Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Here's what you need to know...

  • Auto insurance companies set their own rates. While the industry is highly regulated, companies can charge what they please as long as the rates are filed and approved by the Department of Insurance
  • When a base and gross rate is filed with the department, the insurance carrier will then use actuarial formulas to determine how much each household will pay for a unit of coverage
  • One of the most common reasons that rates go up is when a company files a rate increase that’s approved before your policy is set to renew. You will see the increase in your renewal premiums if no other rating factors change
  • If you’re convicted of a moving violation during your policy term, the company may place a surcharge on your policy. The conviction could also affect your eligibility for Good Driver discounts
  • When a rated driver on the policy has an accident and the driver is found to be negligent, the insurance company could charge you for the accident on the next renewal

When you first buy auto insurance through a carrier, you don’t expect the low rates that you were quoted to rise dramatically as soon as your policy renews.

Unfortunately for many consumers, the competitive insurance rates only last for a single 6-month or 12-month term. This is why it’s important to understand how the insurance industry works.

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When you open up your car insurance renewal statement, you should prepare for the worst and hope for the best. After all, if your rates have gone up by five, ten or even 20 percent, you always have the option to shop around elsewhere.

There are a number of reasons why your insurance rates can go up after one or multiple terms with a carrier. Here’s what you need to know as you get ready to sit down and review your renewal:

How does car insurance rate making work?


The first step to understanding why your rates go up is understanding how insurance rates are made from the start. Rate making, which is also called insurance pricing, is something that all carriers do to determine how much the company should charge for a unit of insurance.

It is a lot like a consumer goods company pricing their products for profitability, but a lot more complex at the same time.

Insurance companies hire actuaries to analyze statistics and forecast future claims so that they can calculate the pure premium needed to pay for all losses.

After doing this, the actuary will consider operational costs and sales expenses so that they can come up with a gross rate. The gross rate always allows for profitability.

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Insurance Companies File Rates with a Regulatory Body

A company’s business objective should be to charge fair rates to consumers that encourage the insureds to minimize their risks.

The main goal is for the company to keep claims payments down throughout the year so that they can end the year profitably. While a licensed company can set its rates, the rates still need to be approved by a regulatory body.

All companies must file the rates through the state’s Department of Insurance when they first start selling products.

When the rates are filed, the department will check to make sure that the rates are adequate, fair and non-discriminatory in nature. Companies also need to submit a new filing for approval if changing conditions create the need for a rate change.

The Most Common Reason Your Premiums Will Go Up is a Rate Increase

If your rates go up at your renewal, the reason could be beyond your control. In fact, one of the most common reasons that premiums go up is because of a company-wide rate increase.

The increases can be influenced by a company’s claims history over the past year or by more widespread issues that can lead to nationwide increases.

Insurance rates have been steadily climbing over the last thirteen years, but in 2016 average premiums have risen at the fastest rate in over a decade. In April alone, companies have increased their rates by 6 percent.

Low gas prices, a rise in employment, and more accidents are all to blame for this quick and dramatic jump. This is why you should be prepared to see a rate increase on your next term.

If You Have an Accident During the Term, Your Rates Can Change at Renewal

Not all car insurance accidents will affect your rates. If you have an accident, the fault determination has a lot to do with whether or not your rates will go up.

If you or a driver in your home are declared the at-fault in an accident, a surcharge will be added at your next renewal.

Some companies have accident forgiveness programs that waive one accident. If your policy is surcharged, the increase is dependent on your risk class. If you’re a high-risk driver, your rates could go up as much as 76 percent. If you have a clean record, once accident could have only a small effect.

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How a Moving Violation Will Affect Your Rates


Insurance companies can’t charge you for a moving violation until you are convicted by the court. If you are just cited and never convicted, the infraction won’t affect your premiums.

Unfortunately, if you have a conviction on your record and it shows when the company is processing your renewal, a surcharge will be added.

Having a new moving violation can place you into a high-cost risk class. The surcharge itself could be between 3 and 22 percent, depending on the violation.

If you already have tickets or accidents, the added conviction could make you ineligible for sizable discounts.

This is when having a ticket will hurt you the most.

Other Factors That Can Increase Your Rates

Accidents and tickets can only increase your rates at your renewal. If you may changes to your policy on your own, the rates can change.

Adding a new driver, changing your car, or changing your garaging zip code are all factors that can increase your rates. Know how changes can affect you before you make them.

If you shop around for auto insurance, you can find competitive rates that are more than likely lower than what you will pay after your rate increase. Whenever you have a claim or you have been cited, know that your rates could go up months later.

Start comparison shopping on an online comparison site right before your renewal and you can prepare to do a thorough insurance review.

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