So you just received your car insurance renewal and noticed that your premium increased. Maybe even a lot. And you're mad. You want to know why and you want to know NOW.......
Trust me, we totally understand why you're mad. But before you blow your top, keep reading. This post is the ULTIMATE guide to reasons why car insurance premiums increase. Chances are good you'll find the reason below. And if you don't, you'll have the right information to start asking questions about your own policy.
1. Your insurance company raised their premiums
Historically, when you pay your car insurance premium, it gets lumped in with other people paying their premiums. When claims are paid out, they're paid from those same premiums. So if Joe Smith has a claim, premiums you've paid help Joe Smith fix his car or pay medical bills for someone he's injured (an oversimplification, but you get the point). Insurance companies keep a minimum amount of premium in reserve for claims payments (often state law requires this). When the amount dips below the minimum, the insurance company raises premiums across the board to replenish the amount.
Most state insurance departments also require justification and must approve a rate increase from the insurance company. So although it may look like the insurance company suddenly decided to raise rates for no reason, that's usually not the case.
We do have a coverage from Erie Insurance called Rate Lock/Rate Protection that guarantees your premium stays the same (with a few exceptions). Read our article- 5 Awesome Reasons to Choose Erie Auto Insurance- for details.
2. You had an at-fault accident that resulted in a claim
Many insurance companies surcharge a car insurance policy after an at-fault accident. Usually it depends on the amount paid on the claim. So for example, Company A may surcharge a policy if the claim is over $1,000. The surcharge may last for several years too. Or perhaps the first one was forgiven, but you had a second accident. The same principle still applies. So if you had an at-fault accident that was over the threshold, this may be the reason. Ask your agent what the minimum amount is for a surcharge to apply.
3. You got a speeding ticket. Or two.
Unfortunately, getting a ticket can raise your rates. It shows that you’re at a higher risk of having an accident and causing a claim. Insurance is all about risk and those who are riskier pay more money.
4. You lost a discount
Most policies have several discounts included and if those discounts expire, your rate may increase. If you’re receiving a discount for being accident free for several years and then have an accident, the loss of the discount will increase your rate. Maybe you were receiving a discount for having your policy on EFT or paid in full and you changed your payment plan. You might see a slight increase here too. The point is, there are many possible reasons for losing discounts. So ask if that might be the reason.
5. You moved to the big (or bigger) city
Rates are also calculated based on the zip code where you live. Let's say you've been living in a small town. You decide to move to a metropolitan area. Pretty good change premium will increase.
6. You bought a new (or newer) vehicle
Let's say you've been driving a 20 year old car. You decide it's time to upgrade, and buy a 2 year old car. Chances are good that your 20 year old pickup was liability only and now your new car needs comprehensive and collision coverage. The fact that you're ADDING coverage that wasn't there with the old vehicle naturally means an increase.
What if your old car DID have comprehensive and collision? Comprehensive and collision premiums are determined by rating symbols. These symbols are determined by such factors as cost to repair or likelihood of theft. So the higher the symbols, the higher the premium. It's always possible you went from a low symbol vehicle to a higher symbol one. If you're not in the insurance business, then you wouldn't know that. So let your agent quote all vehicles you're thinking of buying to avoid an unpleasant surprise!
7. You added a teenage driver
Teenage drivers are VERY expensive- they're the riskiest drivers on the road due to inexperience and frequency/severity of accidents. So when you add a new teen driver to your policy, you will see a decent size increase, usually several hundred dollars. Read our report "Teenage Drivers and Auto Insurance: Tips to Keep Them Safe and Help You Save Money" for safety tips, insider tips to save money on your auto insurance and vehicle recommendations that keep your teen driver safe AND save you money.
8. Your insurance score changed
Since 2003, the Ohio Department of Insurance has allowed the use of insurance scoring in rating auto and home insurance policies. An insurance score depends heavily on credit information. Although each insurance company uses its own insurance scoring model, some of the biggest factors that affect your score include:
- Bankruptcy, foreclosure, repossession
- Payment history- late payments, missed payments
- Length of credit history
- Number of credit lines
- Type of credit
- Outstanding debt
- Inquiries into your credit history
If your credit history suddenly changes for the worse, then you will probably see a premium increase. For more detail concerning how and why insurance companies use credit history in premium determination (along with helpful tips to improve your score), read "What You Need to Know About Insurance Credit Scoring" from the Ohio Department of Insurance.
9. You made a change to your policy sometime during the policy period and are just now seeing the FULL impact
This one really messes people up, but it happens all the time. And let's face it, something we did 6 months ago is harder to remember than something we did last week. Here's an example: Let's say your policy runs from June 1- May 31. Perhaps you replaced a vehicle or added a driver (like a teenager mentioned previously) on November 1. You're only charged premium from the date of the change until May 31, the end of the policy period. That's called pro-rata premium. But when you get your renewal for the following June 1, naturally you're going to see a higher premium, because you're now seeing premium for the ENTIRE policy period. So it may look like your policy premium went up significantly, when in reality you only paid premium for the portion of the policy period and at renewal you see the full impact of the change.
10. The company made a mistake
I know right? But, honestly I have seen it happen. In fact the most common mistake we see is the removal of the auto/home discount. A house gets sold, so that policy is cancelled, but another policy is written for a different house and the system doesn't catch the new policy. So, yes it happens! And this discount can often range between 15 and 20 percent, so you would definitely notice that change!
Questions? Need more information? Give us a call at (937) 592-4871. You can also request your auto insurance quote quickly and easily. We're here to help!