What makes auto insurance rates rise? That’s probably one of the most frequently asked questions in the car insurance industry. People want to know why they’re paying one rate today and a higher rate at the time of policy renewal. Not only that, many are frustrated by what they perceive to be an insurance company simply trying to take advantage of them.
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Most of the time auto insurance rate increases are not the result of insurance company greed. The truth is that there are legitimate reasons for raising your premiums. If you understand that, and you know what they are, it’s easier to take when it happens to you.
If you boil it down to its simplest form, rising insurance rates are the result of your insurance company trying to balance its risk-to-reward ratio. In other words, your provider takes the money you pay in premiums and invests it for a profit. The insurance company is banking on the fact that they can make a profit even if you should file an accident claim. But if conditions change in terms of your car or driving habits, they may need to raise your rates in order to remain profitable.
How does my driving cause insurance rates to rise?
Since car insurance is all based on risk and reward, if you drive in a way that poses a greater risk your insurance rates will go up. One of the ways this is most easily seen is an increase after getting a speeding ticket.
Your state motor vehicle department keeps a record of your ticket and how it was discharged. By the same token, the insurance company checks your driving record with the DMV at the time of your renewal. When a speeding ticket shows up on your record it will cause a rate increase.
You can also cause your rates to increase through DWI/DUI arrests, accidents, or tickets for other moving violations. Even in cases of fire or theft, where you were not directly responsible for the loss of your vehicle, your insurance rates may still go up if your provider deems you a higher risk. For really serious offenses such as leaving the scene of accident or repeated DWI infractions, you’ll be placed in a high risk pool which could cost you several times what you would normally pay premiums.
If my rates are increased will they always be that high?
In theory, a rise in insurance rates caused by poor driving on your part should only be temporary. In practice however, it’s entirely different ballgame. Think of it in terms of a man who is convicted of robbing a convenience store.
A thief may go to prison and do his time, but he will be forever branded as a thief, with most people being suspicious of him for the rest of his life. While rising insurance rates because of an accident claim is not in the same ballpark as committing a crime, insurance companies will always be wary while that car accident remains on your record.
The good news is that most insurance companies will take accident claims and minor violations off your record after a designated period of time. As long as you don’t have any further claims or violations during that period your insurance rates should drop once your record is clean.
The difficult part for many drivers comes in the form of repeated accidents or claims. You may get to the point where a previous item is about to be dropped from your record but then have another incident which goes on your record. This perpetual cycle of claims and/or violations will keep your insurance rates higher.
Are there any other factors that cause insurance rates to rise?
Unfortunately, there are conditions you and I have no control over that cause insurance rates to go up. State auto insurance laws are one of them. If a state legislature modifies motor vehicle law to the extent that insurance companies are required to carry greater coverage, you can expect higher rates. Other changes in state law include a longer period of record keeping for moving violations and convictions, taxes and surcharges that might be added to policy, and changes in tort law.
Lastly, economic conditions can also play a big part in rising insurance rates. As the U.S. economy has gotten shakier, it’s become more difficult for insurance companies to balance that ever important risk-to-reward ratio. In order to make up for sluggish investment opportunities some insurance companies are forced to raise rates across the board. As the economy recovers any imposed increases may or may not be discontinued.
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