Beyond requirement by law, we all recognize the value in carrying auto insurance: an appropriate policy could save you thousands in the unfortunate event of an accident. That doesn’t stop most people from sighing a little with each monthly payment, or from being a little miffed when renewal comes around with an unexpected premium increase. The concept of insurance premium is a little abstract – it’s hard to wrap your mind around. While most insurance companies won’t explicitly release every factor that goes into calculating premium or even what those formulas are, there are several key ingredients that are often the culprits of premium increases. Although your insurance agent is always the best source for in depth explanation of rate increases as they apply directly to your policy, below is a brief explanation of some common culprits.

Driver changes. Did you add a new driver? Did somebody have an accident? All of these can have very big impacts on your premium. The current trend in the insurance world is to rate premium on a household, rather than individual, level. Older models would pair one vehicle to one driver under the expectation that each person has their own car that is solely driven by them. So your spouse’s driving record and vehicle would affect only their policy, not yours. This was fairly unrealistic as in most families drivers share cars between them. So now, when a new driver is added to your household, it will often increase the premium for every vehicle on your policy, as each vehicle is now considered ‘higher risk’ by having another driver. The biggest changes are generally seen when added a new, 16 year old driver. Even if your teen has his own car, insurance companies see the potential risk of him occasionally using your car, and will increase the rate across all vehicles accordingly. The same principle applies when one driver in your household has an accident – they are now considered a ‘high risk’ driver who will be rated on every vehicle in the household.

Location changes. Did you move? Zip code is another factor that goes into rate determination. In general, city dwellers can expect a higher premium due to the higher risk of increased traffic. The further you live from the city hub, the lower your risk.

Age changes. Did you have a birthday? We all know that the highest risk drivers are the very young (16-21) and the very old (65+), but what happens in between? Often insureds will be divided into age brackets which are then scaled into highest and lowest risk groups. So it’s possible to see a rate increase when you move from being considered the lowest risk age of one group (age 24 in the group 16-24) to the highest risk age of the next group (age 25 in the group 25-34).

Statewide changes. Insurance is all about shared risk, so unfortunately it’s also common for the premium increase you see to have nothing to do with you personally at all. Sometimes there must be blanket, statewide premium increases to help compensate for high loss frequency and high claims payouts in the state. Fortunately these increases tend to be the smallest when compared to other culprits.

Vehicle changes. Did you pull your convertible out of storage status for the spring and summer months? Buy a new car? Obviously changing a car’s status from storage to active will increase the premium on that vehicle, and a whole other car will certainly see an increase in premium, but sometimes these acts can prompt the entire household to be re-evaluated. What does that mean?  It means if your policy renewed before one of those statewide increases discussed above took place, and this re-evaluation is taking place after, you could get hit with the increase in the middle of your 6 month term. Ouch!

There are so many factors that go into the “black box” for determining insurance premium that’s impossible for even the company underwriters to break down every dollar into exact risks. But 95% of the time, if you’re seeing an increase, blame one of the culprits above!