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Why Did My Car Insurance Company Raise My Rates?

Wondering why your car insurance company raised your rates? It may have more to do with your carrier’s profit margin than your driving record.

insurance policy with keys and money

The reason your car insurance company raised your rate depends on several factors. Of those common insurance pricing factors, some can be your fault, but most are completely out of your control. The following factors are the most likely cause for your insurance costing more.

Most Common Reasons Your Car Insurance Rates Went up

Accident Claims, Tickets and Other Citations 

These are obvious causes for your rates going up. If you’re involved in an accident, at fault or not, your insurance company will raise your rates. When your company finds out about a speeding ticket or texting and driving citation, you’re going to see a rate hike.

There's a reason why people pay for minor car accidents out of pocket. In a lot of cases, paying for a minor accident yourself ends up being cheaper than filing a claim. A recent claim stays on your insurance record for three years. You might pay higher rates during that entire period. And if you file a second claim during those three years, your rates will increase very quickly.

A recent claim can explain why your insurer raises your rates. Especially if the claim was severe, or the second one (or third) within three years.

Even without a claim, a ticket or citation can increase your rates. That's especially true if, like claims, you have more than one in the last few years. Look out if you get so many tickets your insurer puts you in the "non-preferred" driver category. In this case, you'd have to buy a high-risk policy. And you'd quickly find out there's no such thing as cheap high-risk auto insurance.

Remember, the severity of your ticket or citation is considered by your insurer. For example, doing 40 MPH in a 30 MPH zone won’t raise your rate as much as a doing 100 MPH in a 30 MPH zone. Similarly, getting a ticket for failure to signal isn't as bad as a DUI conviction.

Like claims, tickets and citations stay on your record for three to five years. Racking up tickets and causing accidents is a great way to get a large rate increase.

Auto Insurance Company Rate Increases After a Single Incident
Insurance Company Rate Increase
Allstate 38%
Farmers 32%
Liberty Mutual 23%
American Family 18%
Travelers 16%
State Farm 12%
Safeco 12%
Progressive 38%
Nationwide 10%
Note: Average rate increases are based on non-binding estimates provided by Quadrant Information Services. Your rates may vary.

Changing Risk Factors in Your Area 

Cities are always adapting to new demographics with rapid changes. Those same changes can also have a negative impact on car insurance risk factors.

Insurance companies use millions of data points to determine which areas around the country are the highest risk to them. This risk data helps insurance companies adjust their rates to offset areas where they take a profit loss on insured drivers. However, drivers with a clean record can see their rates go up because of external factors in their area leading to cost increases.

Here are a few factors that go into these pricing models.

  • Number of uninsured drivers in your area. The Insurance Research Council estimates that uninsured claim payments are up 75% over the last 10 years. This translated to $2.6 billion in uninsured motorist claims in 2012! Those costs are then passed on to insured drivers.
  • High rate of crime in your area. Stolen cars and property crimes equals more payouts by insurance companies. Areas with a high rate of crime are viewed by insurance companies as high-risk areas. Drivers living in high crime areas (typically bigger cities) can experience rate increases due to an increase in criminal activity.
  • Weather Places around the country prone to extreme weather like tornadoes, hurricanes, and floods have a higher rate of claims. With extreme weather events causing expensive damage, claims tend to rise in places strongly affected by extreme weather.

Rising Medical and Repair Costs

With Americans driving more than ever, accidents are occurring at higher rates.  This leads to an increase in the cost per claim being paid out by insurance companies. The primary cause for the spike in the cost per claim are rising medical and repair costs.

A car insurance policy covers the driver and passengers with liability coverage, and the car with collision coverage. When people in the car are injured in an accident, insurance companies pay out claims covering medical bills. Healthcare spending increased 7.3% from 1990 to 2007, far outpacing economic growth. This spending growth drives up the cost of healthcare where insurance companies are first inline to pay these increasing costs.

Just like people, when cars are damaged in an accident, insurance companies pay out claims to repair the car. The growing cost of labor is a major contributor to overall increases in repair costs. A study by claims the cost of vehicle repairs increased 10% in 2012 alone. The largest repair cost comes from replacing expensive technology in newer vehicles.

With both medial and repair costs on the rise, insurance companies are wearing a dent in their bottom line. Those rising costs are then passed on by insurance companies to drivers in the form of higher insurance rates.

Credit Score Changes

Did your credit score go down over the last year? That can lead to higher car insurance rates.

