Jane Dotson
There are many reasons why your auto insurance keeps going up. Inflation, for example, has played a big part in the rise of insurance rates, with the consumer price index rising by 7.7% between October 2021 and October 2022. This has caused the cost of labour to increase, with the average cost of labour rising by 5% from September 2021 to September 2022. The cost of vehicle repairs has also increased, with the cost of bodywork and repairs rising by 13.1% and 13.2% respectively. This has resulted in longer repair times, which has led to costlier claims.
Another factor is the increase in medical and healthcare costs. Medical payments coverage and personal injury protection cover medical bills for you and your passengers when you get into an accident. As medical costs continue to rise, insurance companies are forced to increase rates to compensate.
Additionally, environmental events in your state or region can also impact your insurance rates. For example, if there is an increase in severe weather or natural disasters, the number of vehicle damage claims will also increase, leading to higher rates.
Other factors that can affect your insurance rates include your age, gender, driving record, credit score, location, and the type of vehicle you drive.
What You'll Learn
Inflation and rising repair costs
In addition, vehicles are becoming increasingly technologically advanced, with features such as microprocessors, cameras, and other sensors. This means that even a minor accident can result in costly repairs. For example, a simple fender bender can now damage cameras, proximity sensors, and other technologies used for safety features like cruise control, parking, and emergency braking. As a result, the average cost of repairing a vehicle has increased significantly. According to industry analysts CCC, the average estimate for a front-end claim in 2022 was $3,706, a rise of over 15% from the previous year.
Furthermore, there is a shortage of mechanics, which means it takes longer to fix vehicles, and insurance companies have to cover the cost of rental cars for customers during this extended period. This also contributes to the rising cost of insurance.
The rising cost of auto insurance is also impacted by the increasing number of vehicles on the road. With falling unemployment rates, more people are commuting to work and driving for leisure. This leads to an increased number of accidents and subsequent repairs, which drives up insurance costs.
Overall, the combination of inflation, technological advancements in vehicles, and the increased demand for repairs contributes to the rising cost of auto insurance.
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Environmental events in your region
The frequency and severity of these environmental events are also important factors. A series of costly "billion-dollar weather events" in a single year can lead to multiple rate increases. Climate change is expected to exacerbate these events, causing insurance rates to climb even higher in affected areas.
Additionally, environmental events can have long-term effects on infrastructure, leading to increased vehicle wear and tear over time. This can result in more repairs and maintenance for car owners, which further contributes to rising insurance costs.
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Your driving record
Minor violations may never show up on your insurance company's radar, but they can still increase your insurance premium by 10-15%. Insurance companies typically look back over the last three years of your driving record, so it will take a while for violations to disappear. You can wait it out, or take a defensive driving course to shave some points off your record.
Major violations, such as DUIs or reckless driving, are a common reason for insurers to refuse to insure a driver or refuse to renew a policy. A serious offense can see your premium increase by 30% to 300%, and even a speeding ticket can bump your rates by 20%.
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Your age and gender
Age and gender are two of the most significant factors that determine the cost of auto insurance. Young drivers, especially males under 25, typically pay more due to their perceived higher risk of accidents. This is supported by studies showing that male drivers are more likely to be involved in accidents, with men causing around 6.1 million accidents per year compared to 4.4 million for women. Men are also twice as likely to be arrested for major violations such as DUIs and are more prone to fatal accidents involving speeding.
The high insurance rates for young drivers start to decrease at age 25, assuming a good driving record. The best rates are usually offered to people in their 50s and early 60s, after which rates begin to increase again around age 65. This is due to age-related factors such as vision or hearing loss and slower reaction times, which can make senior drivers more prone to accidents.
While gender plays a role in insurance pricing, its influence varies by state and insurance provider. Some states prohibit or limit the use of gender in setting insurance rates, while others allow it with limitations. In states that do consider gender, men tend to pay more than women, especially at younger ages. However, as drivers get older and gain more experience, the gender gap in rates narrows and becomes negligible.
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Your location
Insurers calculate your likelihood of an auto accident based on the county or state in which you live. The more drivers on the road, the higher the likelihood of collisions. Therefore, insurance companies charge more for coverage if you live or drive in a densely populated city to offset the cost of potential claims in these areas.
On the other hand, insurers calculate your risk of vehicle theft or vandalism based on the city or neighborhood in which you live. Car theft and vandalism typically occur while a vehicle is parked, so the location in which your car is parked plays a significant role in determining your odds of theft or vandalism.
Other location-specific factors that can impact the cost of car insurance include weather patterns, the cost of medical bills and car repairs, and the frequency and cost of lawsuits due to each state's tort vs. no-fault laws.
In the United States, your ZIP code and state can also play a large part in what you pay for a premium. The minimum auto insurance limits your state requires can also increase your rates. For example, in Michigan, the state's laws promise unlimited protection for personal injuries, and auto insurance companies are required to pay the victim of an accident up to three years of lost wages. As a result, Michigan's car insurance rates are some of the highest in the country.
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Frequently asked questions
There are several factors that can cause your auto insurance to increase. Here are some common reasons:
- Inflation: As the cost of living increases, so do the prices of goods and services, including auto insurance. Inflation can lead to higher labour costs, repair costs, and vehicle prices, which in turn affect insurance rates.
- Claims and accidents: If you have filed a claim or been involved in an accident, regardless of fault, your insurance company may view you as a higher risk and increase your premium.
- Location: Moving to a new address or a different ZIP code can impact your insurance rate. Areas with higher accident rates, more uninsured drivers, or frequent natural disasters tend to have higher insurance premiums.
Aside from the reasons mentioned above, the following factors can also contribute to rising auto insurance rates:
- Adding a new driver or vehicle: Insuring a teenage driver or adding an additional vehicle, especially a more expensive or high-risk model, can increase your premium.
- Driving record: Speeding tickets, traffic violations, or driving under the influence can all lead to higher insurance rates as they indicate a higher risk of future accidents or claims.
- Credit score: In some states, insurance companies use your credit score or a personal insurance score based on your credit history to determine your insurance rate. A lower credit score may result in a higher premium.
While some factors affecting your insurance rate are beyond your control, there are ways to mitigate the impact:
- Shop around and compare insurance providers: Different companies may offer varying rates for the same coverage. It's worth getting quotes from multiple insurers to find the best deal.
- Bundle policies: Consider bundling your auto insurance with other types of insurance, such as homeowners or renters insurance. Many companies offer discounts for multiple policies.
- Take advantage of discounts: Look for insurance discounts such as good student discounts, low-mileage discounts, or discounts for safety features on your vehicle.
- Improve your driving record: Maintaining a clean driving record, free of accidents and violations, can help keep your insurance costs down.
