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How carriers raise rates

If you get a notice in the mail that your premiums for car insurance are going up, it might be because the carrier found a ticket on your record, previous accident, or something else.  That something else could have been when the insurance company decides to propose new rates to their state's department of insurance. Rates increases may have nothing to do with you specifically.

When reporting car insurance rates to a state, carriers will explain why they set rates for specific classes of drivers based on their age, driving record, location, credit (not allowed in California) etc. 

Once the Department approves those rates, they must be used by the auto insurance carrier until the insurer submits other rates, usually for the year. The own approval process for car insurance rates can take months, making retail like pricing unrealistic.  The bad news for shoppers is rate increases are regularly approved.  But sometimes there are rate decreases, although much rarer.

Your State’s Department of Insurance is to protect the public and insureds. They regulate the pricing so that insurers don't over charge or collude on price. They also keep an eye on carrier reserves, so if an insurance company is drastically cutting their rates, the Department may verify the company is being responsible with their rates.  Remember the insurance lobby is huge and regularly donates to a variety of candidates.

Once a state's Department of Insurance approves a carrier's car insurance rates, the price is fixed until the carrier resubmits a new set of rates.  If car insurers could raise and lower the prices at whim, they could offer drivers a teaser rate to join, and then bump it up by the next premium payment.

Several things you can do to get great prices on auto insurance is to verify discounts available for good driving, high credit score (if your state allows), avoid accidents, drive a “safe car,” etc.

Written by Craig J. Casey

Financial Writer helping people with their insurance problems on the net since 1998.

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