Why do auto insurance rates go up?

If you’ve noticed an increase in your auto insurance rates recently, you’re not the only one.

According to the United States Bureau of Labor Statistics, auto insurance rates nationwide went up by 20 percent in 2023. Rates have gone up even for drivers with clean driving records. What’s behind this trend? To understand, it helps to look at the factors that influence insurance premiums.

What determines my auto insurance rate?

Most of us know that if we get into a car accident or receive a speeding ticket, our auto insurance premiums could go up. This is because you essentially pay an auto insurance company to cover the risk of driving a car. The company will charge you a premium that is meant to cover your individual risk as a driver, plus the cost of their service operations and a small profit.

Part of your individual driving risk is calculated on well-known factors. These may include:

• Your number of previous car accidents and traffic violations
• Your number of previous claims
• The amount that you drive your car
• The cost of your car
• The age of your car
• Your car’s safety and driving features
• The rate of theft for your particular car model and color
• Whether you’ve taken a defensive driving course
• Whether you use a telemetric device that proves you are a safe driver
• The minimum amount of car insurance coverage required by your state
• The amount of coverage that you personally desire

Why did my auto insurance rates go up?

Age and gender

There are also other less obvious factors that go into determining your premium cost, such as age and gender. No matter how good their driving records, in many states, men are typically charged higher premiums than women because their gender is statistically more likely to engage in risky driving. The same holds true for single people as opposed to married people.

In addition, drivers under 25 and drivers over 75 are often charged more than the general driving public. So are drivers with poor credit records.

Where you live

One of the factors that is having the biggest impact on the cost of insurance rates recently is where you live. People who live in urban areas, which have more cars and more traffic, have to pay more for car insurance than the average person. This is also the case for people who live in areas where there is a higher rate of car theft or a higher rate of car accidents. A greater frequency of natural disasters like hurricanes or forest fires also contributes to higher insurance costs.

State regulations

An even bigger factor that is now playing a role in rising auto insurance rates is your state regulations. Some states place limits on how much insurers can raise rates in a single year. In states with no restrictions, like Illinois, rates have gone up significantly.

Other factors that affect auto insurance rates

COVID-19

The COVID-19 global pandemic has had a major impact on auto insurance rates. As the pandemic caused shipments of products, parts, and raw materials to be halted around the world, prices went up. The number of working auto mechanics also went down, which in turn raised the wages for remaining auto mechanics. This made cars more expensive to replace and more expensive to repair, forcing auto insurers to raise rates.

Automobile accidents

In addition, according to the National Highway Traffic Safety Administration (NHTSA), as people returned to the roads following the pandemic lockdowns, the number of automobile crashes soared. Accidents were also more serious than prior to the pandemic, with 2021 seeing the highest quarterly percentage increase in crash fatalities since NHTSA began tracking traffic deaths in 1975. All these crashes cost the insurance companies a lot of money, and that cost was passed on to consumers. Car theft has also skyrocketed, raising insurance rates even more.

Climate Change

Climate change has also been big driver behind the increase in auto insurance rates. Natural disasters and extreme weather do a lot of damage to cars, and according to the National Oceanic and Atmospheric Association National Centers for Environmental Information, the number of natural disasters has been rising steadily over the past 40 years. In 2023, there number of natural disasters that cost taxpayers $1 billion or more reached an all-time high. Currently the states that are most vulnerable to hurricanes, Florida and Louisiana, have the highest auto insurance rates.

Reinsurance

Another price driver in auto insurance rates that you might not be aware of is reinsurance. Reinsurance is a special kind of insurance that insurance companies buy for protection in case they are unable to cover the costs of all their claims. Insurance companies normally don’t have to rely too much on reinsurance, but this has changed. Thanks to the soaring rates of car crashes, car theft and natural disasters, reinsurance firms have had to pay a lot of money to insurance companies to help them cover claims, and this in turn has caused reinsurance premiums to go up. The higher reinsurance costs have resulted in higher auto insurance rates for the general public.

Advancing auto technology

On a more hopeful note, one more factor raising insurance premiums is advancing technology. Cars are more technologically advanced than ever, with climate-friendly electric cars using expensive rare materials. This expensive new technology also contributes to higher insurance rates.

How to save on auto insurance

When so many price factors are out of your control, you can save money on auto insurance by taking charge of those factors that are under your control.

Many insurance agents recommend shopping around for a new insurer when your rates go up. Bundling your new car insurance plan with a home insurance plan can also help lower your rates. Look for special discounts for seniors, teens with high academic achievement, military veterans and professional and alumni associations. Consider switching to a higher deductible. Or, if you have a used car that will be cheap to replace, reduce the amount of car insurance you carry altogether.

If your car insurance company offers safe driving discounts for using a telemetric device that tracks your driving or for taking a defensive driving course, take advantage of these opportunities. Finally, you can try to reduce the amount that you drive. Insurance companies will often offer discounts on premiums if they know you don’t put many miles on your car.