Why Does My Auto Insurance Premium Go Up Each Year?!

July 28, 2015

Like all drivers in the state of California, you have an auto insurance policy in place that covers your liability while cruising around town or taking a road trip to the mountains. Well, at least you should have one in place, and there are numerous reasons why.


Operating A Motor Vehicle Is One Of Your Largest Liability Exposures


First off, California State Law requires that all vehicles used to drive on public roadways are insured. Secondly, operating a motor vehicle is one of the largest liability exposures that any person has. A single at-fault accident can cost thousands of dollars or even hundreds of thousands of dollars if bodily injury is involved.


As a California driver who carries Personal Auto Insurance Coverage, you have certainly experienced the joy of paying a monthly premium. You pay for your six-month policy period only to begin the process again at the renewal. As a silver lining, you have probably thought to yourself, “Hey, I’ve been doing a really good job of driving the past year. I stayed out of accidents and didn’t get a single ticket. At least my auto insurance premium will go down at renewal.”


About a month or so before your auto policy renews you receive an envelope in the mail from your insurance carrier. Feeling confident you are about to receive some good news you tear open the envelope. After ripping through several pages to the premium summary, you are stunned. You had a perfect driving record for the past year, your auto insurance premium has increased!


One of the most common questions an insurance agent will receive each day is, “Why did my auto insurance premium increase? I have had a perfect driving record.” The truth is there are many factors that could be affecting the premium at your renewal. In many cases, the change in premium is the result of a rate increase by your insurance carrier. No matter what insurance carrier handles your auto insurance, you will see an increase in rates at some point in time.


Auto Insurance Companies are constantly adjusting their rates to compensate for increases in the cost of insuring vehicles. If an insurance company wants to remain profitable and offer the high level of service expected by consumers, it must increase rates periodically to compensate for the increased cost of doing business.


One of the main reasons that rates are consistently on the rise in the state of California is the increasing rate of litigation. In California, litigation is as common as it has ever been. Even after minor accidents, the at-fault party is regularly sued for bodily injury. Even if the at-fault party did not cause an injury and the other party claimed to be hurt, there are additional expenses involved in fully adjusting the claim. Paired with the increase in litigation, is the increased cost of medical services. As medical services become more and more expensive, so do auto insurance premiums.


The Average Cost of a New Vehicle Has More Than Doubled Since 1993.


Another reason for a rate increase is the increased cost to repair and replace vehicles. Since 1993, the average cost of a new vehicle has skyrocketed from $12,750 to $31,252. This means that in 1992 an insurance company could replace two new cars that had been totaled for the same amount of money it costs to replace one new car today. Even repairing a small scratch on your bumper can cost an insurance company hundreds of dollars. A 3-inch scratch can cost upwards of $300 to repair. Clearly, the increases in premium that are made by insurance companies are necessary to keep up with the increased costs of transacting business.


Auto Insurance Fraud Is Costing You Hundreds Each Year


Another reason for the increase in premiums is the massive amount of auto insurance fraud that is committed each year. Auto Insurance Fraud ranges from staged accidents to hiring a criminal to torch a car so that a claim payment can be collected from the insurance company. The National Insurance Crime Bureau estimates that Auto Insurance Fraud adds $200-$300 a year to each individual auto insurance policy.

The next time you receive a rate increase from your auto insurance carrier you will understand that there are many factors involved in the increase. The insurance company is not trying to take you for every cent that they can. They are simply trying to maintain the level of service that you expect and need, while providing protection for one of your largest liability exposures.



If you have any questions regarding a rate increase you have received or would like to discuss insuring your vehicle or vehicles, give us a call.

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