My Top 4 Reasons Why You Could Be Paying A Premium For Your…um…Premium.
I was on the phone with the insurance broker for my auto repair shop. As we caught up, wished each other a “Happy New Year,” and talked about expectations for the year ahead, he told me that rates for insurance are continuing to rise. All types of insurance across the board are seeing rate increases. I decided to investigate what creates and drives the premiums we pay, specifically for car insurance, and share these knowledge nuggets with you.
I remember when I first started driving. My poor parents. I must have cost them a fortune! I was 17 at the time. Adding me as a teenaged driver is one reason alone for their policy price to increase tremendously. When I got my first car and, with it, my first policy I looked for every discount I could find. I guess I could have shopped my policy through several insurance companies but let’s do a quick reality check. I was a teenager; I wasn’t calling around and internet shopping wasn’t what it is today. Staying with my parents’ insurance company came with some little discounts like multi-car (all the cars the family had), multi-policy (mom, dad, grandma, and I each had our own), and multi-line (car, home, and life). I also had great grades, so I qualified for the good student discount. This insurance company offered a safe-driver program too. It involved filling out a workbook and sending it in. Boom. Safe-driver discount. Even then for a teen and for parents of a teen, that was a heavy price tag.
Looking back, I think it’s funny. As a driver, you reach “insurance milestones.” When I bought my first home, it was in a different county. I saved money by changing where I lived. Soon after, I turned 25. Apparently, that meant I was a more “responsible” driver because I got a discount just for getting older. When I got married, my rates dropped again. These rate reductions had absolutely nothing to do with my driving habits and everything to do with life.
Are You A High-Risk Driver?
I truly believe I am an excellent driver. Excellent. I did when I was 17 too. Unfortunately, that is not the criteria that insurance companies use to define what “high-risk” means. Besides “age” and “life” events, insurance companies use other factors. Your driving history has a huge impact on the premium you pay. At-fault accidents and moving violations like DUIs move your rate range right up the scale. According to MarketWatch, minor speeding tickets can add an average of $409 more per year. A driver with a DUI could pay over $1400 more per year.
So, let’s say you do not have the cleanest driving record. Are you doomed to pay higher rates for eternity? The short answer: it depends. First, look at your state. Violations stay on your driving record for 2 to 5 years depending on where you life. Second, insurance companies look at the last 3 years for any incidents. Consider working to clean up your driving record, keep it clean, and shop out your insurance as incidents “drop off’ and change your risk status.
Do You Live In A More Expensive Area?
When I bought my first home, my insurance rates went down. I moved from one of the largest counties in my state to a quieter county. According to MarketWatch, densely populated areas have higher rates. That makes a lot of sense–there are more people, cars, and traffic
Do You Have An Expensive Car?
One of the many things I discuss with my clients is the pros and cons of investing in repairing and maintaining their current vehicle versus replacing it. Newer cars are automatically going to be more expensive to insure. So are cars with a higher price tag. The car you choose plays a role in the premium you pay. High-tech features, sporty designs, and functions, or even a car that is popular among car thieves result in higher premiums. Something that surprised me during my research was leased cars. A leased car versus a financed car has a higher insurance premium; the reasoning being the driver has no actual ownership of the car. So, before it is out with the old and in with the new, do a little bit of homework. Ask you insurance agent and local police if the car you are considering is a hot target for criminals. Make sure you figure in your new insurance rate with your new car payment. A little research in the beginning can save you money and heartache in the end.
Why Is There Such A Big Increase Now?
As much as I dislike bringing it up, the answer is simple. COVID. For many of us, insurance rates dropped during COVID. If you follow some of my earlier logic that more cars on the road lead to more potential accidents, moving violations, and crime, then COVID reduced those statistics dramatically in a short period. The large reduction of drivers on the road reduced incidents and cut costs for insurance companies. Many of those companies shared the cost reduction with their customers.
Something else that has happened since COVID, that does not seem to be course-correcting, is the length of time it takes for claims processing. Adjusters topped coming to inspect vehicles and write estimates; like everything else, this process went virtual. At my auto shop, we always take images of your car during every service visit. So, taking images of the car for the insurance adjuster and sending up an estimate was not a big deal during COVID. However, the practice of not sending an adjuster remains in place today. And, depending on the size of the claim, the insurance company will reserve the right to send an adjuster even after receiving all the images and estimates from the auto repair shop. This extends the time it takes to get repairs authorized and moving. The longer the claim and authorization take, the longer you are without your car. Rental expenses are more than (I feel) they should be due to the downtime, driving up the insurance payout.
Post-COVID, drivers have returned to the road in a major way. When new car production was halted, a shortage of used cars began. Prices for both new and used cars increased. The automotive industry is still recovering from parts shortages. Auto repair shops are experiencing labor shortages too. So, what does this mean?
We’ve already discussed what more drivers on the road mean. Additionally, when a car is damaged or totaled, it is now more expensive to repair or replace. Parts prices have increased (law of supply and demand). Auto repair shops are offering competitive compensation to attract and retain the best of the best mechanics and technicians, which has caused labor costs to increase too. Insurance companies are paying more than ever for insurance claims. Our rates are being raised to cover future claim payouts. All these expenses are distributed across all customers paying insurance in the area–or simply stated by you and me.
And there it is. Now that you know a bit more about why car insurance is so expensive, maybe you can find a few ways to get a handle on your premium. Little things like adjusting your deductible, shopping out insurance carriers, and checking your coverage amounts may be what you need to find the best rate possible.
Stay well my Automotive Family, and safe travels!
Grease In Her Veins 
Who knew all this. Awesome sauce information.
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