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Insurance Explained

Why Does Your Auto Insurance Rate Keep Going Up?

Paying for auto insurance is a serious bummer.

Much like home gyms, most people go years without ever using theirs.  Nonetheless, their insurance rates continue to rise.  What the heck!?

Whether it’s fair, or not, understand that just because you haven’t had an accident recently, doesn’t mean you’re not going to have an accident in the future.  Insurance rates don’t look at how much you’ve paid over your lifetime.  They look at what the statistical likelihood of your filing a claim this policy term is, and what the likely cost of a claim would be if or when it happens.  Someone who hasn’t filed a claim in years is less likely to file a claim tomorrow, and, accordingly, your rates are significantly lower than the guy next door who had an accident a year ago.

Once you’re able to accept (begrudgingly, of course) that even good drivers with great driving records still make mistakes and crash their cars, it makes it a little easier to understand the “how” and “why” behind increasing rates.  Those increases can be blamed on two main categories: frequency and severity.


Claims frequency has to do with the rate at which claims are occurring.  Those claims could be related to at fault accidents, not at fault accidents, or comprehensive losses caused by things completely out of anyone’s control (think hail).  Regardless of fault or cause, the more frequent claims payouts are occurring, you can pretty well bet that the overall amount of dollars being paid industry-wide is increasing as well.

Two huge factors contributing to the insurance industry’s current frequency issue are:

  •  Fuel Prices and the Economy: When people are experiencing good economic times, or when fuel is relatively inexpensive, people are more inclined to spend money and go on road trips with their families, and go on weekend getaways.  The result?  An increase in miles being driven, which directly relates to an increase in accident frequency.  After all, a parked car is much less likely to crash into things than one being driven.
  • Distracted Driving (yes, I’m talking to you!): This is the big one.  It used to be that people would take their eyes off the road to change the radio station, or to find the piece of burrito they dropped into their lap.  Now we also have an insane number of people reading and writing emails; filming videos of themselves talking to their Facebook followers; or reading breaking news about various tweets from heads of state, all while they’re driving!  Not surprisingly, the more time you spend not looking at the road, the more times you’re likely to crash into something or someone.


Claims severity looks at the average cost per claim.  In the past, you’d see severity being higher in more litigious parts of the country, as claimants would tend to hire attorneys to represent them, which tends to increase the total cost of the claim.  You could also expect to see higher severity for claims after catastrophic losses that would total vehicles in entire neighborhoods or cities (think hail in Colorado; the Northridge earthquake in California; or the flooding wherever).

In addition to all of the old factors that would impact severity, we now have another big one: technology.  That’s right, the technology being installed to reduce the number of accidents that occur, actually causes the cost of claims to increase when they happen.  It used to be that you could rear-end a car at low speed, and need to replace your bumper and his bumper.  This was inexpensive and straightforward.  Today, many cars are being manufactured with all sorts of sensors in their front and rear bumpers.  An accident that would have cost $1,000 10 years ago is several thousand dollars today.  I had a client lose her side view mirror earlier this month.  It was one of those mirrors with the built-in blind spot detection and automatic dimming.  The cost to replace a side view mirror?  $3,700!  The cost on my sweet 1984 Toyota Tercel?  About $200.

Working with an independent agent doesn’t make you immune to the ever-rising cost of insurance, but it can make it a lot easier to make sure you’re with the best carrier for your specific needs.  As rates increase over time, the carrier that was right for you yesterday, may not be the right option today.

A good agent can help you stay on top of the changes, and let you know if there are more competitive options available to you now.

If you ever have questions, please call or email us.

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