August 02, 2016

Brace Yourself for Car Insurance Premium Hikes

If it hasn’t happened already, expect to be asked to up the amount you pay the next time you receive a quote from your automobile insurance company. While nothing may have changed in your car-driving experience, the world has not stood still while you cruised without incident around the same town in the same aging vehicle.

“Even if you haven’t had any changes in your record, there’s a pretty good chance your premium is going to be higher at the next renewal,” says James Lynch, chief actuary at the Insurance Information Institute

What’s the meaning of this?

It turns out that lower gas prices have encouraged drivers to hit the road, with a resulting increase in the number of automobile accidents reported and insurance claims filed.

As Americans drove more last year, motor vehicle deaths rose 8 percent, according to the National Safety Council (NSC), which also approximates that 38,300 people were killed on U.S. roads in 2015, and 4.4 million were badly injured. “2015 likely was the deadliest driving year since 2008,” said the NSC, a not-for-profit, non-governmental organization that promotes health and safety in the U.S.

Source: Pixabay

The size of claims—or “claims severity”—is trending higher as well. Consider that the average cost per paid liability claim grew more than 30 percent from 2005 to 2013—from $11,738 to $15,506—according to the Insurance Research Council’s “Trends in Auto Injury Claims, 2015 edition.” Increasing costs for medical care and auto repair are driving claims severity to this new height. Another contributor is the jump in auto car prices.

What’s more, low interest rates—which have limited consumer gains on their savings deposits—also make it difficult for insurance companies to profit on their invested premiums. 

Insurance companies react

Insurance companies are responding by hiking premiums.

The Bureau of Labor Statistics’ auto insurance-related Consumer Price Index (CPI) rose 6.6 percent year-over-year in May, representing the largest year-over-year upsurge since October 2003, when automobile insurance prices rose 7.2 percent. Surrounding months showed similar increases from the prior year, at 6.0 percent in April and 6.5 percent in June.

How much higher?

For now, Lynch says, auto insurance carriers are apt to raise rates “between 5 and 10 percent.” He added that most of them have sought a hike during the past one or two years.

A particularly dramatic increase this year occurred in Georgia, where Allstate raised its rates an average of 25 percent. In explanation, Allstate reported that traffic deaths had increased 21 percent in the state in 2015, and that travel on Georgia roads and highways exceeded the national average.

What typically raises your auto insurance costs?

While your record may be clean as a whistle, insurance rates are impacted by many factors, as noted above. You may be surprised to learn that your auto insurance company judges you more on socioeconomic factors then it does on your driving history. For an individual, the factors typically affecting your rates are:

  • Adding a new or inexperienced driver
  • Buying a new vehicle
  • Moving to a higher-risk location
  • Adding more miles to your commute
  • A dip in your credit score
  • Being the responsible party in an accident
  • Getting a speeding ticket or any other traffic citation
  • Reporting too many claims in a short period of time (whether they are your fault or not)

How to ensure the best possible car insurance deal

  • Compare rates. You can potentially save hundreds of dollars by shopping around, as price and coverage vary among companies. Be sure to ask about discounts, such as for long-term customers and multiple policies with the same provider. Start now; you can cancel an existing policy at any time without penalty. But don’t base your decision on costs alone; make sure the provider is financially stable and has a reputation for delivering optimal customer service.
  • Look around before buying a car. Models of popular makes that have been around awhile often incur higher rates because they’re stolen more often since their parts are in demand—think imports (like the Honda Accord) and pickups. A vehicle’s overall safety rating and costs of repair can affect coverage as well. So, check with an insurance agent before purchasing a vehicle.
  • Opt for a higher deductible. Instead of choosing a $250 or $500 deductible, request a $1,000 or $1,500 deductible. This will decrease the cost of your premium, as well as help you steer clear of making small claims, which may help mitigate expenses now but can end up costing you plenty down the road. In fact, a study by revealed that drivers who submitted a car insurance claim in 2015 experienced a rise in their premiums of 44 percent on average. 

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