I have been getting quite a few calls lately about car insurance rates on the rise. Why are rates going up, even if I am not having accidents?
To start with , you need to understand the function of insurance is to accept the risk from many people to pay for the losses of the few. Personal auto insurance protects car owners from having to personally pay for all the damages they are responsible for, resulting from an auto accident. Consider this recent claim for one of my clients. We began insuring him and his family about 2 years ago. About a year ago he was driving through Santa Fe and rear ended another car. Both cars suffered damage, but three people in the other car had to be taken to the hospital. All 3 spent time in the ER getting tested and fixed up. One was admitted for a couple of nights. Total amount of medical bills and car repairs was close to $70,000. Scary amount for what was a “minor” accident. But his car insurance premium he had paid to the car insurance company that he had been with for one year was less than $1500. Even though he paid his insurance company much less in premiums, the insurance company pays these higher amounts on his behalf based on his policy coverage.
So how does an insurance company determine how much to collect in premium? Insurance companies use complex rating models to help evaluate risk and likelihood for loss. There are a variety of factors specific to your policy that might be used. Most people are aware that your driving record, including any accidents or violations you have, can increase your costs.
But there are many other personal factors that are used to determine rates including:
- Type of vehicle you drive
- Your age and gender
- Where you live
- How many miles you drive
- Your insurance score (credit score)
There are also national factors that affect car insurance rates. As I have stated in previous articles, there has been an alarming increase in crashes and claims reported, nationwide. Claim payments are rising faster than anticipated. As the costs to fix cars, property, and people are on the rise, insurance premiums rise with them.
Also the number of people employed has significantly increased. So when there are more cars and drivers on the road, there is a higher probability for accidents.