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5 reasons your car insurance rates may be rising

Published by Business Insider on Fri, 21 Feb 2020

Car insurance premiums are on the rise in many US states.There are a number of things that can factor into the price change you see on your car insurance quote when you renew your policy, from new state laws to natural disasters.Oftentimes, these increases are caused by factors beyond insurance companies' control. Today, increasing costs of medical care and rising car repair prices are driving rate increases.See Business Insider's picks for the best affordable car insurance companies Car insurance pricing is elusive ' there's no publicly available formula for the way a car insurance company calculates your premium, and each company does it differently. It can feel sometimes like premiums are arbitrary, especially when you see an increase in the amount you pay every month.While sometimes price changes can be caused by something as simple as an adjustment to the company's underwriting policy, they might be in reaction to factors beyond an insurance company's control. Everything from a natural disaster to a sudden change in state law could spell increased costs for insurance companies, and eventually, increased costs for drivers, too.It's worth noting that insurance companies are regulated by state agencies, and in order to change premiums, each car insurance company has to go through approvals and regulatory processes. That change could be slow ' it may take insurance companies months to get their changes approved and on drivers' quotes.While you may be notified about rate changes, you may not be ' each state has different laws on when consumers need to be notified of rate changes before renewing their policies, if at all. Some states require no notice, while others only require notices for rate changes over a certain percentage.1. State lawsCar insurance companies have to comply with state laws. When laws change, insurance rates can, too.Michigan has one of the most stark examples of just how much laws affect premiums. A 1973 law required all drivers in the state to have personal injury protection coverage with no limit as a part of their auto insurance policy. Generally, each type of coverage listed in a policy has a limit that it will cover, generally $25,000, $50,000, or $100,000. In Michigan, however, this coverage, also called PIP, must have no limit to meet the state's minimum coverage.That's made car insurance in this state incredibly expensive ' the Insurance Information Institute ranks it as the fourth-most expensive state in the US for car insurance.State laws, like Michigan's PIP law, have a big impact on the premium you see listed on your quote. Often, these changes come without warning. If there's been a change to laws in your state, it could be behind your rising car insurance premium.2. Insurance companies change the way they assess your riskInsurance companies go through a process called underwriting for every person they insure. Underwriting looks at the likelihood that you'll file a claim and incur a loss. Along with a few other factors, car insurance companies price your policy based on this likelihood.But that process is constantly changing. Insurance companies sometimes use new technology in their underwriting process, changing the way an insurance company looks at you and the risk you pose. Additionally, when car insurance companies are paying for more accidents, they're spending more money. To recoup those costs, each drivers' cost of coverage rises.Car insurance companies are constantly changing the way they look at risk and at the drivers they insure, so you might find that the formula isn't in your favor the way it used to be. In this case, shopping around could help you find a company that's more affordable for your history and circumstances./* Business Insider / Auto Insurance Content Pages */var MediaAlphaExchange = {"data": {"zip": "auto"},"placement_id": "RxLRBKtcQejwbKRhebUT0f87Cp5b7w","sub_1": "why-car-insurance-rates-rise-increase","type": "ad_unit","ua_class": "auto","version": 17};3. Natural disasters can raise ratesAfter Hurricane Harvey hit Houston, Texas, about half a million auto insurance claims were filed, according to the New York Times. The Texas Department of Insurance estimated that car insurance companies faced $2.7 billion in losses. Car insurance costs went up, with Texas indicating hikes of about 8%.From California wildfires to East Coast hurricane activity, premiums can see spikes after natural disasters. Where there's widespread damage, there will also be an increase in insurance claims. More insurance claims mean greater costs for the insurance companies, and that money has to be made back somehow. Generally, that's in the form of rate increases for drivers.4. The cost of medical care drives auto insurance increasesThe car isn't the only thing covered by car insurance ' passengers and drivers are, too. Medical care is a big part of car insurance coverage. As the cost of medical care is rising, car insurance rates have to adapt to include this expense.Between 2008 and 2017, nonprofit research group Health Care Cost Institute estimates that the cost of an emergency room visit had increased by 176%. Similarly, from November 2006 to November 2016, the US Bureau of Labor Statistics reports that car insurance prices have increased by 50%.With costs of healthcare on the rise, car insurance companies are struggling to keep up with the increasing costs of care. Raising rates is one way they keep the costs at bay.5. Car parts are getting more expensive, and cars are becoming more complicatedThe safety features designed to keep drivers out of accidents are actually costing insurance companies more. As automotive technology becomes increasingly complex, the costs of fixing vehicles, or purchasing new vehicles after a loss, are on the rise.While a fender bender used to mean a simple dent repair at the body shop, it can now involve detailed work like repairing delicate sensors. As cars become more complicated and expensive to repair, car insurance rates are climbing steadily as well.Totaled cars are also more common. Tim Zawacki reports for S&P Global's Market Intelligence, "With the cost of auto parts rising at a faster rate than car prices, companies have observed incremental increases in claims where the vehicle is deemed to be a total loss." As more cars are totaled and car prices rise due to increasing tech features, car insurance companies are funneling more money towards replacing cars than in the past.What's the best way to avoid rising auto insurance rates'It's important to remember that car insurance rates are highly individual ' not everyone's car insurance rate will follow the trend. Car insurance companies have any number of reasons to raise rates on an individual level, and oftentimes, changes to your driving history, credit score, your car itself, and many other factors can play a role.If your auto insurance rate is starting to seem high, it's worth shopping around for coverage. Take an hour to gather quotes from a variety of different auto insurance companies, and compare their offerings. For a starting point, see Business Insider's list of the best car insurance companies of 2020.Look at the coverage types, limits, and the premium to find the best policy for you. You'll want to find the policy with the most types and highest limits of coverage, with a premium that fits your budget.Sometimes, rate hikes are simply unavoidable. But, there still may be companies that price your policy more affordably than your current policy, and it's worth looking around to see if you can beat your price.More personal finance coverage4 reasons to open a high-yield savings account while interest rates are down It took less than 10 minutes to open a high-yield cash account with Wealthfront and earn more on my savingsHow to buy a house with no money down When to save money in high-yield savingsBest rewards credit cards7 reasons you may need life insurance, even if you think you don'tJoin the conversation about this storyNOW WATCH: A 45-year-long study discovered trends in successful hyper-intelligent children
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