Insurance companies aren’t legally required to tell you they’re using credit as a factor in your rates. This creates a huge transparency issue to customers. “An insurer tells you you're getting a multi-line or loyalty discount. But in fact, that discount is being wiped out by an upcharge related to your credit score," says Amy Bach, Executive Director of United Policyholders.

According to a Consumer Reports special report, credit history has a larger impact on your rates than driving history. The report show that one moving violation would increase premiums by $122 per year. A driver with a clean record and a credit score that was considered ‘good’ would boost it by $233. A poor credit score could add $1,301 a year in premiums.

Premiums that are weighted more for credit than driving history are unfair to the clean driver. Companies are creating false risk with little transparency into the credit modeling used to determine rates. The creation of false risk is used to justify higher rates to a larger population of drivers with clean records. This presents a huge problem of charging low-income drivers more to maintain legally required insurance.

“I believe that insurance rates should be set based on measurable data. A consumer’s credit score tells me nothing about them as a driver," says Kreidler.

Many states are protecting drivers from insurance companies using credit history as a factor in setting rates. California, Massachusetts and Hawaii have outlawed the practice. A study by the Consumer Federation of America showed that California’s Prop 103 has worked well. The pricing practices mandated by Prop 103 have saved families an average of $8,625 over the past 25 years.

California, Massachusetts, and Hawaii are the only states that have banned this practice. Leaving drivers in most states still deal with insurance companies using credit history as a factor in car insurance premiums.

While this is a controversial practice, you do have the means to improve your situation. How? By raising your credit score, of course.

Price Optimization

Price optimization is similar to the way companies use credit history as a factor in car insurance rates. It is a practice that determines your tolerance to a price increase. This practice looks at purchasing behaviors and patterns to estimate how loyal a customer you are.

The model predicts how much they can raise your rates without you choosing another company. Would you put up with an increase of $100? What about $200?

“I call it the loyalty penalty. Because it discriminates against people who don’t shop around for better insurance rates," says Mike Kreidler, Washington State Insurance Commissioner. Several states have banned this practice. California along with Florida, Indiana, Maryland, Ohio, Vermont, and Washington have all outlawed it.

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Why Insurance Companies Will Raise Your Rates with a Clean Record

The short answer is, “it’s the cost of doing business.” Insurance companies pay out billions of dollars in claims each year.  When insurance companies take a loss they will seek to offset their loss with rate increases on consumers. Often times companies will use questionable rate setting practices that can raise your rates, even without an incident on your record.

Insurance companies keep their rate formula’s guarded behind actuarial jargon, filed in state commissioners offices. When a company seeks to make rates changes in a given state they must submit a rate filing with the state insurance commissioner. While state insurance commissioners protect consumers from predatory pricing practices by insurance companies. A subtle rate adjustment approved by insurance commissioners could result in your insurance rate going up by $20 a month or $240 a year. All of the above factors play a small role in these subtle rate adjustments that cause your rate to increase.  

Common Discounts to Lower Your Insurance Rates After an Increase

Bundle: It may seem obvious, but many people overlook this. Bundling multiple insurance policies with the same company can net you big discounts. If you buy car insurance and home insurance from one company, for example, you can score a 20 percent discount.

Shop around: As we mentioned above, insurance companies don't always reward loyal customers. They bank on the fact that long-term customers will accept nominal rate increases year after year. Why? Because finding a new insurance company is a pain. If your rates recently increased, shop around and compare quotes from multiple car insurance companies. You may be surprised to find out what other insurers are offering.

Add safety features: Your insurer will appreciate any steps you take that make you less likely to file a claim. Equipping your car with safety features does just that. That can include anti-theft devices, dashboard cameras, anti-lock brakes, electronic stability controls, and more. Some companies offer discounts for drivers with telematics devices. These devices help your insurer monitor your driving style.

Pay in full: Insurance companies like it when you make their jobs easier. One way to simplify things is to pay for six months or a year worth of coverage at once.

Autopay: Similarly, if you approve direct rate withdrawals from your bank account, you can earn a decent discount. Opting for paperless billing can also help lower your rates. LLC has made every effort to ensure that the information on this site is correct, but we cannot guarantee that it is free of inaccuracies, errors, or omissions. All content and services provided on or through this site are provided "as is" and "as available" for use. LLC makes no representations or warranties of any kind, express or implied, as to the operation of this site or to the information, content, materials, or products included on this site. You expressly agree that your use of this site is at your sole risk.