Auto insurance pricing is evasive — there is no publicly accessible formula for how a car insurance company calculates your premium, and every company does it otherwise. It may feel sometimes like premiums are random, especially once you find an increase in the amount you pay each month.
While sometimes price changes may be brought on by something as straightforward as an adjustment to the organization’s underwriting policy, they may be in response to factors outside an insurer’s control.
It is worth noting that insurance companies are regulated by state agencies, and so as to change premiums, each automobile insurance company must go through approvals and regulatory procedures.
While you might be informed about rate changes, you might not be — every state has different laws on when customers will need to be informed of rate changes before renewing their coverages, if at all. Some countries require no notice, while others just require notices for rate changes over a specific percentage.
If you’re safe on the road shouldn’t your premium also be secure from large hikes? Not necessarily. There are many many other elements that can also lead to premium increases. Some are largely beyond your control.
If costs go up for insurance, this can mean higher prices for customers, even those who do everything right on the road.
Auto insurance companies have to comply with state laws. When laws change, insurance prices can, too.
Michigan has one of the most stark examples of precisely how much legislation affect premiums. A 1973 law required all drivers in the state to have personal injury protection policy with no limitation as part of their car insurance policy. Generally, each type of policy listed in a policy has a limitation it will cover, normally $25,000, $50,000, or $100,000. In Michigan, however, this coverage, also called PIP, must not have any limit to meet the state’s minimum policy.
When there’s been a change to legislation in your state, it might be supporting your climbing car insurance premium.
Insurance companies change the way they evaluate your risk
Insurance businesses go through a process called underwriting for every person they insure. Underwriting looks at the odds you will file a claim and incur a loss. Along with a few other factors, car insurance companies price your policy based on this particular possibility.
But that process is constantly changing. Insurance companies sometimes use new technologies in their underwriting process, changing the way an insurance company looks at you and the risk you pose. Additionally, when automobile insurance companies are paying for more accidents, they are spending more money. To recoup those costs, each drivers’ price of coverage rises.
Car insurance companies are constantly changing how they look at risk and at the motorists they guarantee, so you may find that the formula isn’t in your favor how it was. In this case, shopping around could help you to find a business that’s cheaper for your history and conditions.
Natural disasters can raise rates
After Hurricane Harvey hit Houston, Texas, about half a million auto insurance claims were filed, according to the New York Times. The Texas Department of Insurance estimated that car insurance companies confronted $2.7 billion in reductions. Auto insurance costs went up, with Texas indicating hikes of about 8%.
By California wildfires into East Coast hurricane activity, premiums can see spikes following natural disasters. Where there’s widespread damage, there’ll also be an increase in insurance claims. More insurance claims mean higher costs for the insurance companies, and that money needs to be made back somehow. Generally, that’s in the kind of rate increases for motorists.
The cost of medical care pushes auto insurance increases
The car isn’t the only thing covered by automobile insurance — passengers and drivers are, too. Medical care is a big part of auto insurance coverage. As the cost of health care is rising, auto insurance rates have to adapt to include this expense.
Between 2008 and 2017, nonprofit research group medical care Cost Institute estimates that the cost of an emergency room visit had increased by 176%.
With costs of healthcare on the rise, car insurance companies are trying hard to keep up with the rising costs of care. Raising prices is one way they keep the prices at bay.
Car parts are getting more expensive, and cars are becoming more complicated
The security features designed to keep drivers out of accidents are now costing insurers more. As automotive technology becomes increasingly complex, the costs of repairing vehicles, or purchasing new vehicles after a loss, are on the rise.
As cars become more complicated and costly to repair, auto insurance rates are rising steadily also.
Totaled cars are also more prevalent. Tim Zawacki reports for S&P Global’s Market Intelligence,”With the expense of auto parts rising at a faster rate than car prices, businesses have observed incremental increases in states where the vehicle is deemed to be a complete loss.” As more cars are totaled and car prices rise because of increasing tech features, car insurance companies are funneling more money towards replacing cars than previously.
What’s the best way to cut cost in rising auto insurance prices?
It’s important to not forget that auto insurance rates are highly individual — not everybody’s car insurance rate will follow the trend. Car insurance companies have numerous reasons to increase rates on an individual level, and oftentimes, changes to a driving history, credit rating, your automobile itself, and a number of other factors can play a role.
If your car insurance rate is beginning to seem high, it is worth shopping around for coverage. Take an hour to collect quotes from a variety of different car insurance companies, and compare their offerings. For a starting point, see Business Insider’s listing of the best auto insurance companies of 2020.
Examine the policy types, limits, and the premium to find the best policy for you. You will want to get to the policy with the most forms and highest limits of coverage, with a premium that suits your budget.
At times, rate hikes are simply unavoidable. However, there still may be firms that price your policy more affordably than your current policy, and it is worth looking around to see if you can beat your price.