Why Car Insurance Premiums Go Up

Part of my job is spent answering questions; actually, a good part of my day is spent answering questions about insurance.  I love answering these questions because it allows me to connect with my clients on a personal level.  Here are two questions that I frequently get asked about why car insurance premiums go up.

“I thought when my car became older, my premiums would go down?” 

This is one of the biggest assumptions in the industry, and I’d love to get my hands on the person that started this horrific rumor!  There are many reasons why your car insurance will not go down as your car ages; here are just a few.

  • The labor cost to repair hail damage on the roof of a 2001 Honda Accord is $60-$80 per hour.  If it’s a 2012 Accord with the same damage the rate is still $60-$80 per hour.  Yes, cars have more expensive items in them these days – LED lights, microprocessors, enhanced paint colors, heated and air-conditioned seats – but so many other criterions go into it.  Accident rate and theft rates also play a part.
  • Finding a part for an older vehicle may be difficult.  Newer cars have VIN etching and immobilizers.
  • Newer cars are safer to drive, harder to steal, and some can be more dent resistant and actually have frames that can take less time to repair.


“My premium should go down every year I remain ticket and accident free.”
 

Lately it seems that people don’t want companies to make money. Our government certainly seems to think that way.  Insurance companies are in the business of making a profit.  As an insurance agent, I don’t agree with them on many things, but I can’t fault them for wanting to stay in business.  It’s just not realistic to assume a constant price decrease.

Do you expect the same from utilities, taxes, and rent?  Even commodities (which insurance is NOT) increase in value.

Milk, bread, cereal – basically anything that isn’t a television or computer, falls victim to inflation.  Insurance is especially affected by inflation.  Everything that goes into repairing your vehicle or fixing your body costs more because of inflation. In fact, as the value of the dollar decreases in relation to world currency prices, we in America face price increases all the more.

Using the above logic, if you’re ticket and accident free for 10-15 straight years, and driving the same car, your premium would ultimately end up at $0.

Why did my car insurance premiums go up

It’d be nice if they only raised the rates for drivers with accidents and tickets, but they wouldn’t be in business long if that happened.  Unfortunately, they need to spread risk out.  Home insurance is no different.

With insurance of any type, there is no simple answer to “Why did my premium go up?”

Insurance in the 21st century is about as complex as it gets. There are multi-variant rating systems, credit scores, loss history, and a variety of other reasons your premium is what it is.  Ok, I just geeked it up a bit.

I know you don’t want to hear this, but 2012 is going to be a tough year for your premium.  In 2011 insurance companies paid $1.16 for every $1.00 collected.  They paid over $100 billion in worldwide losses.  In the U.S. they paid $36 billion in losses.  In 2010 it was about $18 billion – that is a lot of negative profit, or in other words, insurance companies lost a lot of money

For any customer, I would offer this advice:

  • Find a Trusted Choice Independent Agent at www.trustedchoice.com.  A Trusted Choice agent will have multiple “A to A++” rated carriers you can get quotes from. Trusted Choice Independent Agents can price multiple carriers, which helps you get the best insurance package for your needs.
  • Package your auto & home insurances together with the same carrier.  This maximizes your discounts, and makes service and billing much easier.  And if you are ever unhappy with a renewal premium or claims experience (it can happen), that agent has the ability to find you quotes from other carriers.
  • Call your agent twice a year to talk about life changes.  Often times I’m able to recommend changes to my client’s portfolio that saves them money.

Just about no one wants to pay for insurance, but we all know we need it.  Having the right information makes it easier to understand and less costly.

If you have any questions, please leave a comment below.  My next post will be about common questions I hear on home insurance.

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About Keith Verisario

Hello, my name is Keith Verisario, and I am Vice-President of All-Security Insurance. I started my insurance career in 1998, but my father opened the doors to the agency in 1981. We have grown through a simple business model of service, trust and having great relationships with our clients and companies we represent.
I have expertise in both Personal & Commercial Lines Insurance. Please feel free to contact me if you would like a quotation or consultation on any of your insurance needs.

