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8 Reasons Auto Insurance Rates Are Rising

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Odds are your auto insurance premium dropped in 2020 due to stay-at-home orders. There were fewer drivers on the road, which meant fewer accidents and fewer claims. Some insurance companies, including USAA, refunded a percentage of their members' premiums.

And now as some people are returning to their offices and society starts to get more acclimated to a new normal, we're seeing the economic effects of the past few years.

As much as we all love seeing our insurance rates go down, our reaction is the opposite when they go up. Especially when we're not sure why it happened.

There are many possible reasons auto insurance rates increase, and unfortunately, some of those reasons aren't always in your control. But understanding the factors that influence insurance rates — and what you can do to keep them low — may help make it less frustrating when it does happen. Here are eight of the most common reasons your auto insurance may rise.

1. Changes in the economy

Inflation has been prevalent in news headlines recently. When costs for transportation of parts go up or the supply of a needed component for your vehicle is scarce, prices increase.

The global supply chain woes, particularly for computerized components or electronics within your vehicle, are causing manufacturers to reduce production.

Labor costs at repair facilities have increased over time, and as they go higher, the overall repair bill to fix your car goes up too. While you may not feel this immediately in using your insurance and paying your deductible, the effect can be seen down the line with potential premium increases.

2. Claims in your city or state increased.

Comprehensive and collision insurance covers events like natural disasters, theft and vandalism. A major event in your city or town, such as a tornado, hailstorm or even civil unrest can lead to an increase in auto insurance claims.

It's important to note that the costs associated with claims are also increasing:

  • Physical injuries are costly, given potential emergency transportation, hospital, doctor services and rehabilitation treatment.
  • Litigation is common, and legal expenses are often a large cost factor in a claim.
  • Advanced technology in newer vehicles costs more to repair.
  • Potential delays or waiting time during repairs can increase rental car costs.

Even if you don't make a claim, an increase in the number or cost of claims from other people can boost all auto insurance rates — including yours.

3. You moved to a new location.

Believe it or not, your insurance rate can change, even if you only move a couple of blocks away.

Some insurers consider your ZIP code when determining rates. If you move to an area that's more densely populated and has a higher risk of theft, your rates will likely increase. If you relocate to the coast, your area might be more susceptible to hurricanes or earthquakes.

Fortunately, the reverse is also true. If you trade in your downtown loft for a more rural lifestyle, you'll likely see your premiums decrease.

If you're a military member, make sure to review your coverages and any potential discounts you qualify for before your next military move.

4. You were in an accident.

Whether it was your fault or not, getting in an auto accident can come with significant costs, which is the main reason having auto insurance is so important.

At-fault accidents can almost guarantee that your rates will increase, because you're considered a higher risk. And yes, one-car accidents are considered at-fault since there's no one else involved.

In addition, your insurance rates may rise even if the accident wasn't your fault, depending on the policies of your state and insurance provider. Multiple not-at-fault accidents may also deem you a high-risk driver and cause a rate increase.

Accident forgiveness endorsements that some insurance companies offer may be a good way to help offset a premium increase. These programs typically carry an additional cost to your base auto insurance policy but may be able to save you from seeing a spike in your policy costs following an accident.

5. Your credit score dropped.

Some insurance companies use credit history as a factor that goes into an insurance score, which is used to determine your auto insurance rates. Poor credit history can have a significant impact on your insurance score because research shows that people with lower insurance scores have a higher likelihood of having a claim. If your credit score takes a hit, it can quickly become a double-whammy and drive up your auto insurance rate too.

Fortunately, this is one of the factors you have a little more control over. Taking steps to improve your credit score, such as reducing your balances and paying bills on time, may also help decrease your premium.

6. You no longer qualify for a discount.

There are many reasons your provider may offer auto insurance discounts. But if you no longer meet the requirements, you'll lose the discount. Some examples include:

  • If you received a safe driver discount but get in an accident or receive a moving violation.
  • If you received a multi-vehicle discount but choose to remove coverage for one or more vehicles.
  • If you received a discount for bundling auto and homeowners or renters insurance but remove your home or renters insurance.
  • If you received a discount for a newer vehicle or an anti-theft device but decide to drive an older vehicle without improved safety features.
  • If you received a discount because you were driving less or storing your vehicle but then need to start using your vehicle more often.

Age and marital status can also impact your rate. Generally, middle-aged drivers typically have lower insurance rates than young and senior drivers, and married drivers often pay less than single drivers. Growing older or changing your marital status may influence that invisible discount — for better or worse.

7. Insurance fraud

Unfortunately, some people make fraudulent or exaggerated claims to get money from an insurance company. It can be as big as fraudsters who fake injuries and vehicle damage or as seemingly small as contractors who inflate the cost of repairs.

Although individual claims may seem insignificant, the collective impact of fraud leads to higher insurance rates, increased taxes and inflated prices across the board. Protecting yourself from fraud can help keep insurance rates low.

8. Rate adjustments

When an insurance company revises its rates, it's usually a result of the rising costs of doing business — which can occur due to things like an increase in claims, growing risk, inflation or service improvements. It can also be based on the insurance company's outlook toward business risks or how their operation is performing.

Auto insurers are also required to keep a certain amount of money in reserve as a safeguard to pay for unexpected claims. If your provider needs to increase their reserve funds, they may choose to raise premiums.

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