Why Did My Car Insurance Go Up?

If your auto insurance company denies your accident claim or cancels your policy, it is obligated to give you an explanation. On the other hand, your auto insurer is under no obligation to explain why your insurance rate has been increased or even to notify you of a hike. So, you may have noticed that your auto insurance premium has risen, but you have no idea why. This discovery can hurt, especially if you already feel like you're paying too much for your current auto insurance policy.

While accidents, traffic violations and, say, lapsed auto insurance can cause your insurance rate to escalate, there are other factors that are not dependent on you: the state of the U.S. economy, the state of your insurance company's financial strength, the number of claims filed in your area and insurance fraud, among others.

However, there are ways you can lower the insurance rate of your policy, such as buying a new car, snagging discounts and improving your credit score. It is important to remember that you can shop around, purchase a lower-priced policy and cancel your current insurance policy at any time—in fact, in a couple of hours! You are under no obligation to stay with your present auto insurance carrier.

Why Did My Car Insurance Go Up for No Reason?

The cost of insurance can increase without warning. There are plenty of reasons why an insurance company might raise your rates, but some of them have nothing to do with your driving or claims history.

Economics and Car Insurance Rates

The price of consumer products, such as car insurance, is subject to general inflation trends. For example, $100 in September 2020 had the same buying power that $105.39 had in September 2021, according to the Bureau of Labor Statistics' Consumer Price Index Inflation Calculator. That difference would explain why the exact same insurance policy might cost about 5.39% more in September 2021 than in September 2020. But general inflation is only one reason why your insurance rate might go up.

General inflation increases the cost of auto insurance every year.

The Cost of Auto Insurance Claims

From 2011 to 2020, auto insurance experienced an overall 40.1% price increase, according to the Insurance Information Institute (III). Part of that increase has to do with the steadily rising dollar amount that insurance companies have to pay out for auto insurance claims.

These increases reflect many factors, but they cannot be explained by general inflation alone. In fact, insurance companies paid out about $84 million more in liability and comprehensive-collision claims in 2019 than in 2011, according to the III:

Insurance Type 2011 2019 Difference
Liability$100 million$147 million$47 million
Collision/Comprehensive$63 million$100 million$37 million

Private insurance companies are for-profit businesses, and it is only logical that they would increase auto insurance rates to protect their bottom line against ballooning costs. 

The Cost of Accidents

An increased number of accident claims in your area can also make your insurance rate go up, even though you haven't even had a fender-bender. For example, statistics went up in the following categories between 2011 and 2019, the most recent year for Bureau of Transportation Statistics data: 

Year Miles Driven Accidents Injuries Fatalities

Now that the pandemic seems to be receding, Americans are driving more in 2021 than they did in 2020: Since there are more miles being driven, statistics suggest there will be more accidents, which may result in an across-the-board rate hike. After all, the above numbers represent the high cost of covering car repairs and replacements, medical services, lost wages, pain and suffering as well as expenses associated with fatalities. All these factors can affect the cost of insurance not only across the country but also in your zip code.

According to the Insurance Institute for Highway Safety (IIHS), the U.S. Department of Transportation estimates the overall economic cost of crashes is $242 billion per year. Fatalities are attributed to DUI-DWI, speeding, lack of safety belt use, distracted driving and other unwise driver behaviors. Promoting driver safety is paramount.

Car Repair

The cost to repair a car is rising higher than the rate of inflation. According to the Bureau of Labor Statistics, prices for motor vehicle repair were nearly twice as much in 2021 as in 1997.  Also, new cars are sometimes more expensive to repair than old cars, since new cars have advanced driver assistance systems and other complex computerized components that drive up costs. Finally, the cost of labor has gone up. These rising costs affect the financial strength of auto insurers, which might decide an across-the-board auto insurance rate hike is necessary to defray escalating prices.

Medical and Legal Services

In 2019, U.S. health care costs rose to $3.8 trillion, a 4.6% increase over the previous year. In 2018, health care costs increased 4.7% over 2017, according to the American Medical Association. For example, a physical therapy session today will cost more than the same session a year ago.

