Did you look at your auto insurance renewal and ask this question: Why did my auto insurance premium go up this year?
You may have had no accidents, and your car may even be a year older, so why would auto insurance cost go up? This is a great question. We found a recent article from the Insurance Information Institute and felt it should shed some light on the subject.
The III (Insurance Information Institute) commissioned a study consisting of leading academics in the field of risk management to study auto insurance payouts and premiums. Released on 1/7/2020, the study, Cost Trends and Affordability of Automobile Insurance in the U.S. , "analyzes auto insurer claim payout cost trends nationwide...and identifies strategies to lower them and thereby reduce auto insurance premiums." The study concluded that U.S. auto insurer claim payout costs largely determine what a typical driver pays for their insurance premium. In fact, the study showed that from 2014 through 2017, auto insurer claim payouts either equaled or exceeded monies received from premiums and via investments. The study also showed that the increases in auto insurance premiums are driven by claim payout costs, and not by insurer profits.
It's true that even for drivers who have never filed a claim may find their auto insurance premium go up. This is because what the insurance carrier pays out in claims, and the payout cost process, is shared by every one of the customers of that auto insurance company. The study identified 4 factors that drove recent increases in the U.S. auto insurance claim payout costs.
Four Reasons Car Insurance Rates are Going Up
- The Economy. When the economy is doing well, people will drive more, whether for business or for pleasure, people are on the road more. The frequency will lead to a greater number of crashes, which contributes to higher auto insurance claim payouts and costs.
- Cost to Repair. With new technology (crash avoidance sensors, for example) comes increased costs to repair or replace.
- Distracted Driving. Our distraction with mobile devices has lead to more crashes.
- Medical costs. Increases in the cost of hospital care has put economic pressure on U.S. auto insurance companies. The study also indicated that auto insurers generally incur more expensive types of hospital services or are charged higher prices that other payers for similar services.
How to Lower your Auto Insurance Rates
We understand that keeping expenses low and staying on a budget is a concern. Here are 5 ways to lower your auto insurance premiums.
- Before you purchase a car, compare insurance costs. One of the many factors that goes into what you pay for car insurance, is the cost of that car, including it's safety record, the cost to repair, as well as it's likelihood to get stolen. The Insurance Institute for Highway Safety has a great resource for this information.
- Consider asking for a higher deductible. Deductibles are what you will pay out of pocket before the insurance policy kicks in. When you request a higher deductible, you can lower your costs by as much as 15% - 30% or more in many cases. If you have a $200 or $300 deductible, ask the cost to raise it to $500. If you have $500, ask about a $1000 deductible.
- Consider reducing coverage on an older car. You'll want to keep your liability limits however you may want to consider dropping collision and/or comprehensive coverage on an older car.
- Ask if you can bundle home & auto for possible discounts on both policies. Even renters can benefit by asking us to write both policies in house and/or with the same insurance carrier.
- Take advantage of discounts. Over 65, safe driver, and low mileage discounts will apply automatically, however ask about AAA, Good Student, and any company sponsored programs such as Safety Insurance's Clear Path for Veterans.
- Multi-car. Do you and your spouse have separate policies? Ask if you can place both cars on one policy for possible multi-car discounts.
The key to having the lowest cost premium may not always be how many discounts you can get, but the final price. The company that offers the fewest discounts may still have the most favorable rates for you.
How Auto Insurance Costs Could be Lowered Overall
The study examined several strategies to reduce the overall price of auto insurance.
- Outlawing the use of handheld devices and enhancing enforcement of existing laws.
- Controlling the escalating cost of medical care and addressing the role the auto insurance payer plays in subsidizing insufficient payments from other payers.
- Address civil justice systems which may incentive the inflation of claims as well as monetary damages for pain and suffering.