Why are car insurance rates going up?

Car insurance rates rising has been a growing concern in recent years, leaving many drivers confused, frustrated and facing some difficult decisions. Understanding the reasons behind these rising rates can go a long way toward helping resolve some of that confusion and frustration. While you may not be able to reduce your car insurance rates, you’ll be better positioned to talk to your insurance company and make decisions to mitigate the impact on your budget.

Factors affecting car insurance rates

Increased frequency and severity of accidents

One significant factor contributing to the rise in the cost of car insurance is the increased frequency and severity of accidents on the roads in recent years. Several factors contribute to this, including the prevalence of distracted driving, deteriorating road conditions and other behavioral and environmental factors that increase the risk of accidents.

Rising repair costs

Another key driver of rising car insurance rates is the escalating costs of vehicle repairs. Advanced vehicle technology can improve vehicle safety and performance, but that comes at a cost. Repair expenses for sophisticated safety features and intricate electronic components are a large driver for these rate increases. Just think: rear backup cameras, lane assist technology, and, essentially, computers in dashboards are still relatively new features that now have to be factored into possible repair costs.

Higher medical costs

Escalating medical expenses following accidents also play a significant role in driving up car insurance rates. Injuries sustained in car accidents may require extensive medical treatment, rehabilitation and often even ongoing care – all of which come with hefty price tags.

Fraudulent claims

Insurance fraud represents another contributing factor to the rise in car insurance rates. Fraudulent claims, whether staged accidents, exaggerated injuries or falsified documentation, can lead to significant financial losses for insurance companies. These losses are ultimately passed on to policyholders in the form of higher premiums.

Regulatory and legislative factors

State regulations

Driver and insurance requirements vary by a driver’s state of residence. These variations include minimum coverage requirements, rate-setting mechanisms and permissible rating factors. These regulations are designed to protect consumers and create fair and competitive insurance markets. However, regulatory changes at the state level can have a direct impact on insurance premiums. As an example, an increase in required coverage limits or changes to rating criteria may result in higher premiums for policyholders. It’s not always bad, though. Regulatory reforms aimed at promoting competition or reducing administrative burdens may lead to lower insurance rates. By staying informed about regulatory changes and their potential implications, consumers can better anticipate and manage fluctuations in insurance premiums.

Legal environment

Legal trends, including tort reform, changes to liability laws and recent court rulings, can directly impact insurance costs for both insurers and policyholders. Reform measures aim to reduce litigation costs and reduce the risk of excessive jury awards. These reforms can lead to more predictable insurance costs for insurers, resulting in more stable premiums for policyholders. On the other hand, changes to liability laws can influence insurance rates by leading to an increase in coverage required by law or by carrier.

Effects of climate change

Increased natural disasters

The effects of climate change have become increasingly evident in recent years, with a rise in the frequency and severity of natural disasters. Weather-related incidents, including hurricanes, wildfires, floods and tornadoes are occurring with greater frequency and intensity, resulting in widespread damage and significant financial losses.

More natural disasters mean more claims. And the greater severity of these disasters means that each claim is likely to be more extensive and expensive than in the past. Insurance companies account for the heightened exposure when writing policies.

Changes in risk assessment

Insurance companies use risk assessment techniques to evaluate risks. These assessments involve analyzing a wide range of factors, including historical weather patterns, geographic location, property characteristics and climate projections. With advancements in technology and data analytics, these risk assessments more accurately predict and assess – and account for – the potential impact of weather-related events than ever before.

Technological advancements in the industry

Telematics and usage-based insurance

Telematics technology, which involves the use of in-car devices or smartphone apps to collect and transmit data on driving behavior, has revolutionized the insurance industry. With telematics, insurers can gather real-time information on factors such as vehicle speed, acceleration, braking and mileage. This means that your insurance company can better assess your personal risk level – and offer you lower car insurance rates to match.

AI and data analytics

Insurance companies are beginning to use AI algorithms and predictive analytics to identify patterns, trends and correlations that traditional methods may overlook. AI-driven pricing models leverage machine learning algorithms to identify risk factors and predict claim probabilities more accurately.

Impact on consumers

Affordability challenges

As car insurance rates continue to climb, many drivers struggle to afford the necessary coverage to protect themselves and their vehicles. The rising cost of insurance premiums is forcing policyholders to make difficult decisions about budget items like housing, groceries and healthcare. Alternatively, others are reducing their coverage levels or opting for higher deductibles, which leaves them financially vulnerable in the event of an accident.

Market competition

Competition influences pricing, coverage options and customer service standards. In a competitive market, insurers vie for customers' business by offering competitive rates, innovative products and superior service experiences. This competition is great for consumers – offering them better rates and products with improved transparency and service. However, there needs to be a balance between what is good for policyholders and what is good for insurance companies so that insurers remain financially able to pay out claims promptly.

Future trends and predictions

These rate increases are expected to continue for the foreseeable future. Led by economic trends, including inflation, costs associated with vehicle repair and medical treatment rise, and so insurance premiums follow suit to have the money available to pay claims. New vehicles come with advanced technology designed to reduce accident risk, and risk of injury in an inevitable accident. Unfortunately, the replacement cost for this technology is quite high. That increased replacement cost for new technology is built into premiums, which can offset premium reductions due to lower accident risks.

Another contributing factor is the weather. While car insurance rates have been rising due to weather for some time, the weather is getting worse and it’s happening faster. As a result, insurance premiums impacted by these weather events are rising faster.

Even if you can easily absorb your increased insurance rates into your budget, you’re likely to be impacted because of other drivers. Affordability challenges may lead to increased rates of underinsurance or uninsured motorists, making your expenses post-accident go up (and making auto insurance add-ons increasingly important).

Potential mitigation strategies

Drivers can advocate for themselves and their personal insurance rates. Some potential opportunities include:

• Telematics – Talk to your insurance company about adding a telematics program to your policy, as these work as a discount program. Your driving behavior can not lead to higher rates. The worst-case scenario is that your insurance rate is unchanged.
• Discounts – Reach out to your insurance company and see what discounts you might qualify for. Your teen drivers report card, or your age might get you some savings.
• Brokerages – An insurance brokerage like VIU by HUB can help you find the best options for your unique circumstances – and even work with you to be sure that policy remains the right choice for you as your life evolves.

The challenges facing insurance shoppers may seem insurmountable, but there are ways for drivers to make things a little easier. Shopping around for better rates, using technology like telematics and staying informed about market changes all help to mitigate – or at least predict – premium changes. Nothing will go further than working with VIU by HUB, though. We offer unbiased guidance and access to various insurance options. Our advisors help you make confident decisions about your auto insurance. Whether you're trying to understand why rates are rising or find ways to afford coverage, VIU by HUB is here to assist. Our neutral advice can help you navigate the complex insurance world and find your best coverage at competitive rates.