This article has been reviewed by licensed insurance industry expert Moshe Fishman.
Your auto insurance policy is about to renew when you discover your premium is increasing. You haven’t been in an accident, filed a claim, received a speeding ticket, or done any of the things that would normally account for an increase in the cost of your policy. So, what gives with this car insurance rate increase?
Across the nation, car insurance premiums have increased an average of 5%, with some states seeing increases as high as 20%. There are many factors at play, largely due to the aftereffects of the Covid pandemic.
While most of the factors influencing auto insurance premiums are out of the consumer’s control, there are some things you can do if you find your insurance premium is increasing.
According to the US Bureau of Labor Statistics, the Consumer Price Index increased by 8.6% from May 2021 to May 2022. That means consumers are paying 8.6% more for goods and services than they were a year ago. The auto insurance industry isn’t immune to inflation and while the US is in an inflationary period, it’s unlikely premiums for insurance products will go down.
Today’s modern cars, chock-full of safety features, are expensive to repair. Advancements in automotive technology have indeed made modern cars safer, but they’ve also caused repair costs to skyrocket for even the smallest repairs. Car parts that were once considered an easy fix now need to be replaced because of the materials being used. The advanced computer systems require more training to repair, which results in increased labor costs.
Increases in healthcare costs means that auto insurance companies are paying more for medical bills that stem from auto accidents. Being in a severe car accident can result in extensive medical costs for months of physical therapy for the injured occupants. These costs add up.
Even though it’s illegal in most places, the number of people driving without insurance has gone up. Even when the uninsured driver is at fault, the other driver’s insurance will be the one to pay for repairs and medical expenses. This results in an increase in the cost of paying out insurance claims and higher premiums.
The number of drivers who have returned to the office has almost reached pre-pandemic levels. With more drivers on the road, the number of accidents naturally increases as well. According to the National Highway Safety Administration, 2021 saw an unprecedented rise in the number of fatal accidents, increasing by 12% during the first nine months of 2021.
Also, many people continue to favor domestic travel over foreign travel. With the pandemic still placing limits on overseas travel, the popularity of road trips has continued to rise. More people driving greater distances to national parks and vacation rentals results in increased accidents.
The insurance industry is just as vulnerable to changes that occur as any other industry. Some events that happen create higher rates, such as accidents due to a greater number of distracted drivers as well as natural disasters.
Although unemployment is practically back to pre-pandemic levels, many companies are dealing with shortages of skilled workers. The “Great Resignation” has caused many people to change careers, causing labor shortages. With fewer employees, mechanics and repair companies can charge more for labor.
Despite education and warnings about the likelihood of accidents while texting and driving, the number of distracted drivers is increasing. Distracted driving accidents caused by driver inattention tend to be severe and costly, a contributor to increased insurance premiums.
Both 2021 and 2022 have seen an unprecedented number of natural disasters such as floods, wildfires, tornadoes, and hurricanes. Thus, insurance companies have had a rise in claims because of damage and replacement of vehicles affected by weather disasters.
Living in cities and states that have experienced an increase in claims will result in an increase in insurance costs. Insurance companies assume that you’re more likely to be involved in an accident or have your car stolen or vandalized in areas where claims have increased. Even things like changes in state insurance laws can affect premiums.
Various personal factors can cause an increase in your premium including age and driving record. If you’ve had an accident, ticket, or filed a claim, it’s almost guaranteed that your policy will go up. But there are other non-accident-related reasons that can account for a policy increase. For example:
A decrease in your credit score can result in a policy premium increase. But what if your credit score has remained the same? Insurance companies can reconfigure the importance of credit scores when calculating premiums.
For example, if you have a high credit score but your insurer isn’t taking this into consideration, your premium could go up. If you have a good to great credit score, contact your insurance company to make sure they’re factoring in your credit score.
Insurers often give discounts when policies such as homeowners insurance, car insurance, and life insurance are bundled together. If you’ve switched insurers or canceled one of these other policies, your discount for bundling them together will go away.
Although premiums may increase due to several factors, you should stay vigilant and take proactive steps to keep rates in check wherever possible. Here are some things you can do to combat auto insurance premium increases that seem unjustified.
By proactively monitoring your credit score and paying your credit card bills on time, you can avoid policy increases due to a decrease in your credit score. Request a credit report and challenge any discrepancies you may find.
Beyond your credit score, it is a good idea to check the information in your credit report on a regular basis. Incorrect negative information affects your credit scores negatively. Free credit reports are available from each major credit bureau.
It may seem obvious but being a safe driver will keep you from getting into accidents or getting tickets. Talk with other family members on your policy about the importance of safe driving and staying within speed limits. Consider taking a defensive driving course. Your insurance firm may reduce your premium when you show proof of passing such a course.
It’s always a good idea to shop around for car insurance to make sure you’re getting the best deal. When comparison shopping, obtain rates from at least three different carriers.
Check with your insurance agent to make sure you’re getting all the discounts you’re eligible for.
If you have various insurance policies scattered across different insurance carriers, consider bundling them all under one insurer. This will result in a multi-policy discount.
With so many factors influencing insurance rates that are both in and out of consumers’ control, an increase in insurance premiums seems inevitable. But don’t take a back seat and settle for rate increases when there could be something that may save you money.
Contact your agent or insurance company to see what you can do to help ensure your premium doesn’t increase.