Knowing what bumps up your rate might help you negotiate a stronger one.
After you’ve purchased car insurance coverage, you might expect your rate to remain the same over the life of your policy. But premiums can increase without much warning if any of the many factors that go into your rate change.
Why did my car insurance rates go up?
Your car insurance rates are largely influenced by where you live, your driving record and the type of vehicle you drive. While your driving behaviors and overall risk can affect your premiums, factors that are out of your control can also increase your rates.
Even if you’re a safe driver, higher average claim payouts, increased cost of repairs or changes in insurance laws could result in increased rates. Internal variables that providers rely on when calculating your premium include its total claims and costs across its active policies. Providers also look at accident and traffic trends in your city or even for your vehicle, looking for the potential for an uptick in claims.
Common reasons for price increases
- You’re driving a different car or moved to a different address.
- Your credit score changed.
- You have new traffic violations on your record.
- Your state passed new regulations.
- Your insurer changed its risk and premium algorithm.
- Your insurer is passing on higher costs with higher premiums.
Price increases after a life change
The price of your car insurance depends on factors that can affect your risk of filing claims and the cost of payouts. This is why most insurance companies require you to get a quote instead of posting rates online.
You could see higher insurance rates after a change to:
- Your driving history. If you get a speeding ticket or hit another vehicle — no matter who’s at fault — expect an increase in your premium.
- Where you live. Traffic, road conditions and theft rates vary by location. If you move to another ZIP code, you may see a change in your rates.
- The car you drive. Cars don’t have the same safety features, performance or crash test results, resulting in significantly different rates among makes and models. If you drive a different car, your rates will likely change.
- Your credit score. The Federal Trade Commission found that credit-based insurance scores are effective predictors of risk, meaning your credit score can directly affect your rates in all but a handful of states.
- Other coverage. Many providers offer discounts for multiple policies or vehicles under one brand. If you cancel another type of coverage on your policy, your rates may increase.
- Your marital status. A recent wedding or divorce could cause your premiums to fluctuate, as can adding or removing drivers from your policy.
- Your age. Drivers under the age of 25 typically pay more for insurance compared with older drivers. As you get older, you might see drops in premiums until about 60 or 65. Unfortunately, seniors tend to see higher rates.
- Policy claims. If you’ve filed a claim recently, you can expect your premiums to increase, no matter who was at fault.
Price increases after law and regulation changes
For the most part, car insurance is regulated at the state level, resulting in laws and regulations that vary across the nation. It’s why the rates you get in one state don’t necessarily guarantee the rates you’ll find in another.
Residents in Michigan, for example, pay the highest auto insurance in the US at an average annual premium of more than $2,500. High rates are in part due to the Great Lakes State’s laws requiring unlimited personal injury protection (PIP) on all policies, which covers unlimited medical expenses resulting from a crash.
A new state or even a new ZIP code could result in an increase in the price of your premiums, depending on where you’re moving to.
You might also see rate increases after major regulatory changes within the industry or your state. For example, if your state suddenly decides that uninsured motorist protection is mandatory for all drivers, insurance costs will likely increase across the state from the added coverage and risks.
Insurer costs passed on to customers
At the end of the day, insurance is a business that’s looking to turn a profit. Structural changes, shifts in the economy, taxes and other factors can affect a provider’s’ expenses. In turn, they can find ways to pass along increased fees to keep more money in their own pockets.
External factors providers consider include:
- Rising medical costs. If you need medical attention after an accident, your provider may be on the hook for your bill. Your provider may up your rates to account for the changing market.
- Increase in claims. If your provider finds itself paying out more claims than normal, it may increase rates to reduce the impact on its revenue.
- Increase in theft or vandalism. Even if you’re a safe driver, car theft, extreme weather and other threat trends can lead to higher insurance premiums.
- Increasing cost of repairs. As technology advances, it’s getting more expensive to diagnose and fix car problems. If your provider is paying more for repairs, it could charge more for insurance.
- Normal market inflation. The cost of goods and services rises each year by 1% to 2%. Just like groceries are a little more expensive each year, the same goes for car insurance. Your rates might increase to keep up with inflation.
I’ve been a loyal customer for years. Why did my insurance rates go up?
Insurance providers use complex algorithms to determine their overall risk in taking you on as a policyholder, many of which are out of your control.
You might think that loyalty to your insurer will pay off in lower rates. Unfortunately, loyalty doesn’t count for much in the world of insurance. In fact, some providers hand out lower rates to new customers willing to switch from competitors.
Outside of loyalty discounts, staying with the same provider over time can actually end up costing you more due to something called price optimization.
What is price optimization?
Price optimization is a tactic some providers use to charge select customers more for auto insurance. Insurers know customers aren’t likely to notice tiny increases in premiums, so they increase rates to the point they think customers can tolerate without cancelling.
You might see a rate increase for no reason other than the fact that the algorithm determined you’re more likely to pay for an increase at renewal rather than switch to a competitor.
Other drivers can affect premium increases
When calculating your premiums, insurance providers note trends among drivers that include:
- Distracted driving. Texting and other distractions are far more prevalent today than 10 years ago. Providers may adjust rates to reflect the perception of higher risk for a collision.
- Increase in accidents. Every new car added to America’s roads increases the chance of an accident, potentially increasing rates across policies.
- More driving. Gas prices, commute times and weather can affect the amount of time people spend on the road. The more hours cumulatively spent behind the wheel can result in higher rates.
- Neighborhood or state. Some areas simply see more accidents than others. If your commute takes you on a riskier route or accident-prone area, you might pay more.
- Drunk driving. Driving in a state that’s prone to higher risk of DUIs or alcohol abuse could mean greater risk of impaired driving, which might lead to increased rates.
How much could my car insurance rates go up?
The amount of a potential rate increase is largely situational. Allstate has found itself in hot water with the Consumer Federation of America, for example, which claims some customers were charged over eight times the standard rate due to price optimization.
Rate increases can also come on the heels of a fender-bender or speeding ticket, which increases your risk to the insurer. You could see rate increases of 10% or more, depending on the infraction.
How can I prevent car insurance price increases?
You can reduce the chance of paying a higher premium with a few helpful tips.
- Shop around. As your renewal date approaches, contact competitors for quotes. The data might be picked up by your provider’s algorithm, reducing the chance of optimization. Better yet, you’ll have alternatives at the ready if you do see an increase.
- Pay in full. Rather than paying monthly, consider paying your full policy balance in full. You’ll prevent the possibility for monthly increases, and if you set your policy to auto renew, possibly annual increases too.
- Lock in your rate. Many providers offer rate lock for up to a year as a benefit to loyal policyholders.
- Keep an eye on your bill. Before paying your premium, review your bill online or through an app to make sure you’re not hit with unexpected fees.
- Sign up for accident forgiveness. Offered by big-name providers, this perk prevents your rates from increasing after your first accident.
- Look for discounts. Safe driving, loyalty and good student discounts are just some of the ways available to shave money off your bill.
- Review your policy annually. Analyze your benefits against your lifestyle and habits to get the coverage you need at the best possible price.
Compare car insurance companies
Unexpected rate increases can take you by surprise after you’ve nailed down your policy. The reasons for the jump can range from your driving behavior to factors beyond your control, like new driving trends in your city.
Stay on top of your bill and look into perks like rate locks and accident forgiveness to buffer potential rate hikes.
If you’ve had a major life event or your renewal date is approaching, compare car insurance providers to get the most value for your coverage.