Why does my car insurance go up every renewal period?

Car insurance companies base annual premium rates on a number of factors that are regulated by federal and state laws, which are strictly enforced.

Each insurer must prove on a quarterly basis that they are solvent and able to pay all of their business obligations. Most insurance companies are experiencing the effects of external environmental and market factors that are driving up costs.

Contrary to common belief, insurance companies are not allowed to invest in the stock market or other high-risk, high-yield investments that would supplement their cash flow.

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Change in Personal Profile

Factors that make up the specific rate charged to the individual can change and escape the memory of the insured. All of these factors must remain consistent to prevent impact on the annual auto insurance premium.

• Loss of car insurance discounts – Certain discounts are based on professional groups, driver training and other situations that can change over time.
• Drop in credit score – When the insured’s credit score drops dramatically, the insurance company will raise the rate to mitigate their own risk of non-payment of premiums.
• Different automobiles – If cars are added to or removed from the policy, the premium will change.
• Driving record – Moving violations and accidents will have an impact on the premium charged.
• Location – If the insured relocates into an area with higher crime rates, the zip code in the address will trigger a change in the annual premium charged to the insured.

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Introductory Rate

When the annual premium changes after the first term, the rate advertised might have been a teaser rate to win new customers for the insurance company.

This fact will be clearly stated in the policy documentation and should be investigated prior to contacting the customer service department to file a complaint.

Most introductory rates are available for the first six months that the policy is in force, and then the premium changes to the standard rate, which is comparable to other companies.

Accident Rates

Even if the insured has not had any accidents, the previous year’s accident rates in the area will directly impact the insurance premiums.

Various factors cause increases in accident rates including inclement weather and very large road construction projects.

The cost of repairs and replacement after accidents presents additional expenses to the insurance company.

Annual premiums will be increased for the policyholders in that location.

Check accident statistics to help you get an idea of how much insurance will cost.

Natural Disasters

When one insurance company sustains large losses in a given geographic area due to natural disasters, such as a tornado or hurricane, the policyholders in that area will see increased auto insurance rates to offset the insurer’s expenses.

The insurance company must remain solvent according to the law, so rates will rise to pay for the increased number of claims.

Crime Rates

Area rates of automobile-related crime are part of the risk calculation that insurance companies use to set annual auto insurance rates.

Rises in the number of cars stolen or vandalized in a given area will cause the insurance company to raise the auto rates to cover the cost of insuring cars in that area.

One way to offset this particular impact on the auto insurance rate is to use theft-resistant security devices and informing the insurance agent of this addition.

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 State Laws

When state laws change to include no-fault rules for auto insurance, some insurance companies will raise their rates for every policyholder in that state.

This will vary based on the insurance company’s experience in other no-fault states.

If claims statistics do not indicate a need to increase premium rates, some insurance companies will wait to change their rates until the need arises.

New Car Prices

Each automobile model year will have an impact on the average cost of car insurance coverage across the nation because new cars are expensive to repair and replace.

The entire insurance pool will pay more for the cost of new cars on the road.

Insurance is designed to spread the risk across large numbers of people so all rates must increase when the item being insured becomes more expensive.

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Repair Costs

Actual repair costs are tracked by every insurance company, and then the company-specific and industry costs are studied each year.

When the overall cost of repairs rises, the annual premium paid by that automobile class must be increased to keep the insurance companies solvent.

Repairs are more common than total replacement of vehicles, so this statistic can have a substantial impact on the auto insurance industry.

Final Consideration

One aspect of insurance regulation is that insurance premiums must be applied to an entire class of people and not an individual.

When a policyholder contacts the customer service department about an increased auto insurance premium, a common response to the query is that the rate went up for everyone.

The size of the rate increase can vary within the class based on individual factors, but all of these factors must be documented prior to the change.

Changes to the terms of an insurance policy will occur in the next policy period, and the insurance company is required to notify all policyholders in the class prior to changing the premium rates.

Some rate increases can be anticipated by realizing the reason for receiving mid-term documentation about the policy.

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