June 9, 2011

Why Car Insurance Rates Are Rising Each Year

Each year, car insurance rates in the United States and in many other western countries tend to rise, much to the distress of drivers looking for relief from a difficult economy and a struggling job market. Rising car insurance costs are hard for many households to handle, as many homes depend on vehicles for transportation to and from work. Understanding the reasons for rising rates can be helpful for these households, as looking at the factors behind insurance rate increases can also reveal ways to get relief from expensive policies.

Rising car insurance costs can occur for a number of reasons, but economic circumstances are among the most significant factors in shaping car insurance quotes. Most car insurance companies are either owned by banks or use banks to take out large loans in order to provide insurance coverage for their clients. When interest rates are low and banks are able to provide large loans, car insurance companies can take more risks with policies. This leads to lower rates for the majority of drivers. It also makes it easier for high risk drivers to find car insurance. However, in difficult economies, car insurance companies are incapable of offering great policies at low prices. In the past few years, car insurance rates have risen significantly due to overall poor economic conditions.

The cost of an average car insurance claim has also risen, and this directly affects insurance costs for all drivers. When an insurance company has to pay proportionally higher amounts to settle claims, their increased costs are passed on to all drivers in the form of rising car insurance costs. Rising numbers of claims also affect rates. Insurance fraud can also be a major factor. As fraud takes a heavy toll on insurance companies, they're forced to make up for this by raising rates on good drivers. The good news is that state law and insurance company investigators are getting better at finding auto insurance fraud and preventing payouts, but insurance companies must pay for their own investigations, so they still take on heavy costs.

While rising car insurance costs are likely to continue to pose a problem for drivers over the next few years, individual drivers have a surprising amount of control over the costs of their own policies. Drivers can ask about insurance discount programs to try to limit their rates. They can also compare car insurance quotes, which is an effective way to keep a low-cost policy without lowering coverage limits or taking other actions that could put the value of a driver's car insurance policy at risk. By taking an active approach, any driver can keep rising car insurance rates under control.