What Factors Contribute to the Increasing Cost of Car Insurance?

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The following is a guest post by Denver Burke. Enjoy! 

What Factors Contribute to the Increasing Cost of Car Insurance?
Many households are becoming increasingly cash-strapped, and one factor that is not helping many is the rising cost of insuring their vehicle. Car insurance premiums have continued to soar over the past twelve months, and a report from the motoring organization, AA, has suggested that motor insurance has risen by as much as 40%.
With no corresponding rise in road traffic accident claims, it can be difficult for drivers to comprehend why they are being forced to pay so much. The insurance industry says that despite the spike in insurance premiums, very few firms manage to make much profit on their policies because of a number of other factors, which are having an adverse influence.

Contributing Factor # 1 – Fraud

Fraud is a real problem for car insurers, and the incidence of deliberately staged collisions is on the increase. During 2010, 30,000 staged collisions were recorded by the Insurance Fraud Bureau, with each incident averaging around £17,000. As the cost of fraud has to be absorbed by honest policyholders, the net result is an increase even for drivers who have made no claims.

Contributing Factor # 2 – Rising Number of Motorists Without Insurance


Another reason for the rise that may rankle with honest drivers is the number of motorists who are on the roads without insurance. The Department of Transportation figures suggest that approximately two million drivers do not have insurance, and 23,000 people are hurt by uninsured motorists each year. The vast majority of insurance policies cover damage and expenses caused by uninsured and untraceable drivers, a cost which once again trickles down to policyholders.

Contributing Factor # 3 – Rising Number of Personal Injury Claims


Personal injury claims also have a small effect and the Association of British Insurers estimates that approximately 10% is added to each premium to pay for the costs of claims. Many insurers have to pay hefty legal expenses when dealing with personal injury claims, a reason why there are calls for more structure to be brought to the charges.

Contributing Factor # 4 – New Legislation for Male vs. Female Insurance Premium Rates


One factor that has not yet fully been felt but will have a significant impact on premiums is the recent ruling from the European Court of Justice. The court ruled that using gender to differentiate premium rates was discriminatory, so from December 2012, no insurer will be allowed to offer separate rates for men and women. 

Rates for women, particularly amongst younger drivers, are currently lower than those offered to men, as statistics show they are less likely to be involved in an accident. The change in law means that insurance for women will become more expensive to take into account the higher incidence of claims amongst men, whilst insurance for males is likely to drop slightly but not significantly.

Contributing Factor # 5 – Increase in the Cost of Fire and Theft Insurance

In the past, third party fire and theft insurance was a far cheaper option than comprehensive insurance, but now, the average quote for this is £1,533. This is an increase of 82% and much higher than the rise seen in fully comprehensive cover. The AA says that one of the reasons why third party fire and theft has become more expensive is because not all insurers now offer this and also because it is the type of cover usually taken out by higher risk drivers.
The Office of Fair Trading is investigating the reasons behind the recent sharp rises in insurance and, and everyone waits to find out the outcome. Although it is possible to get a cheaper premium by shopping around, car insurance remains a vastly inflated expense for the majority of drivers.

How about you all? Do you feel you are currently paying a fair price for car insurance? Have your premiums increased very much recently?  

How do you feel about the issue of different genders being charged different prices across the board for various types of insurance? Do you think this is justified and fair or is discriminatory?

Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

  • Good article here! To me, it’s always interesting to examine the reasons (and possible reasons) behind pricing differentials and changes for commonly purchased things, like car insurance.
  • @ My hypotheses for why car insurance premiums may be increasing – 
    • Personally, I have several hypotheses for why car insurance premiums could be on the rise, assuming that the total number of road accident claims has not increased (as mentioned in the study mentioned above).
    • Hypothesis # 1 –  With the unfavorable world economy, many people that are running low on money possibly elect to stop their insurance coverage in order to pay for other living requirements. Since there is a smaller pool of insurers to spread the overall risk among, insurance premiums for the remaining insurance clients could be increased.
    • Hypothesis # 2 – One of the primary ways that insurance companies work is that they take the small monthly premium payments from customers and invest the money in long and short term securities in order to make money. Since the interest rates on savings accounts are pretty abysmally low these days, the insurance money pool doesn’t grow as much, causing the company to tend to charge more in premiums from customers in order to make a profit and pay their expenses.
  • @ The occurrence of fraudulent staged accidents – Personally, I have never heard of this happening. Do people really stage fake accidents in order to collect insurance? Anyone out there have experience with hearing of people doing this?
  • @ Rising number of motorists without insurance – This factor makes a lot of sense to me. If someone else hits you who doesn’t have liability insurance, you and your insurance are stuck with paying the bill. This increases the amount that the car insurance company has to pay out, thus potentially increasing premiums for everyone.
  • @ Offering similar auto insurance rates for men and women – The issue of whether or not men and women paying different insurance rates is justified is rather fascinating to me.
    • As I found in the post mentioned above about how car insurance rates varied based on age, gender, and geographic location, it is clearly allowed by law in the United States to charge different rates based on gender.
    • In doing some research while writing these comments, I found out that legally discriminating based on gender and age seems to be allowable in the insurance realm (includes health insurance, where women sometimes pay 50% more than men), while discrimination based on race, color, religion, or national origin are not allowed in the field.
    • What is interesting to me is that discrimination based on age (well, as long as a person is of legal age) and gender is NOT allowed in most other realms of law – such as renting an apartment to a tenant or hiring for a job.
    • Looking at this current landscape, it begs the question of WHY age and gender discrimination is allowed in the insurance realm?
      • Of course, there is no one simple answer to this question, and I believe that this topic will continue to be debated for many years. But, it is interesting to think about nonetheless.
      • So, I’ll leave this question up to you all. Do you have any thoughts for why this is?

***Photo courtesy of http://images.cdn.fotopedia.com/flickr-201099447-hd.jpg


  1. My insurance went up 3 plus years ago because I had a minor accident. It was my fault. It should drop off this year (11/12). When it drops off, I think I have low premiums

    • Thanks for sharing krantcents. Do you know if three years is a pretty standard “penalty” period for increases due to accidents?
      My recent post Sensible Spending and Saving For You And Your Family

  2. Oy! Our insurance just went up $20 and it turns out it was b/c we used the auto club part of our insurance. We had to have our car towed 1 time so the ins. company jacked up our monthly premimum. I promptly canceled that benefit and signed up for AAA. 🙂
    My recent post How to Get Paid to Be a Better Person

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