Lower gas prices = more road traffic = more car crashes = more insurance claims = higher car insurance premiums. That’s the short story, anyway. Let’s break it down.
Gas prices in 2015 were substantially lower than prices throughout both 2014 and 2013, according to AAA, and the new year so far is ringing in the lowest gas prices for this time of year since 2009. Forbes noted that in 2015, gas prices in the U.S. never exceeded $2.85 per gallon, and often fell as low as $2.00, or lower in some regions, while during the entirety of the stretch between January 2011 and November 2014, prices hovered between $3.00 and $4.00. Though $2.00 difference in gas prices might not seem enormous, for a person driving the U.S. monthly average (about 1,300 miles), the difference is about $130 per month.
That kind of money adds up, and consumers have taken notice: Forbes reports that the increase in miles driven on U.S. roads has been substantial, likely due in a large part to lower gas prices. Maine, for example, saw more drivers pass through their tolls in June and July of 2015 than ever before. People are opting to drive more than ever, and are thus increasing traffic accidents, which generate more insurance claims.
The Auto Insurance Industry is Losing Money
Official crash statistics take time to compile, but while hard numbers about how many traffic crashes happened during 2015 isn’t yet available, we do have other indicators that 2015 was especially dangerous for drivers. According to Forbes, major auto insurance companies are bleeding money, reporting significant revenue decreases and even losses in underwriting profits from the last year.
Some auto insurance companies are placing the blame for their loss in revenue on more claim payouts to customers because of more traffic crashes. Others say the increase in economic activity over the past couple of years has put more cars on the road, which has led to more car accidents and crashes.
Insurance companies must estimate risk and expenses. They maintain complicated algorithms to help them determine how much different types of customers are likely to cost them. And though their data is based on past evidence and careful evaluation, they sometimes make adjustments. According to Forbes, at least one major insurer is planning them with more providers likely to follow suit. Fortunately, potential rate hikes won’t happen overnight. Per Forbes:
“The process of adjusting property and casualty insurance rates in the United States is heavily regulated. Insurers first need to submit a proposal for a rate change with each state’s Department of Insurance. This request needs to then be approved by the department—a step that can take several months.”
How to Avoid a Rate Hike
Whenever your car insurance policy is up for renewal, whether it’s been a bad year for the auto insurance industry or not, the absolute best thing you can do to keep your premium as low as possible and ensure you secure the coverage you need is to shop around. Comparing the different policies insurers have to offer, their prices and potential discounts, and even sharing the prices you’re offered at one company with a competitor can ensure you don’t overpay and aren’t a target for the questionable practice of price optimization.
Other ways to save:
- Improve your credit score.
- Take a defensive driving course to lower rates by as much as 10 percent.
- Consider bundling your auto insurance with other insurance policies you carry, like homeowner’s.
- Consider adjusting your deductible if you are quoted rates that exceed your budget. But don’t necessarily take the highest deductible/lowest premium combo; carefully consider how much you can afford to pay out of pocket should an emergency arise.
- See if you might qualify for low mileage rate reductions or consider if usage-based insurance might be right for you.
- Look into every discount you might qualify for (often insurers don’t offer them up without being asked). Discount options to look into include those for good students, recent graduates, married couples, and veterans.