Why is my car insurance more expensive to renew?

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life...

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Reviewed byMelanie Musson
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UPDATED: Apr 8, 2020

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Many drivers often open a car insurance renewal notice and receive an unpleasant surprise. Your premium will be ten percent or even twenty percent more for the coming year! How can this happen? After all, your car is worth less this year than last, so it should be cheaper to replace. Further, you have had no accidents or speeding tickets. How can a car insurance company justify raising your rates by so much?

How do car insurance companies calculate risk?

Unfortunately, this is an all-too-common scenario in these days of increasing prices and fewer paying customers. Many long-term customers are finding themselves faced with rate increases which they have done nothing to earn. There are some cases where nothing can be done about the situation; the company simply must increase its rates to stay in business. In other situations, there may be a slightly more devious method being used to calculate your premiums.

Why would my car insurance premiums increase?

There could be several reasons for an increase in premium, assuming nothing has changed in your life or your driving record. First, the company could simply be posting an across-the-board increase to cover rising costs. However, if this is the case, the increase probably will not be very high, as the company should spread that increase across the entirety of its customer base. Most customers would not even notice a “cost of living” increase, as it would only amount to a few dollars. It is often not worth seeking a new insurance company simply to save this small amount.

A change in credit score can also impact your car insurance rates. First, if your company has started using credit ratings to determine premiums costs, you could see a huge increase in your insurance premiums overnight. This is because low credit scores are being used more and more often to determine the price of car insurance. While this may seem unfair, it is a fact that most states allow this practice. The only alternative you have is to try to find a company which does not use credit scores, or clean up your credit.

Assuming you have good credit, you could see a rate increase due to what we might call “the shift.” Some companies raise rates by a certain percentage every year, even for their good drivers. Ultimately, after several years with the company, your premiums may be much higher than when you started with them, even though your car is older and should cost less to insure. The good news is that if a company is engaging in this practice, you are free to seek coverage at another company, and can often persuade your current insurer to lower their prices based on quotes you receive from other companies. Another alternative is to simply find a company which does not “shift” rates yearly.

Probably the most common reason people see rate increases at renewal time, however, has nothing to do with the shift of prices, cost-of-living increases, or changes in their status. Instead, these increases happen because of the high level of competition to gain new insurance customers. A company will try to “bottom line” a new customer in order to get their business. One way to do this is to offer the customer the lowest possible premium rates. However, since the company cannot continue to sustain that price, when renewal time comes, the customer will see a price increase up to what the premium should have been all along. This results in severe “sticker shock” for most customers who thought they were getting a much better deal by going with that particular insurer.

How can I save money and avoid a car insurance rate increase?

If you have had a huge rate increase due to changing companies at a bargain price, there are several things you can do. First, you can shop for new insurance. It is highly likely you will find another insurance company to offer you a bottom-line rate. Unfortunately, this means that you will have to change insurance companies every year or so to keep your rates low.

Another way to keep your premiums down is to talk to your agent and be sure you are qualifying for all available discounts. After a first year lead-in price, you can probably lock in a lower rate by taking full advantage of “customer loyalty” and “multi-line/multi-policy” discounts. Insurance companies not only want to coax your business to their firm; they also want to keep it. By talking with your agent about your rate increase, you may be surprised how much lower your company is willing to go keep you, a good customer.

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