set in stone and can vary depending on the state and insurance provider. For instance, in Wyoming, the average increase is around 31%, while in North Carolina, it reaches 79% for property damage accidents.

The overall severity of the accident, including the cost of the insurance claim, plays a significant role. Minor accidents, such as fender benders in parking lots, typically have a lesser impact on insurance rates compared to major accidents with higher damage and injury costs. Additionally, certain states have laws that protect drivers from rate increases for minor accidents. For example, in Massachusetts, there is no surcharge for accident claims under $1,000, while in New York, there is no surcharge for accidents with no injuries and total damage below $2,000.

It's important to note that insurance companies calculate premiums based on risk assessment. Statistically, drivers involved in one accident are more likely to be involved in subsequent accidents or violations. Therefore, insurance companies adjust premiums to reflect the higher risk associated with insuring these individuals.

State laws and regulations

California

In California, drivers are required to report an accident to the Department of Motor Vehicles within 10 days if there are injuries or if the vehicle damage exceeds $750. Failure to do so can result in the suspension of the driver's license. The state also has specific regulations regarding insurance settlements, outlined in the Fair Claims Settlement Practices Regulations. These regulations mandate insurance companies to advise policyholders of their benefits and coverage, promptly respond to communications, and offer fair settlements, among other consumer protections.

Texas

Texas law requires drivers to show proof of financial responsibility, typically through auto liability insurance. The state mandates minimum liability coverage of $30,000 for injuries per person, up to a total of $60,000 per accident, and $25,000 for property damage, known as 30/60/25 coverage. Texas also has a Consumer Bill of Rights for auto insurance, which insurance companies must provide to policyholders. Additionally, insurance companies in Texas are prohibited from discriminating based on race, color, religion, or national origin when setting rates.

Massachusetts

Massachusetts requires drivers to carry a minimum of $20,000 in personal injury protection (PIP) coverage, which includes up to $8,000 for medical expenses and $2,000 for lost wages. The state also mandates uninsured motorist coverage of $20,000 per person and $40,000 per accident, as well as property damage coverage.

Florida

In Florida, drivers are required to have property damage liability coverage of at least $10,000. Additionally, Florida is a no-fault state, which means that each driver's insurance company covers their medical expenses and lost wages up to their policy limits, regardless of who was at fault in the accident.

Oklahoma

Oklahoma does not allow insurance companies to increase rates if a driver is not at fault in an accident. The state also requires drivers to carry uninsured motorist bodily injury coverage of $25,000 per person and $50,000 per accident, as well as uninsured motorist property damage coverage of $25,000 with a $500 deductible.

Other States

Other states have varying laws and regulations regarding auto insurance rates after minor accidents. For example, some states, like Alabama, Arkansas, and Arizona, have their own departments of insurance or motor vehicles that outline the specific requirements. Other states, like New Hampshire, do not require drivers to purchase car insurance but mandate proof of financial responsibility. It is important to review the specific laws and regulations in your state to understand the potential impact of a minor accident on your auto insurance rates.

Insurers' policies on adjusting rates

• Risk Assessment: Insurers calculate premiums based on risk. After an accident, especially if it is deemed to be your fault, insurers may view you as a higher risk to insure. This perception of increased risk can lead to a higher premium.
• Severity of Accident: The severity of the accident plays a significant role in rate adjustments. Minor accidents may have a lesser impact on your premium compared to major accidents with extensive damage or injuries.
• Claims History: Your claims history is a crucial factor. If you have multiple claims within a short period, insurers may assess you as a higher risk and increase your rates accordingly.
• Location and Demographics: Your geographic location, age, and gender can also influence rate adjustments. Certain states may have specific regulations regarding rate increases after accidents. Younger or less experienced drivers are often viewed as a higher risk group.
• Accident Forgiveness Programs: Some insurers offer accident forgiveness programs, which can help prevent rate increases after your first accident or minor accidents. These programs may be offered as endorsements or added to your policy for an additional cost.
• Rate Variation by Insurer: Different insurers have different approaches to rate adjustments. Shopping around and comparing rates from multiple insurers can help you find more favourable options after an accident.
• Time Frame of Rate Increase: The length of time an accident affects your insurance rates can vary. Typically, insurance companies consider your driving record from the last three to five years when determining your premium. After a few years of claim-free driving, your rates are likely to decrease.

Accident forgiveness

However, with accident forgiveness, your rate won't increase after a car accident claim. This gives you greater peace of mind and allows you to retain any good driver discounts.

High-risk drivers

• At-fault or not-at-fault accidents
• Traffic violations, including DUIs or DWIs
• Multiple comprehensive claims
• Lack of driving experience
• Lapses in insurance coverage
• Poor credit history
• Reckless driving convictions

If you are a high-risk driver, you may find it more difficult to obtain low-cost insurance coverage, as some insurers will not provide policies for drivers they deem high-risk. You will likely pay higher insurance premiums as a high-risk driver, but the amount you pay will depend on your personal details, location, and insurance provider.

To get the best rate on high-risk car insurance, it is recommended that you compare quotes from multiple providers. You may also be able to take advantage of discounts or improve your credit score to keep costs down.

Frequently asked questions