Before we get into the several ways you can mitigate the rising cost of auto insurance, let’s talk about a question I hear all the time: Why does car insurance cost more than it used to? There are a number of reasons:
- When crude oil prices are low — as they have been for a while now — people drive more, and therefore, have more accidents. And so, rates go up. This is the biggest driver of recent auto insurance increases.
- Technology continues to evolve, driving up replacement costs. Parts that used to be simple to replace — bumpers or side-view mirrors, for instance — are now computerized, and these high-tech features come standard. The bumper often houses a back-up sensor, a trunk lid houses a rear-view camera; the mirror can contain a blind-spot detection technology and heating element to melt ice. As the insurance industry has caught up with the increased cost of these replacements, overall rates have gone up.
- Healthcare reform has made the cost of medical assistance more expensive; auto insurance companies have reacted to that by increasing their rates.
- Changing social habits. Distracted driving is on the rise, mainly due to drivers using their mobile phones behind the wheel. Staggeringly, an average of 11 teens die every day in the U.S. as a result of texting while driving. And each year, over 330,000 accidents caused by texting while driving lead to severe injuries. Over time, this issue is affecting insurance companies’ risk calculations and, as a result, their overall rates.
The good news is, there are several ways you can counteract the effects of these industry-wide rate increases. To lower your auto insurance bill, consider the following:
Increase your deductible. This will lower your monthly premium; if you raise your auto deductible from $200 to $1,000, for instance, you’ll see a big drop in your bill. But remember: Having a higher deductible assumes you’ll have the cash on hand to cover the deductible if you have a claim.
Don’t file small claims. Small claims — all claims, really — whether they are the result of an accident that was your fault or not, will count against you and cause your insurance rate to go up. So if you decline to file small claims and instead cover the costs yourself, your rates will stay lower.
Try telematics. Usage-Based Insurance (UBI) is a recent innovation that more closely aligns driving behaviors with premium rates for auto insurance. The basic idea of telematics auto insurance is that a driver’s behavior is monitored directly while he or she drives. Essentially, it tracks mileage, acceleration patterns, and breaking intensity. Many insurance companies offer this technology now, which can not only motivate you to be a safer driver but also lower your rate.
Understand your insurance score. Factors that affect your insurance score, which insurers use to set your rate, include your level of liability coverage, your type of car, your driving record, where you live, how much you drive, and your age, gender, and marital status. All of these factors are filtered through actuarial tables to determine your rate.
Practice defensive driving and avoid distracted driving. Defensive driving is all about assumptions — if you assume all the other drivers on the road are going to drive safely and react timely to unexpected events, you’re probably going to be disappointed. Instead, keep your eye out for problems before they turn into accidents, and leave yourself plenty of stopping room, especially on the highway. This goes hand in hand with distracted driving. First, assume that everyone else on the road is texting, driving with their knees while downing a milkshake and a cheeseburger, or fiddling with the radio; then, make sure you’re not doing the same.
Ask for help. Talk to an independent insurance advisor who can get you the most competitive rate with adequate coverage for your lifestyle. Not all insurance carriers raise their rates at the same time, so having an “insider” to navigate the insurance world can help keep your rate low while increasing your coverage.
If you have any personal risk management questions including discussing your current auto policy or need help finding better coverage, contact me at cmorsberger@psafinancial.com.
