For good drivers, there is nothing more frustrating than getting a
car insurance renewal and seeing an increase when you have not had any
claims. The first question that comes to mind is, "Why did my car
insurance go up? I had no claims and my car is one year older!"
There
are two sets of factors that can make the price of your car insurance
increase, and in some cases, knowing what they are can save you money.
How Does the Insurance Company Set the Price?
The
first set of factors that impact your car insurance rate relates to the
things that revolve entirely around your personal situation, the things
within your control.
10 Things That Can Make the Cost Of Your Car Insurance Renewal Go Up
- Your claims history and driving record
- History of convictions or driving violations - causing surcharges
- Change of address, placing you in a new area that may be more expensive in terms of insurance
- New drivers added to the policy or changes of the primary drivers of various vehicles on the policy
- Cancelation of home policy, or other policy causing you to lose the discount for having more than one policy with the same insurer.
- Deletion of a vehicle from the policy. Sometimes you get discounts for insuring more than one car. If you delete your second car, the price of insurance on the first car might go up.
- Change of employment. You may lose a group discount, a professional discount, or possibly have the distance to work change, making your rate go up.
- Medical conditions that increase your risk, or restrictions that cause reclassification to high-risk insurance due to convictions like drunk driving charges
- Mistakes. Yes, insurance companies can sometimes make mistakes. Never assume that the rate you got is the best rate or that it is necessarily correct. There are computer and human errors that can occur, so it is always worth reviewing the factors with your representative when you're in doubt.
- Changes to the payment plan fees or structure on your insurance plan. Sometimes insurance companies change the financing rates or add new service charges that you may not have noticed. Take a look at your payment options and make sure you choose one that best meets your needs. Some companies offer zero financing, and others can charge up to 5% or more. This can impact your actual annual insurance cost.
The second set of factors relates to your vehicle and the insurance company: the factors beyond your control.
We
will review all the possibilities so that you are in the best position
to make decisions to start saving more money on your insurance and get a
full understanding of what impacts your auto insurance premium and why
it went up.
Your Choice of Insurance Company and Representative Can Make a Difference
In
any circumstance, every insurer is slightly different in to how it
perceives risks, which means that based on your particular
circumstances, where one insurance company may provide a lot of value,
another may not. Understanding the factors of how your insurance rate is
determined will help you get the most from your insurance company.
Make sure you find the one that offers you the best advantages for your
needs. If you are dealing with a Direct Insurance Company, or a captive insurance agent, you may decide that this is a good time to seek the advice of an Independent Agent
or broker who can check lots of companies for you to find the best
price. Although there are often strong reasons to stay with an insurance
company, like loyalty discounts and advantages, over time situations
change and you may save money and gain advantages when you switch to a new insurance company.
What Makes Car Insurance Prices Increase (Even When the Car is a Year Older) ?
The insurance company covers several things in your car insurance which impact the cost:
- The entire vehicle
- The parts of the vehicle
- Your liability
When
the vehicle gets one year older, only one of these factors changes if
you don't have claims: the value of the entire vehicle. The other two
factors remain equal, or may even increase in cost.
Exceptions to Depreciating Value in Determining Car Value in Insurance
Things become even more complicated if you have purchased insurance coverage on the entire vehicle that waives depreciation such as GAP Insurance
or Replacement Value. Most car policies pay a claim based on the value
of the vehicle at the time of loss, but some special coverages may
entitle you to a replacement value or agreed value settlement. Agreed
Value is less common in regular cars, but for high end vehicles,
antiques or collectibles, this may also be an optional coverage that
people have purchased. In all these cases, even if the value of the
vehicle has changed, your insurance agreement still insures the full
value.
Why Does the Cost of GAP Insurance Increase on a Renewal?
Some
companies determine a flat rate for GAP insurance, or may lock in the
price for set term, however as your car gets older, the amount of value
being covered by your GAP Insurance or Full Replacement Value insurance
is also increasing. Therefore, the price of the insurance may go up
accordingly. In the first year your GAP insurance may be covering $5000
of depreciation, by the 3rd or 4th year, it may be covering $10,000.
Always find out what the cost of your GAP Insurance is when you are
evaluating the price of your car insurance renewal.
"Everything Stayed the Same, I Had No Claims, Why Did My Car Insurance Price Still Go Up?"
So
you think everything stayed the same, why then would the price still
increase? There are external factors that impact your insurance for each
of the coverages on your policy. You can ask your insurance agent what
part of the insurance increased to have a specific understanding for
your situation:
- Liability (bodily injury, property damage, etc)
- Collision (usually impacted by claims)
- Comprehensive (Fire, theft, vandalism, etc)
In general, here are the factors that are beyond your control that may make your premium increase.
