Why Is My Car Insurance Going Up? And What Can I Do About It?

Sign In

Please sign in to access member exclusive content.

Enter your username (email)

Enter your password.

Forgot Password?

Driving Record

While it makes sense that your driving record would affect your car insurance premiums, it may come as a surprise that those moving violations can also bump up your life and health insurance rates. If you’ve had more than two moving violations in the past three years – including speeding, reckless driving and driving while intoxicated and/or driving under the influence (DWI/DUI) – life insurers consider you a higher risk for auto fatalities, which means they have a higher chance of paying out. Also, if you’ve had a DWI/DUI in the past, you’ll likely pay higher premiums (and higher deductibles) for health insurance, and you may even be denied coverage altogether if you’re labeled a “high risk” client. (For more, see 12 Car Insurance Cost-Cutters.)

Video

How to get lower premiums

Finding more affordable car insurance is the best way to combat rising premiums. While many times you can’t control the reasons for a rate hike with your car insurance, you can opt for a more affordable offer from another company. So instead of asking, "Why does my car insurance keep going up?", take action.And remember, if you need help finding the best rate, try Jerry. If you want to save money on car insurance, the Jerry app is a good place to start. A licensed broker, Jerry does all the hard work of finding the cheapest quotes from the top name-brand insurance companies and buying new car insurance. Jerry will even help you cancel your old policy.And to ensure you always have the lowest rate, Jerry will send you new quotes every time your policy comes up for renewal, so you’re always getting the coverage you want at the best price.

Is it possible to avoid increased insurance costs?

Bracing for a rate increase may seem stressful, but having the knowledge that your auto premium could go up can help you prepare and act quickly.

  1. Review your current policy: The first step in prepping for a premium change is understanding your current insurance policy. Reviewing your policy and knowing your coverage types, limits, discounts and premium can help you learn about your policy. If you aren’t sure how to analyze your policy, you might want to talk to an agent. Be on the lookout for your policy’s effective dates and see if your next renewal is available. If so, check the premium on that policy to see how your rate will be affected in 2022.
  2. Shop for a new carrier: Friedlander says that “comparison shopping is essential to obtain the best cost for the amount of coverage that fits your needs.” If you get your policy renewal and see that your premium has increased, you may want to first contact your car insurance company to see if you might be able to adjust your policy or add extra discounts to lower rates. For example, if you’re still driving less in 2022 than you were in previous years, could you earn an annual mileage discount? If you can’t offset your premium increase, you might want to shop around. While most car insurance companies sell the same types of coverage, each company also has its own underwriting rules, discounts, rating algorithm and policy features. Getting quotes from a few carriers might help you find a lower rate and a policy that fits your needs. You may even earn an early shopper discount if you switch in advance of your next renewal.
  3. Take advantage of discounts: Discounts can be one of the easiest ways to lower your premium. Reviewing your current discounts might help you identify areas where you could save. If you’re shopping for new coverage, you could look for a company that has several discounts that might be available to you.
  4. Check your other policies: Don’t forget about any other insurance policies you might have. Bundling your major policies, such as home and auto, with one carrier could potentially help you save money on both. Even if you can’t offset your auto insurance increase, you may be able to find savings on your homeowners insurance or renters insurance policy. Reviewing your entire insurance portfolio is a good way to make sure you are properly insured but not overpaying for coverage.

Adding a younger driver to your car insurance plan

While adding a driver does not always result in increased premiums, adding a younger teen driver will cause an increase in your car insurance premiums. This is because younger drivers are more likely to cause an accident. They simply don't have the years of experience on the road that older drivers do.Younger drivers do not start to get more favorable rates until they hit the age of 25, though some companies start offering lower rates to young women when they turn 21. Some other options to decrease costs for younger drivers on your policy include "good student discounts," which usually offer a 10 to 15 percent decrease, and "safe driver discounts" for younger drivers who take an approved defensive driving course.MORE: The top 10 cheapest cars to insure

10. Insurance fraud

You may have never told so much as a white lie to your auto insurance company. But other people’s lies, both large and small, may be adding to your premium rate.Insurance fraud comprises a range of behaviors, which can be seemingly minor (inflating the damages for an accident that did occur) or extreme (completely fabricating or staging an accident).

