Why Your Car Insurance Rates Could Go Up This Year

Lower gas prices equals more road traffic equals more car crashes equals more insurance claims equals higher premiums. That’s the not-so-short story of why your car insurance rates could go up this year, but let’s break it down.

Gas prices in 2015 were substantially lower than prices throughout both 2014 and 2013, according to AAA, and the new year is ringing in the lowest gas prices for this time of year since 2009.

That kind of money adds up, and consumers have taken notice: Forbes reports that the increase in miles driven on U.S. roads has been substantial, likely due in a large part to lower gas prices. Maine, for example, saw more drivers pass through their tolls in June and July of 2015 than they have ever seen. And increase in road traffic impacts many things, one of the most important being car crashes. The simple truth is that the greater abundance of cars on the road increases the occurrence of crashes, which generate more insurance claims.

The Auto Insurance Industry Is Losing Money

Official crash statistics take time to compile. However, while hard numbers about how many traffic crashes happened during 2015 isn’t yet available, we do have other indicators that 2015 was especially dangerous for drivers. According to Forbes, major auto insurance companies are bleeding money, reporting significant revenue decreases and even losses in underwriting profits from last year.

Some auto insurance companies are placing the blame for their loss in revenue on more claim payouts to customers because of more traffic crashes. Others say the increase in economic activity over the past couple of years has put more cars on the road, which has led to more car accidents and crashes.

What the Insurance Industry’s Losses Mean for Your Policy

Insurance companies must estimate risk and expenses: Insurers maintain complicated algorithms to help them determine how much different types of customers are likely to cost them. And, even though their data is based on a lot of past evidence and careful evaluation, adjustments sometimes need to be made — and, according to Forbes, at least one major insurer is planning them with more providers likely to follow suit. Fortunately, potential rate hikes won’t happen over night. Per Forbes:

The process of adjusting property and casualty insurance rates in the United States is heavily regulated. Insurers first need to submit a proposal for a rate change with each state’s Department of Insurance. This request needs to then be approved by the department — a step that can take several months.

Still, the math is simple: More drivers on the road leads to more crashes, which leads to increased insurance company payouts, which means less money for insurers, which they will likely make up for by ultimately increasing premiums for everyone. Ouch.

How to Avoid a Rate Hike

Whenever your car insurance policy is up for renewal, whether it’s been a bad year for the auto insurance industry or not, the absolute best thing you can do to keep your premium as low as possible and ensure you secure the coverage you need is to shop around. Comparing the different policies insurers have to offer, their prices and potential discounts, and even sharing the prices you’re offered at one company with a competitor can ensure you don’t overpay and aren’t a target for the questionable practice of price optimization.

Other ways to save on insurance include:

Improving your credit score. You can see where yours currently stands by viewing your two free credit scores each month on Credit.com.
Take a defensive driving course to lower rates by as much as 10%.
Consider bundling your auto insurance with other insurance policies you carry, like homeowners insurance.
Consider adjusting your deductible if you are quoted rates that exceed your budget. But don’t necessarily take the highest deductible/lowest premium combo. Instead, carefully consider how much you can afford to pay out of pocket should an emergency arise.
See if you might qualify for low mileage rate reductions or consider if usage-based insurance might be right for you.
Look into every discount you might qualify for (often insurers don’t offer them up without being asked). Options to look into include good student, recent graduate, age-based discounts, discount for married couples and discounts for veterans.