Auto insurers price their policies based on a number of factors. Sometimes these cost factors go up, and sometimes they go down. Your actions, as a policyholder, can affect what you pay, too (see How Much Does Auto Insurance Cost in United States?). For instance, if you add another car, or a teenaged driver to your policy, your costs will increase. Alternatively, your costs will decrease if you drop either a car or a driver from your policy.
While consumers are used to rising costs, sometimes it seems that insurance premiums are increasing at a rate that exceeds inflation. Insurers explains that several factors contribute to rising premiums. They also provide tips for how consumers can pay less for home and auto insurance.
But there are also other factors outside of your control that could cause rates to increase, such as the crashes other people are involved in.
The number of crashes, and the cost of these crashes, are a component of insurance pricing. For example, drivers living in large metropolitan areas are likely to pay more.
This is simply because more cars, therefore more crowded roadways, increase the number of car crashes in those cities. On top of all that, speed limits are also being raised. Speed is the single-biggest contributor to crashes in which driver error is cited as the cause. Distracted driving is an issue everywhere. In big cities and small, people texting, talking or otherwise occupied with another activity while driving is being blamed in part for more crashes (see TOP 10 Largest U.S. Auto Insurance Companies).
Auto insurance covers more than vehicle repair. It also covers the cost of injured crash victims’ medical care and lost wages as well as the repairs and/or replacement of vehicles and any property damaged in a crash.
In recent years, medical and auto body repair costs have increased at a rate much faster than inflation. Legal costs have gone up, too.
Another trend affecting the cost of auto insurance is that with the unemployment rate falling, more people are driving both to and from work. And with more disposable income, they are presumably driving more for leisure. They also have the means to purchase more expensive cars. And while many of these cars have all types of safety features that might help in accident avoidance, these cars’ often high-tech components are also more expensive to fix and replace once damaged.
The factors contributing to rising rates and insurance premiums
Some factors are based on the driver, and others depend on the insurance climate. Consumers can take proactive and positive steps to reduce auto insurance costs. Talk to your insurance professional to make sure you’re getting all of the discounts to which you’re entitled. And if you’re not satisfied, shop around to see if another auto insurer offers you a policy which meets your needs at a lower cost.
1. Claims history
One of the most common reasons car insurance rates increase is the policyholder’s driving record. If a customer has filed a claim in the past, statistics show that they’re more likely to file a claim in the future (see Auto Insurance Claims Satisfaction Study).
Additionally, if a driver has a history of traffic violations, they’re demonstrating driving habits that increase their risk of being in a crash and filing a claim that costs the insurance provider money.
Homeowners face similar repercussions after filing a home insurance claim. Their rates will typically increase following a claim.
2. Policy changes could lead to higher rates
If a policyholder increases their coverage level or decreases their deductible, they’ll pay higher premiums to offset those benefits.
Insurance companies calculate premiums carefully so that they can remain competitive and solvent. They need to keep premiums down to attract customers, but they have to cover their risk of loss, so they make money and don’t go bankrupt (see Auto Insurance Performance & Underwriting Results).
While there are things consumers can do about their personal factors and how they relate to insurance, analytics points out that there isn’t much consumers can do about other factors.
3. The weather can contribute to higher premiums
Individuals who live in an area prone to severe storms like hurricanes can expect higher insurance rates as insurance companies rebound from their losses following recent high-loss storms.
Some homeowners in high-risk areas find it challenging to find adequate home insurance coverage for wind damage.
4. The rising cost of repairs results
When an insurance company has the risk of higher repair bills, they have to charge higher premiums to cover that risk (Global Auto Insurance Market has reached $823bn).
The added cost of home and auto repairs varies depending on the region where the policyholder lives. For example, those who live in the Northeast and Midwest have experienced higher repair costs than individuals in other parts of the U.S.
5. Insurance fraud
Experts estimate that insurance fraud costs the industry $40 billion a year. Unfortunately, consumers are the ones who absorb most of those costs by paying higher premiums (see How Technology Can Help to Tackle Insurance Fraud?).
While consumers can’t do much to affect higher premiums resulting from fraud, they can be vigilant and report cases of suspected fraud. If more insurance fraud is caught, costs could be lower for everyone.
6. High crime equates
Regions with higher crime rates have higher insurance premiums. Higher crime is associated with a higher rate of insurance claims. Since insurance premiums are based on risk, consumers pay higher insurance rates in areas with higher risk.
Moving one mile away can put a person in a zip code with higher or lower crime rates and corresponding insurance premiums than where they lived before.
Discounts are another way to save on insurance premiums. Consumers should review available discounts and ensure they’re taking advantage of all their eligible discounts.
How to save money on auto insurance?
Having adequate auto insurance is both smart and prudent, but there’s no question that it adds to the expense of driving. The good news is that premiums can vary by hundreds of dollars depending on a number of factors. Review your coverage at renewal time to make sure your insurance is in step with your needs, and follow these practical steps to reduce the bottom line on your auto policy.
Get at least three quotes, from both different insurance companies and different types of insurance companies—that is, those that sell through their own agents; those that sell through independent agents; and those that sell directly to consumers via the phone, an app or the Internet.
Ask friends and relatives for their recommendations based on their experiences, and do your own due diligence by researching the company before committing.
Understand auto insurance enough that you can ask a prospective insurer informed questions. Anyone you speak to should take the time to answer to your satisfaction. Remember, these are the people you’ll rely on if the worst happens and you need to make a claim.
Keep in mind that the lowest price isn’t always the “cheapest” option. Make sure the company you choose is reputable, and that you’re comfortable with the service you get from the insurance professionals you speak to.
Auto insurance premiums are based in part on the car’s price, the cost to repair it, its overall safety record and the likelihood of theft.
Many insurers offer discounts for features that reduce the risk of car theft or personal injuries, or for cars that are known to be safe. When you’re comparing new or used vehicles to purchase, also research what each will cost to insure. To start, you can check safety rankings for specific models with the Insurance Institute for Highway Safety’s (IIHS) online Top Safety Pick ratings tool.
Many insurers will give you a discount if you purchase two or more types of insurance from them—such as homeowners and auto—or have more than one vehicle insured. Some companies offer a price break to longtime customers. There are no guarantees so do your homework and compare costs for a multi-policy discount from a single insurer with buying your insurance separately from different companies.
Establishing a solid credit history has many benefits, including lower insurance costs. Many insurers use credit information to price auto insurance policies.
To be sure you’re getting the good credit you deserve, it’s a good idea to check your credit record on a regular basis to be sure all information is accurate. Some companies offer discounts to motorists who drive less than the average number of miles per year. Low mileage discounts can also apply to drivers who carpool to work.
Ask your insurer what discounts you might qualify for, but keep in mind that what’s important is the final cost of your policy. A company that offers few discounts may still be able to give you a lower overall premium price.
AUTHOR: Melanie Musson – Insurance & Finance Expert at Clearsurance