How are Car Insurance Premiums Increased?

Car insurance premiums can be a touchy subject for a lot of people. It seems like they're always going up every time you need to renew. Although they do increase periodically, premiums do not increase as often as you might think. Most people do not understand the reasoning behind car insurance premium increases, there are typically group or individual increases. They work differently and implemented for different reasons.

Individual Increases

One common reason that insurance premiums increase is because of something that you did. Your individual premium can go up for a number of different reasons. One of the most common reasons behind this is being involved in a car accident. If you are in an accident, and it is determined that it is your fault, your rate may increase depending on your insurance company and their guidelines. Once you are involved in an accident, you are placed into a different class of drivers because studies have shown that those involved in one accident will most likely have another accident. Your premium has to be increased to compensate for the additional risk and cost associated with the accident.

Some car insurance companies have what is called accident forgiveness. They take the approach that everyone deserves a free pass at some point. With accident forgiveness, the insurance company basically acts like the first accident didn't happen. They don't raise your rates or charge you any extra fees. This type of forgiveness can sometimes be a little more expensive, but well worth the cost in the long run.

Another common reason for an insurance premium increase is traffic tickets. While a parking ticket might not increase your rates, speeding tickets may. If you are consistently getting in trouble for speeding, you are much more likely to have an accident, in the eyes of your insurance company. Therefore, they will raise your rates to compensate for the additional risk that you are giving them. If you show the company that you are safe driver, on the other hand, sometimes you can get a “good driver discount.”

Group Increases

Just because your car insurance premiums went up, it does not always mean that you did anything wrong. Your premiums can increase because of your group. Actuaries that work for insurance companies are always crunching the numbers and looking at statistics. They group drivers into certain groups according to age, sex, accident history and so on. If your particular group shows an increased risk of being involved in a car crash, your insurance company will raise the premiums.

For example, if you are a male and ages 16-24, you are in a much higher risk category than anyone else because according to the statistics, you are three times more likely to total a car than a male that is 25 years or older. While teenage boys are an easy example, the changes do not always have to be as apparent. If any group has had more crashes than their historical average, they will raise that group's premiums. Inflation can also play a role in increased premiums for your group.