According to Verisk Analytics, automotive insurers lose $29 billion per year in ‘premium leakage’ – missing or erroneous underwriting information that undermines their rating plans. This adds to insurers’ costs and since they want to remain profitable, this can lead to you paying more for your policy. 

At-fault Accident

An at-fault accident is another primary cause of increased insurance premium costs. What this means is that you’re the one squarely responsible for causing the accident. If you file a claim after an at-fault accident, you’ll likely pay more. Luckily, some insurance service providers allow their customers to make small payouts without an increase. And again, purchasing accident forgiveness will come in handy here.

What determines car insurance rates?

Car insurance rates are based on a number of factors not directly related to your policy, including your location, age, gender, and marital status. Data about how often people in these different demographics have accidents will influence your rates. In terms of direct factors, your type of vehicle, coverage limits, deductibles, driving, and claims history all play roles. Your insurance carrier may also discount your rates if you purchase multiple types of coverage.

Why are auto insurance rates increasing?

Car insurance rates are calculated based on a number of underlying factors. Individually, your age (in all states except Hawaii and Massachusetts), gender (in most states), driving history, vehicle type and coverage choices impact your premium. Additionally, broader factors also impact rates, such as if states pass revised insurance laws, the likelihood of claims occurring in certain areas or if vehicle repair costs increase.

Inflation

Perhaps the biggest driver of higher 2022 car insurance premiums is inflation. Between December 2020 and December 2021, the Consumer Price Index (CPI) rose 7.0%. This means that, on average, we are spending 7.0% more than we were a year ago for the same goods and services.

Inflation pounded the new and used vehicle markets in 2021. The price for new cars and trucks rose by 11.8% between December 2020 and December 2021, while the used car and truck market saw a staggering 37.3% increase. Vehicles are also much more complex than they used to be, which adds to the overall cost of ownership. Even small accidents can cause hundreds or thousands of dollars worth of damage to delicate electronics that require specialized repairs.

Vehicle costs aren’t the only thing struck by inflation. The cost of healthcare is also on the rise. The Centers for Medicare & Medicaid Services reports that healthcare spending increased 9.7% in 2020, the most recent year with available data. This means that when someone is injured in a car accident, the resulting medical costs are greater than what they were in previous years.

Because car insurance is designed to pay for the costs after an accident — including both property damage and medical costs — anything that raises these costs is likely to raise rates. Insurers need to make sure they have enough funds to pay claims, so when inflation hits, car insurance rates are affected.

Supply chain disruptions

The last few years have created a perfect storm to disrupt supply chains. COVID-19 shutdowns caused decreasing demand in certain industries in 2020. With fewer people on the road and cars generally getting less use, there was a decrease in the need for vehicle parts. Then, an ice storm in February 2021 knocked out plants and factories across the South, the Suez Canal was blocked for six days in March 2021 and people began to return to a more normal level of driving, which caused increased demand but decreased supply. The auto industry has been one of the hardest-hit sectors. “Parts are more expensive, labor is more expensive and repair costs overall are more expensive,” Ellis says.

Perhaps the most evident of these vehicle-related supply chain disruptions was the difficulty in obtaining semiconductors. Semiconductors, often called “chips,” are used in a wide array of vehicle applications, including driver assistance systems, entertainment systems and electronic mechanisms. In December 2021, over 50 business leaders — including executives from American Honda Company, Ford Motor Company, General Motors and Toyota Motor North America — sent a letter to Congress urging the governing bodies to encourage the U.S. to create its own semiconductor research, design and production methods, to increase the supply of semiconductors and available jobs.

