Insurance Renewal: Higher Rates, What's The Reason?

If you've received a higher insurance renewal bill, you're not alone. Many people are experiencing the same issue. There are many reasons why your insurance renewal is higher, and some of them may be beyond your control. For example, insurance companies take into account the number of claims in your area, the cost of repairs and replacements, and other factors such as your age, location, and driving record. Additionally, economic factors like inflation can drive up the cost of insurance. Your annual mileage and the type of vehicle you drive can also impact your rates.

Your location, age, gender, and driving record

Location

The location of your residence is one of the biggest factors in the price you pay for insurance. Average insurance rates can vary significantly between states, and even between neighbouring states. For example, a 35-year-old driver in Florida may pay an average annual rate of $2,775 for full coverage, while in Georgia, the average rate drops to $1,698.

Age

Age is one of the most important factors in determining your insurance rate. Younger drivers, typically under 25, often pay higher premiums due to their perceived higher risk. Insurance companies charge drivers in their teens and 20s more because of their lack of experience and higher statistical risk of accidents. Studies show that accidents, traffic incidents, and violations are most likely to be committed by young drivers aged 24 and under. As drivers mature and gain experience, premiums typically go down. At Progressive, the average premium per driver tends to decrease significantly from 19-34, stabilize or decrease slightly from 34-75, and then increase again at age 75.

Gender

Historically, gender has been a factor in setting insurance rates, with young male drivers typically paying higher premiums due to statistical data showing they are more likely to be involved in accidents. However, many states have now banned the use of gender as a rating factor. In states where it is still allowed, gender can influence rates, typically affecting younger drivers more significantly.

Driving Record

Maintaining a good driving record is one of the best ways to get a low insurance rate. Drivers with a history of accidents, speeding tickets, or other traffic violations typically pay the highest rates. At-fault accidents can increase insurance premiums by an average of 42% and stay on your record for three years.

Your credit score and medical history

Several factors contribute to an individual's credit score, including payment history, the amount owed, the length of credit history, the mix of credit types, and new credit applications. For instance, applying for multiple credit cards in a short period can lead to a buildup of hard pulls, slightly lowering your credit score. While most major car insurance companies check an individual's credit score before providing a binding quote, some states, such as California, Hawaii, Washington, Massachusetts, and Michigan, restrict or prohibit the use of credit scores in determining insurance rates.

In the context of medical history, insurance companies may assess an individual's physical and medical well-being to evaluate the risk of future claims. The development of new medical conditions or the worsening of pre-existing ones can lead to higher premiums during renewal. Additionally, older individuals are more likely to experience increased premiums due to the higher risk of medical claims associated with aging. However, it is important to note that in some countries, such as the United States, specific factors like medical history and sex are not allowed to influence insurance premiums.

The type of car you drive

One key factor is the safety rating of the car. Cars with higher safety ratings, equipped with advanced safety features and technologies, often result in lower insurance costs. These safety features can reduce the risk of accidents and minimize the extent of damage, leading to fewer and less expensive claims.

Inflation and insurance rate trends

Inflation can also affect insurance rates through its impact on investment-based insurance products. Life insurance policies, for example, are typically purchased as medium to long-term investments. Inflation may reduce the profitability of these investments, leading to lower disposable income for the policyholder. In some cases, individuals may choose to surrender their life insurance policies early or temporarily stop paying premiums, which can result in penalty fees and reduced savings in the long term.

The impact of inflation on insurance rates is a growing concern for both insurance companies and consumers. While insurance companies typically need approval from state regulators to increase premiums, the recent surge in inflation has resulted in delayed reactions from insurers. As a result, rate-payers may be experiencing a lagged effect, with insurance rate hikes still in the pipeline.

It is worth noting that insurance rates can also be influenced by factors beyond inflation. Personal factors, such as age, driving record, and credit score, can impact insurance rates. Additionally, factors outside an individual's control, such as increased claims in their area due to extreme weather or higher rates of theft or accidents, can also contribute to rising insurance costs.

Loss of discounts

For example, some insurance companies offer a discount for safe driving practices. If you have a history of safe driving but subsequently receive a speeding ticket or are involved in an accident, you may lose this discount. Similarly, if you previously qualified for a discount based on having no accidents or violations on your record, getting into an accident or receiving a moving violation could result in the loss of that discount.

Additionally, insurance companies may offer bundling discounts if you have multiple policies with them, such as combining auto, home, and other types of insurance. However, if you decide to switch insurers or cancel one of the policies, you may no longer be eligible for the bundling discount, leading to an increase in your insurance renewal rate.

It's important to carefully review the terms and conditions of your insurance policy to understand the specific discounts you are receiving and the requirements to maintain them. By doing so, you can proactively manage your insurance costs and take the necessary steps to retain your discounts or explore alternative options to lower your premium.

Furthermore, insurance companies may offer loyalty discounts to long-term customers. If you switch insurance providers, you may lose these loyalty-based discounts, resulting in a higher renewal rate with your new insurer. To mitigate this, some insurance companies offer loyalty credits or discounts when you switch to them, taking into account the time you spent with your previous insurer.

Frequently asked questions