  • http://www.ppiclaimsadvice.org/mis-sold-ppi Rithi

    Payment protection is necessary in order to get the compensation in the time of emergency. If such policy is sold to other persons without the proper knowledge about this to the owner then it comes under the <a href=”http://www.ppiclaimsadvice.org/mis-sold-ppi”>mis sold payment protection</a> which gives the advantage of the getting money in the time of needs.

     

  • lazymonty

    If a 2001 accord gets totaled then insurance has to reimburse for actual cash value of what… 5000. But a 2012 accord gets totaled then the reimbursed actual cash value of say… 18000 has to be paid out. This is why premiums should be lower as the car depreciates.

    • Keith Verisario

      Thanks for the comment Lazymonty. This is one of those that have a long answer, but I will try to condense it. Your point would be true if the only result of accidents were “total losses”. Unfortunately this is rare. The majority of accidents are not total losses. So the cost of labor and material still weighs much heavier in rate. It also isn’t fair to compare those cars as equals in the event of an accident or total loss. It is much more common to have the 2001 Accord with the end result of an ACV total loss payout. A $5,000 loss to the 2001 Accord, would most likely result in an ACV payout since it is more expensive to fix the car, then the car is actually worth. $5,000 in damage to the 2012 Accord would result in just that – a $5,000 claim. So the accidents would have to be completely different.
      It’s also hard to compare the two vehicles; because of the coverage difference the 2 cars may carry. It is very common for cars that have a value of less then $5,000 to carry Liability Only Coverage, and have no physical damage protection at all. So if a 2001 Accord was “totaled”, and the owner of the vehicle was the at fault driver, it is likely there would be no coverage at all, since there is a good chance the owner decided to carry Liability Only. On the flip side, a 2012 vehicle would most likely carry full coverage, due to its value, or a loan on the car.
      Take away the “Comprehensive & Collision aspects of this and you still have Liability rates to worry about. The premium of an insurance policy also results from an Insurance “Credit” Score, Zip Code, Age of Driver, etc. So it is possible a “Liability Only” 2001 Accord, parked in the city of Chicago with a 22 year old driver who rents an apartment will pay MORE then a 2012 Accord w/ Full Coverage, parked in Lake Forest, IL with a 52 year old driver who owns a home and other vehicles. Believe me, I wish there were a simple answer! I hope this made sense.

  • Keith

    Thanks for the comment Lazymonty. This is one of those that have a long answer, but I will try to condense it. Your point would be true if the only result of accidents were “total losses”. Unfortunately this is rare. The majority of accidents are not total losses. So the cost of labor and material still weighs much heavier in rate. It also isn’t fair to compare those cars as equals in the event of an accident or total loss. It is much more common to have the 2001 Accord with the end result of an ACV total loss payout. A $5,000 loss to the 2001 Accord, would most likely result in an ACV payout since it is more expensive to fix the car, then the car is actually worth. $5,000 in damage to the 2012 Accord would result in just that – a $5,000 claim. So the accidents would have to be completely different.It’s also hard to compare the two vehicles; because of the coverage difference the 2 cars may carry. It is very common for cars that have a value of less then $5,000 to carry Liability Only Coverage, and have no physical damage protection at all. So if a 2001 Accord was “totaled”, and the owner of the vehicle was the at fault driver, it is likely there would be no coverage at all, since there is a good chance the owner decided to carry Liability Only. On the flip side, a 2012 vehicle would most likely carry full coverage, due to its value, or a loan on the car.Take away the “Comprehensive & Collision aspects of this and you still have Liability rates to worry about. The premium of an insurance policy also results from an Insurance “Credit” Score, Zip Code, Age of Driver, etc. So it is possible a “Liability Only” 2001 Accord, parked in the city of Chicago with a 22 year old driver who rents an apartment will pay MORE then a 2012 Accord w/ Full Coverage, parked in Lake Forest, IL with a 52 year old driver who owns a home and other vehicles. Believe me, I wish there were a simple answer! I hope this made sense.
    -Keith

