Learn how insurance providers determine car insurance costs and what factors can cause prices to increase

Having car insurance is an essential part of owning a car. Basic liability auto insurance is required by Texas law, but beyond that, auto insurance policies provide drivers with peace of mind in the event of an accident, theft, or other unexpected events.

But in recent years, you may have noticed that it seems to be getting more expensive; that your car insurance premiums are going up. While there are a number of reasons car insurance rates may rise for any given individual, policyholders across Texas and the country have generally seen an increase in their auto insurance costs in recent years - even if they have the same policy and vehicle and are accident-free.

Unfortunately, there are larger economic forces that can cause insurance providers to raise rates simply to provide the same level of protection, such as record inflation and supply chain woes lingering from COVID-19. 

Today, we'll take a look at the various factors that influence rates, why auto insurance costs have increased recently, and what steps you can take to reduce your costs - read on!

Factors that determine car insurance rates

Economic forces aside, the cost of car insurance can vary significantly depending on a variety of factors. We've discussed these in more depth in our previous blog about auto insurance in Texas, but let's review the most significant variables that insurance companies consider.

Driving record

One of the most critical factors that determine the cost of car insurance is the driver's driving record. If a driver has a clean driving record with no accidents or traffic violations, insurance companies will likely consider this person a low-risk driver. However, if a driver has a history of accidents or traffic violations, they are considered a high-risk driver. All else being equal, low-risk drivers tend to have lower car insurance rates and premiums than high-risk drivers. As we'll discuss, this is certainly not the only factor, but it is an important one.

Age and gender

Actuaries in the insurance industry often rely on statistical data to determine how age and gender play a role in determining risk and rates. That data says that, statistically speaking, younger, inexperienced drivers are more likely to get into an accident and practice unsafe driving behaviors (such as distracted driving).

In certain age groups, males can experience higher rates than females for the same reasons; specifically, teenage males are statistically more of a risk when driving than females, so they often see the highest rates out of any age and gender group comparatively. 

Of course, these statistics do not mean that any specific person is a larger risk, but statistics are among the best tool insurance providers have to rely on when covering someone without a history to base costs on. Regardless of gender, rates tend to decrease as a person ages, gains experience, and provides proof that they are a safe driver by keeping a clean driving record and remaining accident-free.

To help mitigate these costs for young drivers, it's worth talking to your insurance provider about possible discounts available for things taking a like defensive driving course or academic achievement. 

Type of vehicle

The type of vehicle being insured also plays a role in determining the cost of car insurance. High-end luxury cars, sports cars, and SUVs tend to have higher insurance premiums than standard sedans and smaller vehicles - the 1992 F-150 is probably going to be cheaper to insure than the 2023 BMW. 

This is because high-end cars and foreign imports may have specialized parts that are difficult and expensive to obtain and sometimes more costly to install. This is also true of specialized aftermarket or performance packages. 

Location

The area where you live and regularly drive also affects the cost of car insurance. If a driver lives in an area with higher crime rates, higher volume of traffic, or higher accident rates, they will likely pay higher insurance premiums due to the increased risk associated. It's also worth noting that rates can vary between rural and urban areas as cities tend to be higher in population density, have more vehicles and thus, more risk.

Credit-based insurance score

Insurance companies may also take into account a driver's credit-based insurance score when determining the cost of car insurance. This isn't quite the same as a credit score, although your credit history is part of it. Both credit-based insurance scores and credit scores are based on your credit report, but an insurance score considers different factors to help determine risk.

Coverage levels

The level of coverage chosen by the driver also affects the cost of auto insurance. Drivers who choose a higher level of coverage, such as comprehensive coverage or collision coverage, will typically pay higher premiums than those who select basic liability coverage.

Of course, there are many good reasons that an individual might want higher levels of coverage or additional coverage options. For example, basic liability insurance in Texas only covers damage you are responsible for and would not pay to repair vehicle in the event of a collision with a tree (for example) or cover hail damage. Read more about the different auto insurance coverages available in our blog here.

Claims history

Although filing a claim does not automatically mean that your car insurance premium will be higher upon renewal, it is possible depending on the type of claim and how frequently you are filing them. As previously mentioned, if you've had accidents or received traffic tickets, insurance providers can increase your rates.

