“My car insurance increased for no apparent reason!”
You may find yourself saying this in exasperation after seeing insurance costs rising year after year. You should know why car insurance is rising.
In a perfect world, car insurance rates would not rise, but the world is unfortunately far from perfect. Rising insurance is the sad reality of the imperfect world that we live in. But what are the reasons for rising car insurance? Read on to find out.
Why Car Insurance Rates are Rising
You can be a careful driver and take all the care in the world while on the road but car insurance rates could still rise due to factors beyond your control. In most states, car insurance rates are steadily rising.
The main reasons include rising costs of healthcare, increased costs of auto repairs, and higher rates of collisions, among other numerous factors. As a responsible driver, you may not be to blame for any of these factors. However, your insurer is going to have to pay for all of these rising costs and that money is going to come from customers like you.
So even if you drive as carefully as possible, you may be disconcerted to find out that your rates have gone up upon policy renewal. No matter how careful you are, if collisions in your area go up and there are increased auto accidents from speeding, DUI, distracted driving and other factors, rates will ultimately rise for all drivers.
Bear in mind that rising accident rates, increasing costs of medical care, and all other costs associated with car crashes have a strong influence on auto insurance prices.
Thus, car insurance costs in metropolitan areas happen to be greater than suburban or rural areas. As metropolitan areas become increasingly congested and see heavier traffic volumes, the risk of accidents is going to rise and auto insurance rates will go up as a result. More cars mean greater risk of car crashes.
Greater Speed Limits
But that’s not all. Speed limits are also going up. Speed kills. Higher speed means that you have less time to react to an emergency. With greater speed, there is less time for you to slam the brakes. When you do press the brakes, your car is going to travel further before stopping. It may even go out of control to flip or roll.
Due to greater braking distance and shorter reaction times, accidents rise with speed. So you should not be surprised when insurance rates rise in response to relaxations in speed limits. Remember that speed is one of the biggest, if not the number one, cause of car crashes.
Auto insurers have to also contend with rising medical costs from accidents. The cost of medical care is increasing everywhere and auto insurers will have to pay for these rising medical costs. Even if car crash rates remain the same, costs will rise for your insurer when it has to pay extra on average for accidents. Your auto insurer is ultimately going to recover these extra costs from – you guessed it – customers like you.
Increasingly High-Tech and Expensive Cars
Cars are also more expensive on average. People have a tendency for more expensive cars rather than economical ones. Car customers have become more demanding than ever before and want more functions and features in their cars. Car manufacturers are responding by increasing features and functions, even for their most economical models.
Cars are now far more high-tech than what they were 2 decades ago. Automobiles now have a bewildering array of electronic components embedded within. As a response to this, the cost of auto repairs have gone up because many of these parts are more expensive to replace. Auto repair costs are also going up since these sophisticated components require greater proficiency to replace.
All Associated Costs are Rising
Remember, medical costs and auto repair costs are rising fast, even more so than inflation. And that’s not all because car use is also increasing. More and more people are opting to drive to work instead of taking public transport. All of these factors raise costs for auto insurers with the end result being a steep rise in insurance rates.
Medical Costs Rising
Medical costs are rising at a brisk pace. The Centers for Medicare and Medicaid Services has projected that medical care costs between 2017 and 2026 will rise at a rate of 5.5%, signaling an enormous increase in medical costs within just a decade. Since medical bills are a major expense for auto insurers, these companies will recover higher medical costs for car crashes from customers.
It is not too hard to understand why increasingly expensive healthcare will skyrocket auto insurance premiums. But it doesn’t end here. There’s another development that will increase car insurance rates even further.
Insurers have to pay greater benefits due to the rise in claims for bodily injury. From 2012 to 2017, claims for bodily injury have risen 6%. In our increasingly litigious society, we will likely see greater amounts paid out for settlements and claims. All of this will increase car insurance rates.
As you may already know, insurance rates can go up with accidents for which you are at-fault. But what many don’t know is that rates can go up even for accidents that were not your fault. Of course, at-fault claims have by far the biggest impact on insurance premiums.
Traffic violations of all sorts can increase your car insurance premiums, including DUI, speeding and distracted driving. Even if you have kept away from all of these violations, you may still face a price hike since these violations are rising in most places.
If you are unlucky enough to get caught up in one of these violations, you may have to take up a rehabilitation course or safe driving classes. Although these steps can help to lower your premiums, that is not always guaranteed.
