Midwest Auto Insurance

Everyone knows your auto insurance rates will probably go up if you get in an accident. Likewise, if you buy a more expensive car or add a young driver to your household, you can expect to pay more for car insurance. Sometimes, however, you get hit with a car insurance increase for no reason, and that can be frustrating.

You might be surprised to learn there are reasons for these increases, and many times they are circumstances beyond your control. Car insurance rates are based on several personal factors, like your age and driving record. They also take into account larger issues like the accident rates in your state and the number of claims your insurance company paid out last year.

Why Does My Insurance Go up Every Year?

The financial stability of your insurance company has a lot to do with your rates. While you see car insurance as a necessary part of your suburban lifestyle, it is still a for-profit industry. Insurance companies are in business to make money, like all other for-profit companies. They have investors and shareholders to answer to. At the end of the year, all insurance companies are looking for a balance between what they paid out in claims and the premiums they took in. They expect that balance to be in their favor.

At its heart, the insurance industry is a financial industry similar to the stock market. Environmental conditions and market stability impact how much money a company pays out in claims in one year. Profits and losses for insurance companies are based on multiple-year projections. They have to try to predict how much money they will need in advance and develop that cash reserve, so when claims come in, they are covered.

In a year when claims are up, reserves can get depleted quickly. Companies need to make adjustments to avoid running out of cash for future claims. Sometimes, those adjustments include rate changes. Rate changes always seem to go up, never down. A good insurance company that is well-funded can manage the changing financial outlook from year to year without large rate hikes.

Causes of Car Insurance Rate Increases

Several global factors affect car insurance rates, and your insurance agent probably does not discuss these with you:

• Driving more miles —Americans are logging more time on the road each year. Insurance predictions are based on past data and probability. The more time we spend driving, the more likely we are to get in an accident. Car travel continues to become more economical and convenient, so the average American is going farther in his car each year.
• Rising cost of car repair — Modern cars may be safer, but they are also more expensive to repair. Cars are increasingly more complicated and computer-driven, which forces mechanics to seek highly specialized training. The electronic equipment needed for many car repairs is also an added expense that gets passed down to the consumer, raising the cost of auto insurance premiums.

• Increasing costs of medical care —One of the biggest expenses in an automobile accident is the medical care required by any injured parties. Car insurance companies end up paying medical costs, and those costs are increasing over time. The increasing cost of medical care forces insurance companies to raise car insurance rates, so they can cover these expenses.
• More claims by policyholders —The number of claims filed on car insurance policies increases each year. With insurance companies paying out more money in claims, there is a need to increase premiums to maintain the financial stability of the insurance company.
• Shifting demographics —On a global level, car insurance rates are set based on hundreds of data points. Statisticians calculate the cost of insuring one car based on accident data, road conditions in certain states, age of drivers, colors of cars and many other factors you might not realize. When the actuaries revise the rates for people in your demographic group, your rate goes up, too.
• Legal costs —People sue insurance companies all the time to get more benefits than the company will voluntarily agree to pay. Insurance companies have full-time legal staffs to handle claims that develop into lawsuits. Every time the insurance company has to defend its decisions in court, the cost of doing business goes up. When those lawsuits are successful, the company has to pay. For an insurance company that denies a lot of claims, legal fees can inflate their operating budget and require rate hikes.

• State regulations —Insurance is a regulated industry managed mostly by the individual states. When the state decides to change the regulations, exclude certain data from the actuaries’ calculations or raise minimum requirements for car insurance, your rates are subject to change. Some states even regulate how high the insurance companies can raise their premiums at one time or in one calendar year.

When your car insurance rates go up, it doesn’t mean you’ve done something wrong. You could be a safe and careful driver who has never had an accident or a speeding ticket. The rates are not strictly based on what it costs the company to insure you. You are part of a pool of motorists that company is responsible for covering.

Personal Reasons Your Car Insurance Rates Go up

Of course, your driving record directly affects your car insurance rates. When you get in an accident or get a speeding ticket, you are demonstrating you are an increased risk. But there are other reasons your rates can go up you might not be aware of:

• Change in discount status —There are several ways to get a discount on your car insurance premiums, like bundling it with your homeowner’s insurance or insuring two cars with the same company. If your status changes, you may lose one of your discounts and your rate would go up. If you sell your house and move into an apartment, for example, your car insurance rate may go up because you no longer qualify for the bundle discount.
• Age —There are major milestones of age for car insurance premium costs. A new driver can be expensive to insure, while someone with more driving experience might get a better rate. After 50, most insurance companies assign drivers to a higher risk pool. Data shows drivers over 50 are more likely to get in accidents.
• Poor credit —You might think poor credit would affect your ability to buy a car, but not to get insurance. But, in fact, your credit rating does play a part in your car insurance rates. Bad credit habits like missing payments or taking on too much debt can demonstrate a lack of responsibility. If your credit score suddenly changes because you default on a loan or lose your job, you may find your car insurance premium increasing. One study showed people with low credit scores pay up to 91 percent more for car insurance. An average credit score could mean you end up paying 24 percent more for car insurance than your peers with excellent credit.
• Choice of vehicle — The make and model of your car are part of determining your insurance rate. When you get a new car, you may be surprised to learn you moved yourself into a higher risk pool. The stats on risk are very specific, taking into account things like car color and performance features. Certain models are more likely to be broken into or stolen than others, based on historic data.