However, according to the Texas Department of Insurance (TDI), insurance providers can't raise your premium if a claim isn't paid (i.e. if it is denied or not covered) or if you're simply calling to ask about the claims process. Additionally, they can't charge you more if you file a claim for damages resulting from natural causes, such as weather related events like hail.

As always, it's a good idea to talk to your agent for specifics about your policy when reviewing your car insurance premiums. 

Why are car insurance rates increasing?

So we've covered some of the factors that help determine your car insurance rates and premiums, but you might be asking, "Why is my car insurance going up? I have no claims, no accidents, no tickets, I haven't moved, and I've been driving the same car for the past 5 years!" 

If you're asking something similar - first off, well done! Even if you're seeing your car insurance go up, know that you're doing a great job minimizing that adjustment.

But unfortunately, auto insurance rates are often influenced by larger economic forces that are simply outside of our control as individuals. As frustrating as that can be, it's still important to know what's behind all of it. 

Inflation

Inflation is one of the most significant contributors to the increase in car insurance rates - especially in recent years. Inflation is the general rise in the prices of goods and services over time, and it affects every industry, including the insurance industry. Inflation hasn't just caused an increase in auto insurance rates - it's also causing home insurance costs to increase, too.

As inflation occurs, the cost of auto repairs and medical expenses related to car accidents increases, resulting in more costly insurance claims. Insurance companies have to pay more to settle claims, which means that they have to increase premiums to maintain profitability and, most importantly, the ability to cover their policyholders.

COVID-19 and supply chain issues

Another factor that contributes to the rising costs of car insurance is the impact of COVID-19 on the insurance industry. The pandemic has affected almost every industry, and the insurance industry is no exception.  

Primarily, this is due to the supply chain disruptions and the ripples of those disruptions that are still felt today, resulting in a shortage of auto parts and an increase in their costs. The increase in the cost of auto parts has led to an increase in the cost of auto repairs, which in turn, has resulted in an increase in insurance premiums. Cars are harder to get, more expensive to make, and more expensive to repair. 

This very same issue continues to have an impact on the rental car industry as well. Because wait times for certain parts have increased, repairs can be delayed and policyholders may require a rental vehicle for longer periods of time - a rental that is more expensive for many of the same reasons.  

Increase in risky driving behavior

In the years leading up to the COVID-19 pandemic, risky driving behaviors, such as speeding, distracted driving, and driving while impaired, were on the decline. The lockdowns in 2020 saw a reduction in the total number of drivers on the road, but data shows that there was an increase in these risky driving behaviors and related deaths despite the reduction. Although we have all largely returned to normal since the pandemic, accidents and deaths from these types of driving behaviors have continued to increase as have subsequent insurance claims.

Rising healthcare costs

Another factor contributing to the increase in car insurance rates is the rising costs of healthcare. As you know, paying for medical expenses after an auto accident is part of your auto insurance coverage.

Medical expenses related to car accidents have been on the rise, with the cost of emergency room visits, hospital stays, and surgical procedures increasing significantly over the past few years. This means that as healthcare costs continue to rise, so too does the cost of auto insurance. 

What can you do to decrease auto insurance costs?

While these larger, macroeconomic factors may be outside of our control, there are still some ways that we can minimize car insurance costs and reduce premiums. For example:

• Reevaluating and adjusting coverage limits
• Raising deductibles
• Bundling policies with the same insurance provider

Additionally, insurance providers often have a number of discounts you may qualify for, such as: 

Safe driver discounts

Defensive driving course discounts

Safety feature discounts (such as passive restraint discounts)

When researching ways to reduce your car insurance coverage, make sure to speak to your local agent. While many insurance providers offer some of the same types of auto insurance discounts, specifics can vary and you may qualify for discounts other than those listed here.

Your local agent is a valuable resource, and can help guide you through costs, coverages, and discounts and further explain your options. If you haven't already, call your agent to find out what options might be available for you. 



To learn more about Germania's auto insurance, drive over to our Texas Auto Insurance page or request a free quote online today!