Labor shortages

Along with supply chain issues making parts harder to find, labor shortages have made skilled workers harder to find as well. The Bureau of Labor Statistics reports that unemployment is at 3.9% as of December 2021 — sharply down from the April 2020 peak of 14.7%, but not yet back to pre-pandemic levels of 3.5%. The “Great Resignation” has also pushed workers to reconsider their career paths, with many labor shortages caused not by unemployment but by workers switching jobs.

Fewer workers can contribute to rising insurance costs. When fewer people do any given job, including vehicle repair and healthcare jobs, pay rates often increase as an incentive. For example, perhaps a mechanic used to repair bumpers for $100. Now, that same mechanic is working longer days and taking less time off to make up for a reduced workforce. To compensate, the mechanic now charges $300 to cover the same repair. Because the repair costs more, insurance companies may increase rates to prepare for higher claims expenses.

Changing driving habits

As we hunkered down at the start of the COVID-19 pandemic in early 2020, the country saw an unprecedented reduction in driving levels. Many households stopped commuting to work, school and activities. Streets were quieter and accidents were fewer. As a result, many insurance companies refunded some premiums to policyholders.

However, Friedlander points out that

“In 2021, we saw a return to pre-pandemic driving patterns which led to a significant increase in auto insurance claims and accident severity. In fact, the National Highway Traffic Safety Administration reported an 18.4% increase in fatal crashes during the first six months of 2021 compared to the first six months of 2020 — the highest percentage increase on record.”

This pendulum swing of driving habits may mean insurance carriers need to rebuild their claim reserves — the money set aside and earmarked for paying losses — which could mean higher premiums.

8. Rising medical costs

Since people are driving more and more, accidents are on the rise. This causes an increase in how much is paid out by insurance companies for each claim. Rising medical costs is the reason for the steep hike in price for cost per claim, which translates to higher auto insurance premiums.

Health care costs are climbing. National health spending is projected to rise at an average annual rate of 5.5 percent from 2017 to 2026, according to the Centers for Medicare and Medicaid Services. Spending will reach $5.7 trillion by that time.

Insurance payouts for bodily injury claims grew 6 percent between 2012 and 2017. That’s roughly double the rate of medical inflation.

When auto companies have to pay out progressively larger medical costs following at-fault accidents caused by their policyholders, the whole pool of policyholders – even those who have never been at fault – may be affected. 

The Less Obvious Reason for Annual Increases

Now let’s consider some of the not-so-obvious reasons for a price increase.  These may include one or more of the following factors: the gradual or sudden reduction of what are sometimes called “new business” or “disappearing” discounts; rate level changes; or specific rating factor changes. 

Rate Level Changes

Another very common reason for a premium increase comes in the form of what is called a rate level increase. Rate level increases come about when an insurance company finds that their overall rates are too low given the expenses (losses) incurred from recent claims that have been submitted, and on trends in the industry towards more expensive repair and medical costs. Repairs and medical costs are almost always on the rise, so overall rate decreases are a very rare occurrence. Chances are that if your rates have gone up every year, and none of the above reasons seem to apply, your annual increases are coming from a general rate level increase. 

Having a Claims History

As far as insurers are concerned, a history of claims increases the odds that you’ll make another one. Home insurers, for example, share information about claims from the last seven years through the Comprehensive Loss Underwriting Exchange (CLUE), which can boost your premiums even if you weren’t the homeowner who made the claims. Car insurance claims are also registered by CLUE, and your rates may increase if you’ve made a lot of claims – even if you weren’t at fault – because you pose a higher risk, statistically speaking. 

More Drivers on The Road

The most evident reason why more accidents are happening is due to people driving more. This can be because of low gas prices, economic growth, or even urban sprawl. Insurance experts around the world also claim that people are driving more miles thanks to the improving economies. Even those who are unemployed can comfortably drive now. In short, more driving can mean more accidents and more rates across the board.

Tags