• Changing driving habits —The more miles you drive, the greater risk you are for getting in an accident. If your driving habits suddenly change, you may see your car insurance rate go up. Buying a house in the suburbs where you have to drive to everything could trigger an increase. Getting a new job that significantly increases the length of your commute could do it, too.
• Divorce —It may seem cruel, but after you settle your divorce, your car insurance rate could go up. Moving from married to single puts you in a higher risk pool. According to the data, married people are less likely to get in a car accident than single people. The divorce may save your sanity in other ways, but it will certainly increase your car insurance premiums.

Your car insurance may increase even if you’ve never gotten in an accident. It’s not just about placing a claim with your insurance company. Your rates are based on assigned risk, and by making changes in your life — even unavoidable ones, like getting older — you change the risk pool you are swimming in.

Insurance Fraud Costs a Lot

When people lie to the insurance company to get benefits they are not entitled to or to get car insurance rates that are lower than their assigned risk pool, car insurance rates go up for everyone.

Insurance rates are based on the best guess of what will happen to thousands of drivers each year. The data is pretty solid, but the companies are still taking a chance on the future. If more people are injured in car accidents than predicted, the payouts for that year may not balance the premiums taken in. Insurance can be a precarious financial gamble.

Fraud upsets this delicate balance and costs honest people more money than it should. The most common means of insurance fraud is when people lie on their application to get a better rate. Instead of answering the questions honestly, some people falsify their information to put themselves in a better risk pool. If nobody detects the lie, the outcome is a lower car insurance rate. It seems like a victimless crime — until you consider what happens next.

By providing inaccurate information on their application, some people cause themselves to be underinsured. If that inevitable accident happens, they may not be entitled to a payout commensurate with their losses. Anyone else injured in the accident could be left without proper coverage for medical costs, as well.

Insurance fraud causes unexpected claims to the insurance company. They plan their fiscal year based on the number of high- and low-risk people they insure. If some of those low-risk people are actually high-risk, and they end up making claims, the insurance company could face a deficit.

When an insurance company has a bad year, the first thing they do is raise their rates. All the good, honest drivers will have to pay for the fraud through higher car insurance rates across the company. According to one estimate, insurance fraud costs insurance companies $16 billion a year.

Some insurance companies are to blame for unnecessarily high car insurance rates, too. Unfair rate practices attempt to justify charging higher rates to customers. Insurance companies can be secretive about the exact formula they use for determining rates. The state ultimately determines what is unfair and is responsible for policing the insurers operating within their borders.

Managing Expectations on Car Insurance Rates

Car insurance rates tend to go up, regardless of logic. The cost of basic commodities goes up each year, resulting in a higher cost of living. But somehow we are programmed to believe that if we drive carefully, our car insurance will never go up.

Here are some erroneous ideas about car insurance that contribute to the unrealistic expectation car insurance premiums will not rise:

1. I did not cause the accident. Therefore, my insurance company will not have to pay. When you get in an accident, regardless of who was at fault, your insurance coverage will likely kick in. In some cases, both insurance companies will decide on their driver’s degree of fault and split the claims accordingly. If the other driver was uninsured or underinsured, your coverage may be necessary to cover costs. Getting in an accident is not free. Your insurance company will be involved, and it will cost you in some way.
2. I should only pay for insurance when I need it. The whole concept of insurance is to put money away for the day when you have an emergency. You cannot draw on an emergency fund when you have not previously contributed to it. The day you have an accident is too late to think about how you will pay for any damages to yourself, your vehicle and the other driver and vehicle.
3. I’ve never gotten in an accident. Why should I pay for insurance? Insurance is a bet against a future incident. By buying insurance, you join many other people in a risk pool who support each other. The money you pay in premiums funds the pool in case someone needs to make a claim. Just because you never make a claim does not mean that someone else doesn’t.
4. I shouldn’t pay as much for car insurance because my car is old. Older cars are heavier, have fewer safety features and cause more damage when they get in accidents. An older car may cost more in property damage and medical costs when it is involved in an accident. Older cars can be more costly to repair, also, because their parts are more difficult to get and they are made of outdated materials.
5. It doesn’t make sense that cars got safer, but insurance continues to be more expensive. As safety features on cars reduce the number of serious injuries, the number of cars on the road increases. These two factors keep the overall number of serious injuries each year from dropping too quickly. Safer cars make people want to drive more often. The more miles you drive, the higher the risk of accident. There are still plenty of older, less safe cars on the road to keep accident risks steady and rising.

Managing your car insurance rates could be as easy as shopping around for the best company. When you stay with one company a long time, they get to know you. Many insurance companies can assess the tolerance of their customers for rate hikes. Based on your buying preferences and payment history, the company can figure out how much of a rate increase you will accept without complaining, or shopping for a better car insurance rate elsewhere.

You may think that your loyalty to one insurance company ensures good rates, but it probably doesn’t. As your life changes and you move from one risk pool to another, you could find better options with a different company. Many insurance companies cater to one particular type of customer. Your current insurer may offer the best policies for your situation last year, but now you may find better coverage at a rate you can afford somewhere else.

Contact Us For an Online Missouri Auto Insurance Quote

If your car insurance rate goes up for no reason, you need an agent who will shop around for a better company. David Pope Insurance will find you the best rates in Missouri on car insurance. We regularly review our clients’ policies and check to see if we can find them a better rate with another company.

There are several things you can do to lower your insurance rate if it goes up for no reason. First, you want to figure out why your insurance company raised your rates, and David Pope Insurance is not afraid to discuss the details of insurance rate setting with you. We always have suggestions for lowering your rate, starting with shopping around for a new insurer. If your car insurance rates went up for no reason, contact David Pope Insurance today for help getting a lower rate.

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