No matter how good a driver you are, you’ve probably seen your car insurance premiums rise in recent years when the time came to renew your policy. For what it’s worth, that isn’t always a reflection on you.
If 2016 is any indication, auto insurance premiums are likely to continue rising in 2017 and beyond. One reason: more people are driving, contributing to more accidents and more medical claims. That can cause insurers to raise rates on all policyholders, regardless of their personal driving record or how long they’ve been a loyal customer.
Here’s more about why this is happening and what you can do about it.
Why Rates Rise
Car insurance companies are, first and foremost, businesses, and the business they’re in is risky by nature. There are costs they can control, or at least predict within a reasonable margin of error, such as overhead expenses, annual inflation, and average yearly payouts. But an unexpectedly bad year for accidents and claims can change all that and necessitate an across-the-board rate hike for the insurer to remain profitable, or even stay in business.
One reason for rising costs is that cars today can be expensive to repair or replace. Replacing a bumper can cost an insurer nearly $1,000 and a rear-end collision that damages the car’s frame can run close to ten times that. Automakers are implementing new technologies that may help prevent accidents, like bumper cameras, but these gadgets can themselves be expensive to repair or replace when damaged.
Then there are medical costs. Even an accident as simple as a fender bender can lead a driver or passenger to seek medical attention for whiplash and neck pain, increasing insurers’ claim costs.
Insurers are also required by state insurance regulators to maintain a cash reserve so they have adequate funds to cover their claims, even in the event of a catastrophe. When your state determines that your insurer’s cash reserves are too low, or the company itself recognizes a higher risk of claims, your premiums could rise to help build up those reserves.
Short of a catastrophe, a spate of bad weather can also have a serious impact on rates. Cheap car insurance in Texas is harder to come by because of the barrage of hail storms, tornadoes and other weather disasters that happen across the Lone Star State. Unpredictable bad weather has in fact been cited by GEICO as one of its main reasons for raising premiums in 2016. Finally, changes in your life that seem unrelated to your driving record can also have an effect. For example, if your credit score declines for some reason, you may be subject to a rate hike. That’s because insurance companies often take credit scores into account in setting their rates, considering them an indicator of how likely someone is to get into an accident and file a claim. Three states prohibit companies from doing that: California, Hawaii, and Massachusetts. But if you live in any of the other 47 states, you’re at risk of an increase.
What You Can Do If Your Premiums Rise
While your auto insurer may be justified in raising your premiums—at least from its point of view—that doesn’t mean you’re stuck with them.
Instead of automatically renewing your policy every year, check your new premiums against what you paid last year. If there has been a significant upward bump, call your insurer to ask why. There could have been a mistake. Your credit report, if the insurer consulted it, may contain errors. Or, the insurer might have failed to apply discounts you are entitled to. Also ask if there are other ways to lower your costs, such as bundling your car and homeowners policieswith the same insurer.
If the answers you get aren’t satisfactory, use the time until your next premium payment is due to shop around. Be sure to compare policies with similar levels of coverage and deductibles, and check on each company’s financial health with major ratings agencies like A.M. Best and Standard & Poor’s. You may have to sign up to use their websites, but the information is usually free.