External Factors That Impact the Cost of Car Insurance and May Cause the Price to Go Up
- Liability claims paid out by the insurance company for the entire volume of the clients they insure can impact their general liability rates. If the previous year(s) showed a steady increase in the amount they have been paying on claims and defense costs as part of this coverage, the insurance company may make rate adjustments. This is entriely beyond your control.
- Collisions, vandalisms, or increased claims in your area. Sometimes due to changes in traffic patterns, weather patterns, or if areas become more congested over time, or a variety of other factors, an area may start to see increased claims. When an insurance company starts to notice these patterns in an area, they may adjust the rates accordingly.
- An increase in vehicle theft rates in your state or area, or for your vehicle in particular. The way to determine if it is related to your specific type of vehicle is to ask your agent if your vehicle rate group has increased since last year, and get their insight into the matter. If this is the issue for your vehicle, you can consider if it would be advantageous for you to add anit-theft devices or vehicle engraving and get a discount to offset the increases. Vehicle thefts impact both new and old cars and every time the annual reports of top stolen vehicles come out, insurance companies are sure to take note, as well as compare this to their own loss experience.
Why Would Someone Steal an Old Car?
- If your vehicle parts become more difficult to find on the market, and your type of car was a popular model because of its reiiability, thefts for your vehicle may increase, which then drives the cost of insurance up, even though your car is old and you have not had any claims. You can check out the List of the Top 10 Most Stolen Vehicles in the U.S and Top Ten Stolen Vehicles in Canada to get an idea. Some of the cars on the list may surprise you.
Credit Scoring and Insurance Company Underwriting Used In Premium Calculations
- Credit scoring, or underwriting changes. Sometimes new factors are introduced into the calculations of insurance rates. If your file is not updated to include all the new discounts or programs that have been announced since your last renewal, you may end up seeing increases that you do not need to have. One example is Credit Scoring, which may be used with some insurance companies, although not all states allow the use of credit-based scores. In some cases including a credit authorization allows for preferred rates, even if your credit score isn't good. In other cases, a decrease in credit score can impact your rate. You want to be sure and ask your representative about whether your insurance company uses credit scoring in their rates, and how it will impact your price. If your credit score is adversely effecting your rate, you may want to have your agent verify if this is correct, or find another insurance company that will offer better advantages for your situation.
- A general underwriting rate increase. This is the most obvious reason for a rate to go up, if an insurance company experiences overall losses that exceeded their expectations, or if they have not reviewed their rates in a few years, sometimes they will increase their rates across the board to remain profitable. In cases like this, it is sometimes advantageous to get quotes with other companies to see if the car insurance rate you have is still competitive.
Opt-In for Discount Saving Insurance Plans to Reduce Your Renewal Rate
- Not taking advantage of new programs that are intended to lower the overall costs of rates with your insurer is a big mistake people make that may end up costing them more money. For example, Usage Based Car Insurance. Sometimes when new programs are put into place, the insurance company may alter rates taking into consideration that their profile of client will be opting in on a new program. Not taking advantage of these options could impact the rating you end up with. Always ask your agent if there are any new advantages or programs your insurer has introduced so you keep up with the best preferred rates.
How Your Insurance Agent or Broker Can Help You Lower Your Car Insurance Price
Very
often it is a combination of factors that contribute to a rate increase
in automobile insurance rates. When there are general rate increases,
insurance company representatives are usually aware because they have
the benefit of seeing the rates with all of their renewals and will have
a sense of what is happening in the industry.
It is easy to test
and find out exactly where the impact is most affecting you by asking
your agent questions about where the increase is coming from. If they
are not sure, you can help them test the ideas out by asking them to
quote another vehicle in place of your own - if you think it is about
your vehicle.
If you think it is about the area you live in, you
can test quoting a change in zip code, and see if all other factors
remain the same, if your area impacts the price.
- Ask your agent if they checked other insurance carriers and how the rate compares to the other insurance companies. Sometimes if you get lower rates showing with other providers you may be able to negotiate an extra discount.
- Make sure you have all the applicable discounts on your policy. We hear this over and over again, but when insurance companies change their plans and programs as frequently as they do today, it is easy for something to be missed or forgotten.
- Do a full review of your coverages and make sure that you have the things that best respond to your current needs.
- Make sure that you are not being penalized for claims or driving records of other drivers on your policy, or for situations that no longer apply.
These
are all things a broker or agent will be able to help you with.
Understanding what makes an insurance policy increase on renewal puts
you in control of your policy, and in a position to negotiate for the
best prices.
By Mila Araujo
Personal Insurance Expert
