Why Auto Insurance Rates Increase
Why Do Auto Insurance Rates Increase Over Time, Despite No Accidents or Violations? (Click here for more information.)
Several factors responsible for higher auto insurance rates actually have nothing to do with your individual driving record, or the age of your car. Learn what affects your Frisco TX car insurance rates most.
Have you had your auto insurance rates increase even though you have a clean driving record? Until you understand the basic principles of insurance, this can be frustrating, but it is bound to happen when the economy functions the way it does.
You may not think about it, but if you change cars, especially if you replace an older car for a newer one, your rates most likely will increase. Even though everything about you is the same, a new car costs more to repair and replace than an older vehicle. If you have a new car with a loan, then you are required to have complete comprehensive and collision coverage on the vehicle. If you had only liability coverage on an older car, then the increase between liability and additional insurance coverage can be shocking.
Covering the Risk
High-powered statisticians called actuaries set insurance rates. Actuaries crunch lots of data about accidents, drivers, road conditions in states, tickets, types of cars, color of cars, ages of drivers and many other factors you may not even consider as having an impact on insurance rates. But the actuaries figure out how much each of these factors affects the cost of insuring a car.
If the costs to cover claims for your particular age group, gender or area of the country go up, then your rates will go up. This applies even if you weren’t a contributor to the higher rates—if your driving record was completely clean, you never speed and you drive only a few miles a day. Still, your rates will go up if the driving cost of claims for your overall demographic goes up. That’s how insurance actuaries cover the risks. Very much like health insurance rates are calculated. Have you ever noticed that your health insurance rates go up every year, even if you did not go to the doctor? The same principles of setting rates for auto insurance apply to health insurance.
Part of the cost of auto insurance covers medical expenses for you and/or those you may injure in an accident. As the cost of health care increases every year and resources become scarcer, then the cost of auto insurance must also go up. The increased costs of health care have to be absorbed into the policies so that the health benefits can be paid. When someone is injured due to an auto accident, the insurance policy for the person responsible can end up paying out several thousands of dollars in hospital bills. If someone is killed, then the claims costs can be much higher.
Much of the cost of automobile insurance is linked to the costs parts and labor for car repairs. If you have had occasion to get an estimate or a repair done on the body of your car especially, then you know that even a very simple body repair is extremely expensive. A simple, 3-inch scratch on the door of a car can cost more than $500 to repair, while additional damage will cost even more. These rising auto repair costs must be absorbed into the premiums, so this also causes a rise in rates.
Often those involved in a car accident sue the person who was at fault and sue the insurance company to get further benefits. Even if the suit is frivolous, it still costs money to defend a lawsuit. The intent of the insurance company is to pay exactly what is owed, nothing more and nothing less: However, many times someone retains an attorney, and a lawsuit is filed. In these cases the insurance company’s legal fees begin to rise. This means the cost of doing business rises for everyone, resulting in an increased rate.
Unfortunately, as the underlying cost of claims increases over time, so must the cost of insurance, even if you are a great driver and never have an accident. While it may not seem fair, it is the only way to keep insurance products affordable and to keep prices average for everyone.