  • gumby3489

    hi keith, thanks for the post it helped me a great deal and answered a lot of questions. i would just like more information, and to understand better why my rate increased so much. I drive a 2005 scion, im a 23 year old male and a student with a good enough gpa to qualify for that particular discount. I have never had a ticket i didnt resolve via traffic school and it has been 7 years since my last one anyways. I have only liability, and I paid a little under 500$ for the 6 month period dated 8/20/11 through 2/20/12. i had a claim against me on 12/5/11. my premium went up to about 115$ a month for the period of 2/20/12 – 8/20/12. i understand that, makes plenty of sense. then in march of 2012 Allstate payed out around 2,300 for “injuries” and in the words of my claim person that was simply because it was cheaper to end it and not fight it. Again i get that, becuase she used the word minor 15 times in our communication. I was not ticketed at the scene, and in fact the officer at the scene questioned the other guy several times about the validity of the accident. he even told me to offer the guy some petty cash to make it go away because he estimated the damage to be 50$. Allstate saw it as 113 and change. Literally 113. It was an 1.5 inch scratch caused by me rolling into him when he stopped short for no reason. Anyways to my point, so i had already decided to switch providers because i am a broke student, but when i saw my renewal premium for 8/20/12-2/20/13 i couldnt believe it! almost 1,200 for 6 months!! Sooo do they wish to seek literally every penny they paid out or what? Coverage is still the same. Thanks a lot for your time, i hope you can find the time to answer this question for me

    • http://www.allsecurity.com Keith Verisario

      No problem Gumby. Thanks for responding. Please understand I can’t speak for Allstate as I am not sure what goes into their rating structure and business model. Generally speaking, your increase does sound extremely excessive. Frankly, your initial increase of $115 a month sounded excessive (unless you meant the premium went up $115 for the 6 month period). To answer your question (Do they wish to seek every penny they paid out?), yes and no. I am curious also if you asked your agent for an explanation about the increase and what the answer was.
      They don’t pick on you specifically and say – “We paid $2,413 in claims for this insured over a stretch of time and now we need to get it all back this policy period.” But you did most likely fall into a category of drivers that became undesirable for them, and therefor priced you to a point that forced you to shop around. That isn’t done by mistake. A large amount of actuarial work and probabilities tell them if you stay with them at that new premium, two things will happen. You will stay and they would be thrilled to collect $2,400 a year in premium. I’ve seen large direct writers do this to clients who have been with them for 2 years or 20 years. The majority of drivers in the country do not pay $1,200 / 6 months for one car. But if you left, they probably don’t mind it and most likely expect it. You could call it “cutting their losses”. And the large direct writers have close to $1 billion a year in creative TV advertising that will get them more 23 yr old Gumby’s with clean records. If they didn’t lose customers so often, they wouldn’t have to spend so much to obtain new ones. I don’t know who you went to for your new policy, but hopefully it was a reputable carrier. I always recommend going to an Independent Agent. They are licensed professional agents who own their own business and aren’t employed by the insurance company. They have written contracts with them. Being with an Independent Agent will offer you options and a choice of insurance carriers. If something happens, if you are unhappy with a claim, if your premium goes up, your agent can do the shopping for you to find another competitive rate with his/her list of carriers. This is something the big guys can’t do. They have their one product and one company, and they have to follow those rules. If you aren’t happy, you gotta hit the streets and go shopping on your own…..which is what you were forced to do. Find an independent agent you like and trust, and let him/her be your insurance advisor.
      I hope this helped!!

      -Keith

  • http://www.zuneauto.com regular_dhara

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  • http://www.ppiclaimsadvice.org/mis-sold-ppi regular_dhara

    Payment protection is necessary in order to get the compensation in the time of emergency. If such policy is sold to other persons without the proper knowledge about this to the owner then it comes under the <a href=”http://www.ppiclaimsadvice.org/mis-sold-ppi”>mis sold payment protection</a> which gives the advantage of the getting money in the time of needs.