The best step that you can take in this respect is to be as responsible as possible and take the utmost care while driving.
Taxes also have an effect on your auto insurance rates. All car insurers pay taxes to their states based on the rates they charge customers. Insurers also have to pay several other kinds of taxes including franchise taxes, unemployment compensation taxes, sales tax, property tax, income tax, licensing fees and other fees paid to the state for insurance operations. If there is a rise in these taxes, car insurers will raise their rates.
You may always be truthful to your car insurance company but the same cannot be said for a few other customers. Due to the acts of a small minority, all other truthful customers have to suffer collectively.
Insurance frauds are a sad reality. Some of them may be relatively smaller when compared to some of the bigger and more outrageous frauds. These can include withholding important facts and actively hiding them to prevent a rise in insurance rates. Bigger instances of fraud include staging and fabricating adverse incidents like car theft to get insurance benefits payouts.
Just how widely prevalent is car insurance fraud and what is the true financial extent of these frauds? Verisk Analytics reports that car insurers lose an incredible $29 billion each year to just one type of car insurance fraud alone – withholding and hiding facts that could result in higher premiums.
That is, some people give erroneous facts deliberately while signing up for car insurance or do not inform their insurers of important developments despite knowing that they have a duty to inform. All this is done to prevent premium increases. And honest customers like you have to pay the price.
More and more states are legalizing marijuana. Even if you do not happen to consume it in any form, you may still have to pay the price. You may still face rising car insurance rates even if you do not touch marijuana.
Despite what certain ardent users claim, the drug can increase car accidents as evidenced in the Highway Loss Data Institute report from 2017.
A lot of people are under the impression that alcohol, along with other ‘hard drugs’, is what increase car crashes.
Some marijuana proponents argue that recreational cannabis use does not result in increased aggression or loss of control over one’s actions like alcohol does. But the truth is that weed is a depressant.
Thus, it slows down your mind and dulls your senses. Cannabis can result in slower response rates, which is bad news because slower response rates mean a higher risk in accidents. Therefore, recreational marijuana users are going to suffer from impaired reaction times and are hence more likely to collide with others.
We are already seeing a rise in this disturbing phenomenon with increased car crashes in states that have legalized recreational marijuana.
Certain areas are more prone to natural disasters than others. States like California, for instance, suffer from a high rate of wildfires, flooding, overflowing rivers, hurricanes and tsunamis.
Global warming may be making things worse. Temperatures are rising and boosting the risk of wildfires. Hurricanes, storms, and tsunamis will only get worse.
This is not mere conjecture or speculation. Worse weather conditions most certainly can increase insurance rates as manifested by this Reuters report. No surprises here since extreme weather will increase car damage and in turn raise auto premiums.
Law and Order
Riots, violent protests, and upheavals can leave devastation in their wake. Even rising crime can increase insurance rates.
Certain states like California are faced with the menace of rising car thefts. Insurers will obviously pass on these increased costs to their customers in the form of steeper rates.
Car thefts are not just limited to stealing entire automobiles. Car thieves are now increasingly targeting car parts, accessories, and devices with the intention of selling them on the black market.
One factor that has increased this type of car theft is rising car part prices. Since car parts are now more expensive, they are increasingly lucrative for thieves and easier to steal than the whole vehicle itself. Car thieves can hide and move these parts more easily than the vehicle itself. Therefore, soaring car part prices have resulted in an increase in car part theft.
It is all too easy to blame insurance companies for increased costs. However, since these rising costs are happening across the board and you should realize that factors beyond their control are at play. But even then, insurance companies are collectively taking steps to keep costs down.
Auto insurance companies are actively combating the rise in car crashes through incentives, discounts, and special offers to encourage safe driving. They are doing what is within their power to stem the rising tide of car crashes and bring down car insurance rates.
The most reputable car insurers generously reward responsible customers with financial incentives like big discounts. Many are doing it the high-tech way. This involves installing a device in customer cars or using apps on their smartphones to track driving habits.
Thus, if you drive safely for a specified time period, like up to 12 months, you may be rewarded with a handsome discount. To avail such offers, you may have to enroll in special programs, take driving safety classes, keep your record free of traffic violations and fulfill other criteria to qualify.
These discount offers can vary between auto insurers so you will have to talk to your own insurer to find out all the necessary criteria that you must fulfill. Besides driving defensively, you can also take other steps to keep car insurance rates down like shopping around for better deals.
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Pawson Insurance | Legal Disclaimer |
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