Car insurance reflects the rising costs of medical care, legal fees and fraud.

Commercial auto insurers in the U.S. paid out $24.1 billion in 2019, compared with only $9.6 billion in 2010, according to the III. Of course, these amounts do not include the cost of litigation. According to a Reuters report, lawyers fees rose a whopping 4.7% between the first quarter of 2020 and the first quarter of 2021. To cover these increased costs, your auto carrier may raise the rate on every one of its insured drivers, regardless of their personal history.

Insurance Fraud

Auto insurance fraud includes exaggerating actual claims, misrepresenting facts on an insurance application, making claims for injuries or damage that never occurred and "staging" accidents, according to the III.  

There are more than 7,000 insurance companies operating in the U.S., and they collect more than $1 trillion in premiums every year, according to the FBI, which notes that the sheer size of the insurance industry "contributes significantly to the cost of insurance fraud by providing more opportunities and bigger incentives for committing illegal activities." 

The total cost of non-health-related insurance fraud is estimated at about $40 billion a year, which costs the average U.S. family up to $700 a year in increased premiums.

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Are You a High-Risk Driver?

Your insurance rate is determined by many other factors, including your age, gender, place of residence, and the age, make and model of your vehicle. However, driver behavior is the primary reason why insurance rates go up or down. High-risk drivers are identified by certain risky behaviors, and those drivers end up paying a higher insurance rate than average.

Most insurance companies view any lapse in insurance as a red flag, charging a higher rate for a driver who would deliberately flout the law, possess no auto insurance, and knowingly show disregard for not only the safety of others but also the safety of himself and his family, friends and other passengers.

Driver behavior is the primary cause of a policy's rate fluctuation.

How Do Tickets Affect My Car Insurance Rate?

Speeding tickets and other moving violations can stay on your record for three to five years. Before raising your rate, an auto carrier will consider whether the ticket was a first offense, the amount of time since your last moving violation and how many miles per hour you were going over the speed limit. 

A speeding ticket could hike your rate by 20%. Further, several traffic citations may result in your forfeiting discounts and other money-saving auto insurance reductions.

How Does a DUI Affect My Car Insurance Rate?

A first-time DUI conviction can lead to fines, license and registration suspension, vehicle impoundment, community service, jail, reinstatement fees and a three-year SR-22 requirement.

Drivers with a DUI on their record will pay significantly higher premiums for car insurance; in fact, some insurance companies may refuse the DUI-convicted driver auto insurance.

At Allstate, a driver with a clean record may pay around $1,872 per year, whereas a DUI-convicted driver would pay around $2,664 , all things being equal. At State Farm, a longtime safe driver who was paying $2,004  a year would pay $2,616 after a DUI conviction.

Life Changes Affect Your Auto Coverage Rate

Your individual auto insurance rate is dependent upon many factors, some of which have to do with momentous life changes

  • Adding or removing a driver from your policy
  • Buying a new car with lots of safety features and anti-theft devices
  • Buying a house or moving to a new zip code
  • Hitting a milestone birthday
  • Getting a new job or a promotion
  • Retiring

If you add a young, experienced driver to your auto insurance policy, your premium will spike. On the other hand, your insurance rate might get lowered if you marry or buy your first house. For example, you could get a bundle discount for purchasing your car and your home insurance from the same provider. 

You Can Always Find Cheaper Car Insurance

Auto insurance rates are affected by inflation as well as the rising costs associated with insurance payouts, car repair, medical services, legal fees and insurance fraud, among others. However, the primary reason for an increased auto insurance rate is driver behavior: multiple moving violations, accidents and DUI convictions among them. High-risk drivers always pay more than average.

But there are always ways to shave off some bucks from your auto insurance cost. For example, you can lower your rate by improving your credit score, getting married, buying a house, shortening your work commute and taking advantage of an insurer's discounts

The only way to get the best, cheapest auto insurance is to shop around. SmartFinancial can do the shopping for you, sorting through all the auto insurance policies in your zip code to find the best auto insurer with the best policy for you, your family, your lifestyle and your budget. To get free, real-time quotes, just enter your zip code or call 855-214-2291.

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