     

  • KeithVerisario

    No problem Gumby. Thanks for responding. Please understand I can’t speak for Allstate as I am not sure what goes into their rating structure and business model. Generally speaking, your increase does sound extremely excessive. Frankly, your initial increase of $115 a month sounded excessive (unless you meant the premium went up $115 for the 6 month period). To answer your question (Do they wish to seek every penny they paid out?), yes and no. I am curious also if you asked your agent for an explanation about the increase and what the answer was.They don’t pick on you specifically and say – “We paid $2,413 in claims for this insured over a stretch of time and now we need to get it all back this policy period.” But you did most likely fall into a category of drivers that became undesirable for them, and therefor priced you to a point that forced you to shop around. That isn’t done by mistake. A large amount of actuarial work and probabilities tell them if you stay with them at that new premium, two things will happen. You will stay and they would be thrilled to collect $2,400 a year in premium. I’ve seen large direct writers do this to clients who have been with them for 2 years or 20 years. The majority of drivers in the country do not pay $1,200 / 6 months for one car. But if you left, they probably don’t mind it and most likely expect it. You could call it “cutting their losses”. And the large direct writers have close to $1 billion a year in creative TV advertising that will get them more 23 yr old Gumby’s with clean records. If they didn’t lose customers so often, they wouldn’t have to spend so much to obtain new ones. I don’t know who you went to for your new policy, but hopefully it was a reputable carrier. I always recommend going to an Independent Agent. They are licensed professional agents who own their own business and aren’t employed by the insurance company. They have written contracts with them. Being with an Independent Agent will offer you options and a choice of insurance carriers. If something happens, if you are unhappy with a claim, if your premium goes up, your agent can do the shopping for you to find another competitive rate with his/her list of carriers. This is something the big guys can’t do. They have their one product and one company, and they have to follow those rules. If you aren’t happy, you gotta hit the streets and go shopping on your own…..which is what you were forced to do. Find an independent agent you like and trust, and let him/her be your insurance advisor.I hope this helped!!
    -Keith
     

  • gumby3489

    let me start by saying thanks for responding. Also want to clarify that i meant the rate initially increased from under 90 a month to 115 a month, so around 690 for the premium. I informed all-state i was going to cancel my policy on july 31st effective august 20th. I emailed the general customer service, as well as my agent of almost 2 years sometime around ausust 8th or 9th to inquire about the rate increase at the suggestion of my mom. still havent gotten any response. My mother also told me some of what you shared. The fact that they may just be trying to eliminate a certain group of customers meeting certain criteria that may be considered high risk. I did find your explanation of the advertising incredibly informative. really everything has been helpful as i mostly ask these questions to further my limited knowledge of car insurance and the process. I have since switched to esurance, and the policy actually began today. back to where i was over a year ago, paying about 88$ a month for the same exact coverage i was getting from all-state.(i do know they are a brother company or whatever, bought by all-state) I cannot deny that you are most certainly correct with your suggestion that it is probably always best to pursue options with an independent agent. I will definitely go that route whenever i may be switching or getting any sort of insurance in the future. I thank you again for taking time out of your day to respond to me. It is greatly appreciated and gave me a great deal of insight on the subject. 

    • http://www.allsecurity.com Keith Verisario

      No problem! Sorry it took so long. I actually replied shortly after your comment but there was a technical glitch and my response never posted. Anyways, I am glad I could help. Take care. -Keith

    • http://www.moneypress.com/ moneypress

       @gumby3489 Let me sugest you get a Gravatar – this is what it is http://www.winningagent.com/how-do-i-get-a-gravatar/

  • kenwoodug22

    As time goes on, you’re actually paying higher premiums for less coverage.
    In spite of the higher premiums, the coverage that once was good enough to cover a lawsuit or repairs may not be enough to cover it all in today’s market.
    The cost of running an insurance company seems like it has skyrocketed in essence. The number of lawsuits and cost of those lawsuits, especially those tied into the health care field are likely driving claim costs up and thus premiums way up.

    In the end, we are all basically paying for each others settlements, greed, and mistakes.
    The more greed, the more mistakes, the higher the premiums in ratio to the coverage.