Does that renewal bill for your insurance look a little higher this time around? You’re not alone. Every year drivers across the U.S. experience increased insurance premiums — sometimes for blatantly obvious reasons (such as a speeding ticket) and sometimes for seemingly no reason at all.
Fortunately, there is indeed a method to the madness behind car insurance costs. We’re going to talk about how car insurance works, and the reasons the cost of your auto policy might suddenly go up.
So whether your renewal notice only went up by a couple bucks or suddenly seems to be outlandishly high, these are eight of the most common reasons you might be seeing that increase — and what you can do to lower your car insurance.
There are a lot of reasons your car insurance might increase from year to year. Because auto insurance companies use a wide variety of information to assess risk, your payments can go up even if your driving record remains pristine. Here are eight of the more common (but also sometimes unexpected) reasons you may be seeing your car insurance go up.
- You moved
- Your credit score went down
- Speed limits have increased
- Your state legalized cannabis
- Other environmental risk factors have increased
- Medical and repair costs have increased
- You got into an accident or got a ticket
- Your insurance company is testing you
- How to save money on car insurance
- Bottom line
It might sound strange, but moving is a common reason to see a rate increase. Because insurance companies tend to calculate premiums based on zip code, you might end up paying more (or less) after making a big move.
Rates for zip codes are calculated based on risk. The risk being assessed is primarily that of an accident or vandalism, which is why people in big cities typically pay more for car insurance than drivers in the suburbs.
If moving changed your proximity to work, this could also be a reason for the premium increase. Driving longer commute distances is seen as a higher risk by insurance companies, and they’ll raise your premiums to cover that risk.
But moving isn’t just a risk factor in the sense of more traffic or exposure to potential break-ins. It can also simply be a matter of the local laws and road quality of your new neighborhood.
For example the state of Louisiana has consistently ranked as one of the most expensive states for car insurance. Far from being an overly dangerous place to live, this state is known for its poor road conditions and surplus of lawsuits. All of this translates into insurance agencies requiring residents to pay more for their auto insurance policies.
Your credit score went down
Credit scores matter in some unexpected ways. They aren’t just used by big banks to determine your eligibility for a loan; they’re also used by auto insurance companies to predict the likelihood of you filing a claim. And although you’ve probably heard that some insurance companies “don’t look at your credit score,” they do — they just call it something else.
By analyzing select information from your credit reports, insurance companies assess what’s called your credit-based insurance score. The reasoning? Research has shown that people with higher credit scores are less likely to get in accidents or file insurance claims than people with lower credit scores.
Regardless of what it’s called, auto insurance companies are looking at your credit score, and if it drops you might end up paying more for what your car insurance covers. On the flip side, if you improve your credit score you could also improve your auto insurance rate.
Speed limits have increased
Noticed higher speed limits on your local commute? That might be another reason for the increase in your car insurance costs. When states increase their speed limits, it can unfortunately be linked to more accidents on the road.
If you live in a place that recently raised its speed limits, you should expect to pay more for auto coverage on your next policy renewal.
Your state legalized cannabis
While not enough time has passed for it to be clear if the legalization of marijuana actually results in more car accidents, a study on some of the first states to legalize has shown a possible correlation.
The bottom line? This could easily lead to higher insurance costs for drivers in places where marijuana has been legalized. If you live in (or recently moved to) a state with legal cannabis use, you might end up paying more for car insurance.
Other environmental risk factors have increased
Car insurance premiums can go up for a whole slew of reasons, not only if your state legalizes cannabis or decides to increase speed limits.
Other environmental risk factors that can cause your insurance company to charge more include things like an increase in the number of uninsured motorists, more extreme weather events, more accidents caused by distracted drivers, or even an increase in local crime rates.
Any number of things or combination of risk factors can lead to insurance companies charging more, especially if these risk factors lead to more claims for them to pay out.
Medical and repair costs have increased
Another unpredictable reason your insurance might go up? When repairs and medical expenses start to cost more. The more insurance companies have to pay to cover property repairs and medical expenses, the more they’ll charge you for the coverage.
If costs have recently gone up in these industries, those expenses will quickly trickle down to your level in the form of higher coverage rates.
You got into an accident or got a ticket
Besides all the unexpected reasons car insurance can go up, there’s also the obvious ones — like if you get a speeding ticket, get caught for a traffic violation, or become involved in an accident that’s considered your fault.
A DUI is another fast track way to paying way more for coverage or even losing your insurance coverage all together, as you’d be considered high risk from the insurer’s standpoint. Moving violations, which are defined as any violation of the law committed by a driver while driving, are another reason you might see an increase in your insurance bill.
The best way to avoid seeing these kinds of increases is by keeping a safe driving record. Another good reason to keep your driving record pristine? Over time, being classified as a safe driver could actually become a factor in when your car insurance rate starts to go down.
Your insurance company is testing you
Although this has nothing to do with risk factors or your driving record, it’s still a very real reason you might see your insurance rates go up. It’s called price optimization, and all sorts of industries use it to determine how much to charge their clients. In a nutshell, insurance companies use algorithms to determine how much they can charge you before you’ll start shopping around for a new insurance provider.
An important thing to note here is that as of 2013, the Insurance Information Institute reported that only 12% of insurance companies used price optimization, which means most actually don’t. The practice has also been banned in several states including Florida, Maryland, Ohio, and California.
But in the rest of the states there’s still a chance you could see your rates go up as a result of your company testing out new pricing models. Fortunately, this is one of the easier problems to solve. If you’re worried your rates might have gone up due to price optimization, consider switching car insurance companies or even just giving your current insurance company a call and requesting a lower rate.
How to save money on car insurance
Saving money on car insurance might sound complicated, but it’s not. Assuming you have a safe driving record, comparison shopping is a great way to get insurance with the provider offering the best rate. Start your search online and compare multiple car insurance quotes for the same coverage from different providers. This should give you an idea of what you’ll actually need to pay for the coverage you want.
Even if you don’t end up switching insurance providers, you can still save money with your current provider by changing your plan a little. This might mean choosing a higher car insurance deductible or even eliminating types of extra coverage you don’t need, like comprehensive insurance coverage on an older car. If you’re happy with your current provider, give them a call and talk to them about how to save money on car insurance by changing some details in your policy.
Another great way to save a bit on insurance coverage is by bundling different types of insurance coverages with the same provider. If you have other types of insurance, such as renters or homeowners insurance, you can actually save quite a bit of money by buying them all from the same provider.
It’s normal for car insurance to go up, but that doesn’t mean you have to pay for it. Depending on why your rates increased, you might have the option to shop around for insurance quotes on a new policy, either from your existing provider or from a new one.
Familiarizing yourself with these common reasons for insurance increases will allow you to make the best decision and save the most money when it comes to the cost of your car insurance.