Dr. Phillips: 407-855-1000

Blog

Why Is Car Insurance So Expensive?

Why Is Car Insurance So Expensive?

It’s been years since you’ve been in a car accident or filed a claim…

…So why is car insurance so expensive?

 

You just received another letter from your insurance company notifying you that your car insurance rates will be increasing this year.

“Why is car insurance so expensive?!” you scream in frustration. “I didn’t even have any claims!”

Unfortunately for car owners, this is an common occurrence…and it doesn’t look like it will stop anytime soon.

Florida is already the third most expensive state for auto insurance, which makes any premium increases even harder to swallow. But—whether you like it or not—there is a good reason why car insurance is so expensive.

In fact, there are several.

 

1. More Claims

The way insurance works is pretty simple: policyholders like you pay premiums to insurance companies commensurate with their individually determined level of risk. The insurance company then uses this money to reimburse covered claims. The more claims an insurance carrier pays out, the more it must take in to replenish its “risk pool.”

Yet, despite increasing rates, insurance underwriters are consistently reporting profit losses.

Hurricanes like Irma and Harvey and California wildfires cause devastating losses for car owners, while an increase in distracted driving accidents increase claims nationwide.

The National Association of Insurance Commissioners (NAIC) has reported steadily increasing auto insurance claims over the last several years. But even as claims increase, insurance companies aren’t always able to increase rates proportionately.

In most states, premium increases need to be reviewed and approved by the local Dept. of Insurance. By the time the rate increase goes into effect, claims have often increased again. It’s a constant cycle.

 

2. Fraud

man in suit crossing fingers behind his back

An increase in claims leads to an increase in premiums, but not every car insurance claim is legit.

Car owners have been known to exaggerate, withhold information, and outright lie in efforts to reduce their insurance costs and/or increase their claim payouts.

Unfortunately, it all falls back on upstanding policyholders like you.

If the insurance company never catches on to the con artists (and they frequently don’t), that’s just an incentive to try it again and get more money. To the tricksters, it seems like their little scheme is paying off. But it only ends up raising premiums…for everyone.

This is one of the many reasons to keep your claims completely honest.

 

3. More Tech

That Lane Assist technology you just had to have might be helpful for alerting you to dangers on the road, but it comes at a high price (and not just at the dealership!).

Cars are made with increasingly advanced technology, making them more expensive to repair when you do have an accident.

A decade ago, it was fairly simple to replace your rear bumper after a fender bender. But after May of 2018, all new vehicles are now required to have backup cameras, which makes those repairs a lot more expensive.

While better technology can do a lot toward preventing accidents, it will be a long time before we see collisions and claims eliminated completely. In the meantime, those claims are going to cost you a pretty penny.

 

4. Traffic Violations

It’s common knowledge in the insurance industry that physical damage to your vehicle is only one factor in determining your level of risk as a driver.

Traffic violations—even minor ones, such as speeding or tailgating—can affect your insurance costs if they end up on your permanent record.

police officer writing ticket behind woman in parked car

Unlike your home, your car is designed to move at high speeds and in close proximity to other fast-moving vehicles. This makes your car a lot more risky than your home. And greater risk means (say it with me, kids!) higher premiums!

Luckily, fixing this issue is typically within your control: follow the traffic laws. And if you do receive a ticket, try to fight it in court to take the incident off of your driving record.

 

5. Policy Changes

Accidents aren’t the only reason why car insurance is so expensive.

Insurance companies look at several different (and differing) factors to determine what your insurance rates are. Some of these factors are things you can control, such as the type of car you drive, how safely you drive it, or your credit score.

But some of these factors are completely outside of your control.

You could buy the “safest” car on the market and take every defensive driving course on offer, but something as simple as moving from a rural to an urban area can cause your car insurance to go up, even if nothing else changed.

 

Beware of Cheap Car Insurance!

Many people base their insurance decisions on one thing and one thing only: price.

Unfortunately, these people are usually let down as soon as they need to file a claim. Because whether you’re looking at life insurance, business insurance, or auto insurance, you usually get what you pay for.

Odds are, if you find a dirt-cheap insurance policy (we’re talking waaaaaay lower than the other insurance quotes you received), that lower premium is going to come with lower insurance coverage, worse customer service, and more restrictions.

So, while rate hikes aren’t necessarily something to be excited about, they’re much better than the alternative.

 

Here’s the Good News

Luckily, you don’t have to throw up your hands and give in to expensive auto insurance costs. You can shop around for a better car insurance premium.

Insurance carriers look at different factors when determining your rates. (This is why Farmers and Nationwide will come back with two completely different quotes for the same level of coverage.)

When you look at lots of different insurance carriers, you can compare quotes and find a way to save money while still getting great coverage. And the best way to gather all these quotes is by using an independent insurance agent.

If it’s been a while since you’ve shopped for car insurance, call Harry Levine Insurance for an updated quote.

 

 

Editor’s Note: This article was originally published in 2019 and has been updated for accuracy and comprehensiveness.

About the Author

Jason Levine

Jason received a Masters of Science & Management in Risk Management & Insurance from Florida State University. He has been with Harry Levine Insurance for 9 years and handles the leadership of daily operations. He was the 2013-2014 Florida Association of Insurance Agents Young Agent Council's Agent of the Year. Currently serves on FAIA Board of Directors.

Leave a Reply