Auto insurance companies increase premiums annually. Increases are caused due to high losses for the insurance companies, and insurers have penalties for drivers who are considered high risk. Average increases in premiums between 2018 and 2019 for auto insurance premiums were 7%. Depending on how the 10 largest auto insurance companies perform, the average rate tends to be determined by their bottom line. If an auto insurer is having a bad year they might experience a 100% combined loss ratio – effectively meaning they’ve paid more for settlements than profits they accumulated through premiums. Consequently, auto insurers raise their premiums even for well-behaving customers.
Over the past 2 years, the United States saw unprecedented natural disasters and the increase in tech-capable new cars means cars are a lot more expensive to repair – this incurs higher claims costs for auto insurance claims. Despite business factors, factors we can control are our credit score and what we do on the road.
The following are the top 5 reasons why auto insurers increase premiums on customers:
1) Traffic Accidents & Law Violations
All accidents and traffic violations incur higher premiums. If you receive even a parking ticket – it’s likely that your insurer will raise your premium because it deems you an unconscious driver. This is the most common reason people get increased premiums. However, some violations are considered more severe than others. The most severe violations are the following:
- At-fault accidents
- Traffic accidents in general
If you make a single claim for a traffic accident, your insurance rates are almost guaranteed to double, except if the insurer has a forgiveness program for the first accident. Certain companies will provide more leeway by offering you a buffer in which you pay a small fine and they let you keep your existing rate.
Note: Auto insurers who offer forgiveness programs only forgive at-fault accidents once. If you get in another at-fault accident your premiums are going to double and you risk getting dropped from the company – after which it will be very hard to find another insurance company that won’t overcharge you.
2) Credit Score Decreases
Auto insurers analyze your credit score to determine your premium. If your score dropped as a result of missed mortgage payments or any other financial issues, the auto insurer can increase your premiums consequently. In fact, auto insurers directly base your premiums on your credit score. If you have a better credit score, you will pay less in premiums. There is only one exception: California. In California, it’s illegal for auto insurance companies to use your credit score. In most cases, credit score-included premium increases are not as severe as ones from traffic accidents and traffic law violations.
3) Making Claims
If you made a claim this can affect your insurance rate – if the claim is serious, your insurance provider can double or triple your premiums. This is very frequent among both major and smaller auto insurers – make sure your insurer is not adamant about increasing premiums for people making claims. To avoid this, opt for an insurer that has forgiveness policies – moral insurers are less likely to increase your premiums when you make a claim. Beware of some auto insurers – in most cases if a claim exceeds $1,000 they will act on your premium rates.
4) Senior Age Increases
People over 70 years of age pay the highest premiums on their cars – this is because people that age are not expected to drive often and statistically they are more likely to get in a car accident. There are two sides to getting old in relation to auto insurance: 1) Clients get discounts once they hit over 50 years old 2) Clients get increases once they hit into their 70s. At the surface level, it makes little sense that insurers would incentivize 50 years olds by providing discounts and overcharging 70+-year-olds, but statistically, 70 year old drivers are more likely to get in a car accident than any other age group.
Certain insurers refuse to charge senior citizens higher rates – search for fair senior citizens auto insurers if you wish to find a fair rate.
5) Lapse On Insurance
If you fail to renew your policy or make payments but you still continue driving without insurance this is called a lapsing period. Auto insurers will account for the time you lapsed without insurance – severe penalties apply 30 days after the initial lapse. To avoid lapsing, you must contact your insurance agent and try to reinstate your old plan – usually, you should do this within the first week of a lapse. The auto insurer will charge you a small fee to reinstate your car, but this is preferable compared to getting in severe debt if you end up in a car accident uninsured. There are certain insurers such as USAA (only for military personnel) that can suspend your insurance plan while you’re deployed abroad.