Why does your car insurance go up even when you haven’t done anything wrong?

Rate increases are often out of your control

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Susan Meyer

Senior Editorial Manager

  • Licensed Insurance Agent — Property and Casualty

Susan is a licensed insurance agent and has worked as a writer and editor for over 10 years across a number of industries. She has worked at The Zebr…

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Ross Martin

Insurance Writer

  • 4+ years in the Insurance Industry

Ross joined The Zebra as a writer and researcher in 2019. He specializes in writing insurance content to help shoppers make informed decisions.

Ross h…

Car insurance is your safety net. Rather you have it because you’re legally required to or because you want the peace of mind — you’ll be glad you have it after an accident. 

However, when it comes to paying for insurance, many consumers find themselves puzzled and frustrated when their insurance premiums increase, — even if they haven't made any claims, gotten any tickets or caused any accidents. On average, car insurance premiums increased by 15% between 2021 and 2022 — the most significant increase in recent history — bringing the average yearly amount Americans pay for car insurance to $1,759.

This raises an essential question: why do insurance rates climb, even when you haven't done anything wrong?

1. The collective risk factor

Insurance operates on the principle of shared risk. When insurance companies calculate premiums, they consider the collective risk of all their policyholders. If the overall risk assessment pool increases due to a rise in claims across the board, everyone's premiums might go up. You are particularly affected by where you live and the people directly around you. 

If you live in an area where there is a lot of car theft or a higher number of accidents, your insurance company may assume there is a higher risk that you will also have similar claims. This means that even if you've never filed a claim, your premium could increase if others in your risk category have experienced higher claim rates.

2. Inflation and economic factors

One of the reasons rising car insurance prices might be giving you sticker shock is that everything is getting more expensive[1]. When buying groceries and other essentials leaves you with less money at the end of the month, it can be understandably frustrating to see a big jump in your insurance costs. 

Inflation affects every aspect of the economy, including the cost of goods and services related to insurance. Increased car repair expenses for parts and labor and higher replacement costs can lead to insurance rate hikes. Additionally, economic factors, such as inflation and changes in interest rates, can impact insurers' investments, prompting them to adjust premiums to maintain their financial stability.

3. Technological advances and repair costs

Car repair costs are up almost 20% this year, which is more than six times the national rate of inflation[2]. So why is it suddenly more expensive to repair cars?

Modern vehicles are equipped with sophisticated technologies, which can be costly to repair or replace. For example, a minor car accident that damages a sensor or camera, which is now standard in most models, can result in a hefty repair bill. As a result, insurance companies increase premiums to cover the expenses associated with these advanced technologies.

4. Natural disasters and climate change

It’s no secret that natural disasters like wildfires and hurricanes mean big losses for insurance companies as a great number of people file claims all at once. In fact, some of the biggest disasters in U.S. history have led the insurance industry to adapt and change over time. 

With the increasing frequency and intensity of natural disasters due to climate change, insurance companies face higher payouts for claims related to hurricanes, wildfires, floods and other catastrophic events. To offset these losses, insurers raise premiums for all policyholders, regardless of individual claim histories.

5. Insurance fraud and uninsured drivers

You might not be doing anything wrong, but others might. Insurance fraud, including staged accidents and false claims, costs insurers billions of dollars annually. To cover these losses, insurance companies often pass on the burden to honest policyholders by raising premiums.

Additionally, uninsured or underinsured drivers can cause accidents, leading to increased claims and, subsequently, higher premiums for everyone.

Wrapping up

While it may be frustrating to see your insurance premiums rise despite your clean record, it's essential to understand the various factors at play. Insurance companies operate in a complex landscape influenced by economic, social and environmental factors. 

While you might not be able to control these external elements, staying informed about the industry changes and shopping around for the best rates can help you mitigate the impact of rising insurance costs. Remember that insurance is a shared responsibility, and as a part of the collective risk pool, adjustments in premiums, even when you've done nothing wrong, are a natural consequence of this shared risk.