Top 3 Reasons Car Insurance Rates Continue To Rise

The top three reasons for rising car insurance rates in the US are (1) insurance fraud, (2) uninsured drivers, and (4) drivers with poor credit history.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jun 24, 2020

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Here's what you need to know...

  • Insurance fraud is the single largest factor driving the increase in car insurance premiums
  • The souring economy has increased the number of uninsured drivers and therefore premiums for those with insurance
  • A poor credit history causes your car insurance premiums to rise

One of the undeniable truths of life in business and economics is that the prices of the things we buy continue to increase. But there are certain things, like auto insurance, that seem to rise faster than other things. So why do rising car insurance premiums continue?

Lest you think car insurance premiums are out of control in the U.S., we don’t really have it all that bad.

Government statistics show that the average increase of car insurance rates across the country was approximately two percent in 2010, and only 15 states saw an increase of more than five percent.

Compare that to rates in the U.K. which have skyrocketed 37 percent over the last three years. Surprisingly, the top three reasons rising car insurance premiums continue are identical in both the U.S. and the U.K.

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Rising Car Insurance Rates Due to Fraud

Insurance fraud is normally perceived as one of those “white collar” crimes that don’t hurt anyone but the insurance company. This perception has led untold numbers of people to commit insurance fraud in any number of ways.

Insurance fraud is the single largest factor driving the increase in car insurance premiums.

We typically think of car insurance fraud as a scenario where an organized group of people stages an accident in order to collect insurance benefits.

The average American who hears such stories is ready to point the finger and declare that we should “throw the bums in jail,” but these scenarios make up just a fraction of the total insurance fraud issue.

What’s more common are circumstances where an average driver will suffer a minor accident and send his car to the body shop for repair.

The body shop will overestimate the repairs in order to make more money, and then give a portion of the excess funds back to the customer as a kickback.

This practice is so widespread in the auto insurance industry that the numbers of people participating is nearly impossible to calculate.

Whenever repair estimates are inflated for the purposes of receiving higher benefits from the insurance company, that constitutes fraud.

Along with fraudulent body shop charges, here are some other common types of fraud that contribute to higher insurance premiums for all:

  • staged accidents previously
  • staged thefts
  • other purposely destructive actions

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Rising Car Insurance Rates Due to Uninsured Drivers

The number of uninsured drivers is rising in America as the economy continues to sour.

Lower income people have to prioritize what they’re spending money on, and too often, car insurance is at the bottom of the list.

This type of prioritizing presents two problems.

First of all, the insurance companies are not collecting enough premiums to cover everyone sitting behind the wheel. In terms of simple mathematics, there may be one million cars on the road while insurance companies are collecting premiums for only 800,000.

That’s a deficit that needs to be paid for somehow.

Secondly, when one of those uninsured drivers has an accident, someone else has to pay the bill. That’s usually the insurance provider of other drivers involved in the accident.

When a driver’s insurance must also cover costs incurred after an accident with an uninsured driver, that’s more money from the pockets of his insurance company and probably higher premiums for him.

Rising Car Insurance Rates Due to Poor Credit

A number of years ago, researchers studying links between poor financial habits and other behaviors discovered that drivers with poor credit are more likely to have accidents than those with good credit.

When news of this link surfaced, insurance companies began obtaining credit reports for the purpose of monitoring their customers.

Time has rooted out the truth of the research, and insurance companies now know that drivers with poor credit history are more likely to have accidents.

As a result, your credit rating is a factor in considering the premiums you’re charged. As the economy continues to sag and people have additional financial troubles, their credit ratings will be affected.

As credit scores get lower, insurance premiums get higher.

There’s not much that can be done to prevent the overall trend of rising car insurance rates. But, on an individual basis, you can keep your rates as low as possible by:

  • Endeavoring to be a safe driver
  • Refusing to participate in car insurance fraud
  • Maintaining a good credit rating

With these tactics employed, you’ll be able to avoid the highest rate increases that other drivers might experience.

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