Driving the Cost of Auto Insurance

What You Should Know About: 

What drives the cost of your auto insurance

There’s a LOT that goes into the price you pay for auto insurance

Three things you should know:

  1. Much of the price we pay for auto insurance reflects the cost to repair or replace damaged vehicles, to treat the injuries of accident victims and to defend policyholders against lawsuits.
  2. Your actions as a policyholder can affect what you pay for auto insurance.
  3. Increases in distracted and drugged/drunk driving, lawsuits and fraud/theft all contribute to increasing the price we all pay for auto insurance.

Wondering why insurance for your car, truck, motorcycle or RV costs what it does even though you’re a good driver and have never had an accident or ticket? Insurance companies are concerned, too, because the price of car insurance is higher than we all would like it to be. 

Whether they’re owned by stockholders (“stock companies”), private owners (“privately-held companies”) or their policyholders (“mutual companies”), insurers are nearly always for-profit businesses. So, when insurance companies pay out more claims than they generate in premiums, they increase rates to (1) make sure they have money to pay out current and future claims, and (2) continue to operate at a reasonable profit. 

Companies that fail to charge enough premium may enjoy a short-lived advantage over their higher-priced competitors but are only one large-scale loss away from becoming insolvent. That’s why state insurance laws require rates to be “not excessive, inadequate or unfairly discriminatory.”

A few of the main factors that affect the cost of your auto insurance policy include:

Claims costs, or payments made to treat injuries, repair/replace damaged vehicles and property and defend insured drivers in legal actions. While individual companies weigh rating factors differently, claims costs are typically reflected in premiums paid by customers. 

Your actions and behaviors. Adding a teenage driver to your policy, for example, or adding another vehicle will increase the amount you pay for auto insurance. If you drop a vehicle or driver from your policy, then your premium will be less. Driving in an unsafe manner, such as drugged/drunk driving or distracted driving, that leads to traffic citations or accidents on your driving record will likely increase the cost of your Auto Insurance as well. 

Yes…your credit history. Nearly all home and auto insurers today – like most lenders, landlords and employers – look at your credit history as part of the underwriting and rating process. Regardless of your income level (which insurers do NOT ask about), how you manage your finances is one statistically accurate way to measure your personal responsibility. The good news is, national studies have shown that most people benefit from insurers’ use of credit information, as it helps reduce their premiums!

More accidents and larger claims. According to the Insurance Information Institute, the vehicle crash rate and the size of insurance claims has climbed dramatically the past two years. Increases in distracted driving (mostly due to mobile phone use), driving under the influence of marijuana, more drivers on the road because of our growing economy and more expensive cars all contribute to rising rates.

Auto theft and insurance fraud. When people try to cheat the claims process it costs insurance companies a great deal of money and, as a result, contributes to rate increases. It’s estimated that 10 percent or more of property-casualty insurance claims may be fraudulent, according to the National Insurance Crime Bureau (NICB), which adds up to billions of dollars in fraudulent claims every year. Also, vehicle theft is the nation’s number-one property crime. An average of 104 vehicles are stolen in the United States each day. And in some cases, auto theft can become a form of insurance fraud when criminals stage auto accidents or arrange to have their own vehicle stolen so they can file an insurance claim for their “loss.”

Auto Insurance: Does High Tech Mean Higher Costs? 

What insurance companies are doing to help. 

  • The insurance industry supports tough drunk/drugged and distracted driving laws. For example, insurance companies and agents supported and helped promote new distracted driving laws recently passed in Washington and Oregon that impose much stricter fines and consequences, and we support similar changes to the laws in Idaho.
  • Many insurance companies have special investigative units (SIU) that look closely into suspicious claims and work closely with law enforcement agencies and other groups like the National Insurance Crime Bureau (NICB) to investigate and prosecute fraudsters.

What you can do to help reduce auto insurance rates (for you and for everyone):

  • If you plan to drive, don’t drink or use drugs. Help support tougher drunk/drugged and distracted driving laws.
  • Always wear your seatbelt and insist that others wear them, too. Purchase a vehicle with airbags and make sure children are properly restrained while you’re driving.
  • Help prevent auto theft. Always lock your care and take your keys, never leave your car running unattended and install anti-theft devices in our vehicle.
  • Manage your credit responsibly and check your credit information with the rating bureaus at least once each year to make sure they are accurately reporting your credit history. If you’re not sure of the impact your credit score has on your policy, ask your insurance company or agent for more information.
  • Remember, inflating or padding an insurance claim is fraud. And if you suspect insurance fraud, call (800) TEL-NICB to report it.

Additional Resources:
Insurance Information Institute
National Insurance Crime Bureau