I have a clean driving record, why did my rate go up?

It can be frustrating when you have no tickets and no accidents – yet your Arizona auto insurance premium increases nonetheless. It also causes concern when your vehicle is older yet your premiums go up. There are many reasons why insurance rates increase and we hope to give you a greater understanding.

First, only a portion of your policy covers your vehicle. Although the car may be a year older your auto insurance policy covers “other” people when you are at-fault. Or even though your driving record is clean perhaps there are many other drivers who are not. Your policy can cover glass, towing, road service, medical expenses and other items. These have nothing to do with your vehicle. Let’s take glass coverage, for example. A typical windshield may cost $350 and it is not uncommon in Arizona for people to replace two windshields per year.

If a person pays $600 per six months or $1200 per year in premiums and the insurance company pays $700 in glass claims alone – there is not a lot of wiggle room for additional claims. It is not uncommon for a simple fender bender to require $3000-4000 to fix. It takes a lot of other premiums to help the insurance carrier to recoup their cost.

Here are other considerations:

The Uninsured Motorist

About 16% of all motorists nationally on the road today have NO insurance. Those numbers are reported to be even higher in Arizona due to our proximity to the border. That means insurance carriers are covering claims without collecting any premiums. When an uninsured motorist hits you the insurance carrier will cover your vehicle as long as you have full coverage. You are responsible for your own deductible.

My vehicle is another year older yet my premium increased?

Your vehicle is only one part of your policy. Your auto insurance policy can cover your vehicle for damages if you have full coverage. However, your auto insurance policy also pays for claims not related to your vehicle’s age – medical coverage, towing, glass, uninsured motorist, underinsured motorist, bodily injury and property damage. If you run into another vehicle your policy will pay to repair or replace vehicles you damage. Your policy also pays for injuries you cause to others or damage you cause.

Every claim counts. Most consumers would be better served by carrying a slightly higher deductible – $1000 for example. Carrying small deductibles can actually encourage the filing of claims, which serves to drive rates up. However, some consumers may have difficulty covering the higher deductible if a claim occurred and for budget reasons understandably need to carry lower deductibles.

The Economy & Claims

As evidenced by Hurricane Sandy (east coast storm 2012) the insurance industry needs massive funds set aside in reserve to cover a variety of potential claims, even in the tens of millions or hundreds of millions of dollars. Hurricane Sandy may cost upwards of fifty BILLION dollars, according to the Associated Press.

The economy is another major hurdle that the insurance industry has its eye on. In most years the insurance industry can count on investment earnings to supplement their income and help keep insurance rates in balance.

The investment market in recent years has been tumultuous at best. The insurance industry has not been able to count on investment earnings to retain a competitive position with their pricing. Since they cannot confidently count on investment income they must ensure they are not losing money on their core auto and homeowner insurance business.

Staged Accidents, Car Thefts and Other Claims

Staged accidents are a continuing issue. There are motorists on the road today who fill their vehicle with passengers and purposely cause other vehicles to hit them by slamming on their brakes – even at green lights. When another vehicle hits them the other occupants all seek damages. Don’t believe this is true? The author of this article has seen it happen.

Thefts are also a big issue in Arizona. Stolen vehicles are often taken south of the border and sold. A vehicle is stolen every 44 seconds in the United States. That means about 1 million vehicles are stolen every year. Who pays for this? You the consumer pays for this in your insurance premium.
Fortunately, car thefts in Arizona have been decreasing in recent years but still impacts rates considerably. Honda has a couple of models that are consistently at the top of the list of most popular vehicles with car thieves.

True story: an insurance carrier received a new claim and the adjuster went to the apartment to view the home. It was a renters policy and the insured claimed that all their belongings had been stolen when they were out of town. The adjuster immediately noticed a problem. The carpet, which was newly installed by the apartment complex, showed absolutely no evidence that furniture had impressed down upon the fibers. The carpet looked as new as when the complex had installed it. Turns out, the apartment had never been furnished in the first place and this was a fraudulent claim. Fraud costs the insurance industry tens of millions of dollars per year, and those costs are passed along to the consumer.

Why do rates vary between insurance companies?

Every insurance carrier prices their product as best as they can. However, some insurance companies do a better job than others. Insurance companies that do the most successful underwriting will have the most competitive products to offer the consumer. Underwriting means they take a look at the type of risk they are bringing onto their books and pricing those risks as competitive as possible.