Top 10 Causes of Car Insurance Rate Increases
Last Updated on July 21, 2020
Auto insurance rates can fluctuate. Sometimes, premiums go down. In other cases, they go up.
Maybe you did something to raise auto insurance rates. You made a claim, for example, or were convicted of a DUI.
Or, maybe your insurance rates rose because of something out of your control – like rising crime rates in your neighborhood.
Today, we’re listing the top ten causes of car insurance rate increases, including the specific things that cause auto insurance rates to increase.
1. You Made a Claim
If you caused an accident or made a collision coverage claim, then your insurance rates will increase. Most insurers raise rates after a single at-fault accident or claim. You might see rates rise anywhere from 20% to 50% after your first claim. You could also lose your safe driving discount.
Insurance companies will not typically raise rates for comprehensive insurance claims – like a windshield replacement claim or vehicle theft claim. In fact, many states forbid insurers from raising rates after a comprehensive coverage claim.
If you caused an accident or made a claim for repairs to your own vehicle, then your insurance premiums could rise by 20% to 40%.
2. You Received a Ticket or Citation
Drivers convicted of DUI or reckless driving have a significantly higher risk than other drivers. Your insurance company will raise rates to cover this risk.
With some insurers, a single speeding ticket will cause premiums to rise. Other insurers ignore one or two speeding tickets (especially minor speeding violations).
3. Your Credit Score Dropped
Insurance companies use your credit score to calculate insurance premiums. Drivers with a higher credit score are less risky to insure. If your credit score suddenly dropped – say, if you missed a payment or declared bankruptcy – then your insurance premiums could rise.
Please note that three states – California, Massachusetts, and Hawaii – ban insurance companies from using credit scores to calculate premiums. If you live in one of these three states, then your high or low credit score will not impact insurance premiums.
4. You Moved to a New State or ZIP Code
Your location impacts insurance premiums. Each state has its own rules for car insurance. Some states have strict car insurance rules and high liability limit requirements. Other states have relaxed rules and low limits. Some states are no-fault states, which tend to have higher insurance premiums, while other states are tort states, which tend to have lower premiums.
If you have recently moved to a new state, then your insurance premiums will almost certainly go up or down. Drivers in the most expensive states for car insurance pay triple the premiums, on average, as drivers in the cheapest states for car insurance.
Similarly, drivers in certain ZIP codes pay higher rates than drivers in other ZIP codes.
Let’s say you live in a nice, safe part of town. Over the past few years, however, crime has risen in your neighborhood. Vehicle theft rates have increased. Break-ins have skyrocketed. Vandalism, insurance fraud, and reckless driving are rampant.
All of these factors cause insurance rates to rise. If you live in a rough neighborhood, or if your neighborhood has suddenly experienced a surge in the number of break-ins and thefts, then your insurance premiums could rise.
5. Vehicle Repair Costs Rose
The cost of repairing a vehicle varies widely across the United States. Some states have lower costs of labor, for example, and cheap vehicle parts. Other states have higher costs.
Insurance companies are required to cover vehicle repair costs. When vehicle repair costs rise, insurance companies need to raise premiums to compensate.
As the cost of living rises, insurance companies need to raise prices to compensate. That’s why car insurance tends to be more expensive in states with a higher cost of living, like California, than in states with a lower cost of living – like Iowa.
6. Medical Costs Rose
Medical costs continue to rise in the United States. National health spending is expected to rise at an average annual rate of 5.5% between 2017 and 2026, according to the Centers for Medicare and Medicaid Services. By 2026, healthcare spending in the United States is expected to reach $5.7 trillion.
Medical bills make up a significant part of any insurance company’s costs. After an accident, insurance companies are required to pay the medical bills of drivers and passengers involved in the accident. When medical costs go up, insurance companies need to raise premiums to compensate.
As long as medical costs continue to increase, you can expect auto insurance premiums to rise as well.
7. There Are Higher Rates of Insurance Fraud
Insurers lose billions every year to insurance fraud. When insurance fraud rates increase, insurance companies need to raise premiums to compensate.
Vehicle insurance fraud can involve reporting a stolen vehicle when it wasn’t legitimately stolen, for example, or deliberately destroying your own vehicle. Some people claim their vehicle was damaged in a hit-and-run when it really wasn’t. Others burn down their garage.
8. Natural Disasters Have Recently Hit Your Area
A natural disaster can be devastating for an insurance company – especially if the insurance company is a smaller, regional provider with a concentrated customer base. A bad windstorm or flood, for example, can cause an insurer to go bankrupt.
If your area has experienced multiple natural disasters in recent years, then your insurance company might raise premiums to cover this added risk. Generally, the risk and severity of natural disasters is increasing across the United States. As this risk increases, expect insurance companies to raise premiums to compensate.
9. You Got Older
Sometimes, just getting older can raise insurance premiums. Age has a significant impact on insurance premiums.
As you get into your 30s, 40s, and 50s, car insurance rates decline. You are older, wiser, and more experienced. Statistics show that you’re less likely to make a claim. As long as you continue driving safely and avoid accidents, you should be paying low insurance rates well into your 60s and 70s.
As you reach your late 70s and beyond, however, trends start to reverse: statistics show that older drivers are more likely to make an insurance claim. They have slower reaction times and worse vision and hearing. They’re riskier for drivers to insure.
If you are in your 70s, 80s, or 90s and have noticed insurance rates increase for no apparent reason, then it may simply be your age.
10. You Added a New Driver to your Policy
Your insurance company charges premiums based on your risk as a driver. If you have multiple drivers on your policy, then your insurer needs to analyze the risk of every driver on that policy.
Let’s say your son just got his license. He’s a new driver and wants to drive the family vehicle. However, he’s also a 16-year old male with no driving history, which means he’ll pay very high insurance premiums. Adding a driver like this to your policy can cause premiums to double.
Or, some drivers find their insurance premiums rise when moving in with a partner. Your new spouse might have a poor credit score or driving record, for example. Since you live together and are listed on the same policy, your insurance company analyzes the risk of both before assigning rates.
Consider excluding a high-risk driver from your insurance policy. By excluding a driver, you are preventing that driver from ever driving your vehicle – but you can also avoid the spike in insurance rates.
Final Word: Compare Insurance Premiums to Avoid Rate Increases
Insurance companies can raise insurance premiums for dozens of different reasons.
When insurers raise premiums, many drivers simply accept the change.
However, we recommend comparing insurance quotes. One insurance company might have raised rates in response to rising rates of fraud, for example, while another insurer has better fraud detection and has kept rates low.
Or, some insurers are not interested in insuring drivers age 70 and older. These companies charge relatively high rates to older drivers. Other insurers, meanwhile, value the experience of these older drivers, charging them relatively low rates.
Don’t get stuck with the same insurer for decades. Compare other insurance providers in your region and save money.