WHY DO CAR INSURANCE RATES GO UP?

Insurance is a way to transfer a large unknown risk of loss (accidents) to a company in return for a small known loss (your premium or rate). Your rates before the accident were based off of the companies loss experience with people similar to you. After an accident that places you in another category of similar people. Statistically, people with more accidents have a better chance of having more accidents after that.

They aren’t expecting you to pay more than your car’s worth and then have a loss, they are expecting for all of their insureds rates in a year to cover the cost of all of their losses in a year plus operating expenses. That is why it is based off of your statistical chance of loss. Just because you didn’t have a loss those years doesn’t mean that you didn’t have a chance of loss. To simplify it a little bit, you could really say that the money you paid for other years was used to cover losses that other people had that year.

Insurance companies are only concerned with your accident history as much as it affects your probability of loss. They aren’t going to say that your rates should rise just because they had to give you money or lower your rates because they didn’t have to pay you, it is because you have a higher or lower statistical chance of loss that they adjust rates.