It’s been years since you’ve been in a car accident or filed a claim…
…So why is car insurance so expensive?
You just received another letter from your insurance company notifying you that your car insurance costs will be increasing this year.
“Why is car insurance so expensive?!” you scream in frustration. “I didn’t even have any claims!”
Unfortunately for car owners, this is an common occurrence…and it doesn’t look like it will stop anytime soon.
Florida is already one of the most expensive states for auto insurance—with an average car insurance rate of more than $2,300 a year—which makes premium increases even harder to swallow. But whether you like it or not, there is a good reason why auto insurance rates are so expensive.
In fact, there are several.
1. More Claims
The way insurance works is pretty simple: insurance rates are based on your individually determined level of risk. The insurance company then uses this money to reimburse covered claims. The more claims an insurance carrier pays out, the more it must take in to replenish its “risk pool.”
Yet, despite increasing rates, insurance underwriters are consistently reporting profit losses.
Hurricanes like Idalia and Ian and California wildfires cause devastating losses for car owners, while an increase in distracted driving accidents increase claims nationwide.
The National Association of Insurance Commissioners (NAIC) has reported steadily increasing auto insurance claims over the last several years. But even as the number of claims increase, insurance companies aren’t always able to increase rates proportionately.
In most states, premium increases need to be reviewed and approved by the local Dept. of Insurance. By the time the rate increase goes into effect, claims have often increased again. It’s a constant cycle.
2. Fraud
An increase in claims leads to an increase in premiums, but not every car insurance claim is legit.
Car owners have been known to exaggerate, withhold information, and outright lie in efforts to reduce their insurance costs and/or increase their claim payouts.
Unfortunately, it all falls back on upstanding policyholders like you.
If the insurance company never catches on to the con artists (and they frequently don’t), that’s just an incentive to try it again and get more money. To the tricksters, it seems like their little scheme is paying off. But it only ends up raising premiums…for everyone.
This is one of the many reasons to keep your claims completely honest.
3. More Tech
That Lane Assist technology you just had to have might be helpful for alerting you to dangers on the road, but it comes at a high price (and not just at the dealership!).
All those safety features are made with increasingly advanced technology, making them more expensive to repair when you do have an accident. A decade ago, it was fairly simple to replace your rear bumper after a fender bender. But after May of 2018, all new vehicles are now required to have backup cameras, which makes those repairs a lot more expensive.
While better technology can do a lot toward preventing accidents, it will be a long time before we see collisions and claims eliminated completely. In the meantime, vehicles with all the bells and whistles will be more expensive to insure.
4. Traffic Violations
It’s common knowledge in the insurance industry that physical damage to your vehicle is only one factor in determining your level of risk as a driver.
Traffic violations—even minor ones, like a speeding ticket—can affect your insurance costs if they end up on your permanent record.
Unlike your home, your car is designed to move at high speeds and in close proximity to other fast-moving vehicles. This makes your car a lot more risky than your home. And greater risk means (say it with me, kids!) higher rates!
Luckily, fixing this issue is typically within your control: follow the traffic laws. And if you do receive a ticket, try to fight it in court to maintain a clean driving record.
5. Policy Changes
Accidents aren’t the only reason why car insurance is so expensive.
Insurance companies look at several different (and differing) factors to determine what your insurance rates are. Some of these factors are things you can control, such as the type of car you drive, how safely you drive it, or your credit score. But some of these factors are completely outside of your control.
You could buy the “safest” car on the market and take every defensive driving course on offer, but something as simple as changing your zip code can cause your car insurance to go up, even if nothing else changed.
Beware of Cheap Car Insurance!
Many people base their insurance decisions on one thing and one thing only: price.
While a low car insurance bill is great, these people are usually let down as soon as they need to file a claim. Because whether you’re looking at life insurance, business insurance, or auto insurance, you usually get what you pay for.
Odds are, if you find a dirt-cheap insurance policy (we’re talking waaaaaay lower than the other insurance quotes you received), that lower premium is going to come with lower insurance coverage, worse customer service, and more restrictions.
So, while rate hikes aren’t necessarily something to be excited about, they’re much better than the alternative.
Here’s the Good News
Luckily, you don’t have to throw up your hands and give in to expensive auto insurance costs. You can shop around for a better car insurance premium.
Car insurance companies offer discounts and they each look at different factors when determining your rates. (This is why Farmers and Nationwide will come back with two completely different quotes for the same level of coverage.)
When you look at lots of different insurance carriers, you can compare quotes and find a way to save money while still getting great coverage. And the best way to gather all these quotes is by using an independent insurance agent.
If it’s been a while since you’ve shopped for car insurance, call Harry Levine Insurance to help compare car insurance quotes that fit your lifestyle and your budget.
Editor’s Note: This article was originally published in 2019 and has been updated for accuracy and comprehensiveness.
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