David H. Cohen, CPCU, CFP®
Receiving a car insurance renewal with a significantly higher premium has become an all-too-common experience in recent years. Whether you reside in New York, New Jersey, or another state, chances are your rates have jumped dramatically. Many factors contribute to this increase, ranging from state regulations to rising repair costs and thefts. Understanding the driving forces behind these changes can help you navigate your options and even lower your premiums.
Auto insurance is state-regulated, meaning each state’s insurance department oversees policy coverages, company solvency, and, yes, rate approvals. In New York, for instance, the Department of Financial Services must approve any increase over 5%. Despite being one of the most restrictive regulatory environments, the department has granted notable rate hikes to several top insurers in recent years. Insurers must provide evidence justifying their need for increased rates, often pointing to the rising costs of claims and maintaining profitability. For context, a car insurance company typically aims for a modest 5% profit margin—equivalent to just 5 cents on the dollar—far from the returns most corporations expect.
Several factors are driving the steep increases in premiums. The cost of new and used vehicles has surged, making car repairs or replacements more expensive than ever. Advanced vehicle technology, including sensors, cameras, and multiple airbags, has driven up repair costs, and in many cases, vehicles are declared total losses because repairs are simply too costly. Vehicle theft is another significant factor. For instance, certain Hyundai and Kia models have been highly targeted due to vulnerabilities that make them easy to steal. Despite efforts by manufacturers to address these issues, insurers remain hesitant to cover these vehicles without clear proof of fixes.
Adding to the pressure on rates, many insurance companies experienced substantial losses over the past two years. While insurers profited during the COVID-19 pandemic due to reduced driving and fewer accidents, the subsequent return to normal traffic patterns, coupled with the rising costs mentioned above, reversed that trend. Insurance regulations in states like New York also limit how insurers can address losses, requiring them to renew 98% of their policies annually, even if a customer has multiple claims. Consequently, many insurers have become more selective about new policyholders and scaled back their operations in certain markets.
So, what can you do to lower your auto insurance premiums? Start by exploring all available discounts. Many insurers offer savings for completing accident prevention courses, bundling policies, or maintaining a low annual mileage. Features like anti-lock brakes, airbags, and stability control can also qualify for discounts. Additionally, some companies provide incentives for safe driving through monitoring devices or smartphone apps. Other options include raising deductibles on collision and comprehensive coverage, or even dropping those coverages on older vehicles.
Your credit score can also play a significant role in determining your premium. Studies show a strong correlation between better credit and fewer claims, which is why many insurers use credit as a factor in setting rates. Improving your credit score could lead to substantial savings—sometimes up to 150%.
When it comes to claims, not all are treated equally. In New York, for example, certain claims, like those involving collisions with animals or being hit while parked, are not surchargeable. However, insurers may still consider claim frequency when deciding whether to renew your policy. Claims involving at-fault accidents, especially when damages exceed $2,000, are typically chargeable and will likely impact your rates for up to 39 months.
Tickets and moving violations can also affect your premiums, although insurers handle them differently than the Department of Motor Vehicles (DMV). While the DMV counts violations for 18 months from the violation date, insurers typically count them for 39 months from the conviction date. This discrepancy is important to keep in mind when dealing with tickets.
Some insurers offer accident forgiveness, either automatically after a certain period or as an optional add-on. This coverage can protect you from rate increases after a first accident, which could be a worthwhile investment depending on your driving history.
In today’s challenging insurance landscape, understanding how rates are determined and exploring all possible discounts are your best defenses against rising costs. By taking proactive steps, such as improving your credit score, taking advantage of available discounts, and driving safely, you can mitigate the impact of higher premiums while maintaining the coverage you need. For personalized advice, reach out to your insurance agent or consult with a professional to make the most informed decisions about your policy.
David H Cohen has been an Allstate agent for 35 years and his son Eli Cohen owns an Independent Insurance Agency. Our family has been a member of the community for many years with all of my children attending Yeshivah of Flatbush. David still maintains an Allstate agency and can be reached at 718-874-9240 davidcohen@allstate.com
