Whether you respect or despise how car insurance carriers make their money, these companies follow a very lucrative business model. Every car insurer takes advantage of statistical principles and large sample sizes to reliably and consistently earn a profit. So if you ever find yourself facing a higher car insurance rate than you've paid in the recent past, rest assured that there's a sound bottom line-related basis for this change. Let's look at when you might expect your car insurance rates to rise, and what (if anything) you can do about it.
Car insurance coverage rates can go up for a number of reasons. However, a rate bump is almost always the car insurance company's attempt to balance its perception that a policyholder is a higher risk. In this context, "higher risk" means an increased chance of costing the car insurance company money somewhere down the line.
Sometimes referred to as a surcharge, higher premiums are usually due to something within the policyholder's control, like filing a large number claims. Other times, the surcharge is a consequence of something else, such as one or more of the following:
For most drivers, it's getting into a car accident or getting a traffic ticket that results in higher car insurance rates.
Insurance companies aren't exactly known for their candor, but the exact mathematical formulas and algorithms used to set rates and determine risk might be one of the industry's most closely-held secrets. However, it's public knowledge that certain factors can affect a policyholder's rates.
The first factor is the severity of the accident you were in, or the seriousness of the traffic violation. For example, imagine getting into a fender bender, or getting pulled over for driving 10 miles an hour over the limit. Your car insurance company will probably not view those incidents the same way as they would an accident that results in a death, or a traffic ticket for reckless driving.
Car insurance companies know that the more severe the accident or ticket, the higher the potential cost of a claim. It's a lot cheaper to fix a fender for a few thousand dollars compared to paying out for a wrongful death, which might max out policy limits.
Second, there's the issue of fault, which is pretty straightforward with traffic tickets (unless the law enforcement officer who cited you made a mistake, and you can prove it). Accidents are a little more complicated because a driver can get into an accident whether or not they played a part in causing it.
The driver who is deemed at fault for a car accident is usually the driver who will have to pay more for car insurance, but that's not always the case. Some insurance companies won't automatically raise an at-fault driver's rates. Sometimes this is an explicit policy benefit, with a designation like "accident forgiveness". Other times, it might be a courtesy for a particular policyholder who has been a loyal customer for many years.
Will your car insurance rates go up even if you didn't cause the accident? Not being at fault doesn't always guarantee unchanged rates. If you are in a no-fault car insurance state, being involved in an accident will likely result in higher premiums no matter who actually caused the wreck. This is because all drivers in a crash will generally turn to their own insurance company for claims related to their car accident injuries (at least initially), regardless of who was at fault.
One thing to note is that some states prevent car insurance companies from raising rates following an accident when the policyholder was not at fault.
The good news is that if you’re slapped with a surcharge following an accident or ticket, there are several ways to potentially lower your rates.
First, you can shop around for cheaper premiums. A new insurance company might be more forgiving of your mistake in order to win your business, or they might have different risk formulas that result in lower premiums for the same ticket or accident.
Second, you may be able to complete a safe driving course, which might show the insurance company you're serious about being a safer driver.
Third, you can stick with the same company and wait. After several years, your car insurance company should remove the surcharge. The length of the wait will depend on your company and any applicable state laws, but it's usually around three to five years.
Get answers to more frequently asked questions on car insurance.
