Auto Insurance is an essential financial protection that safeguards you and your family against many unfortunate situations. As a driver, Car Insurance may give you a sense of security, knowing that you’re covered in the event of an accident or loss. However, some drivers are skeptical about auto insurance companies and the cost of being covered.
As Insurance Specialists, our purpose is to educate drivers on their insurance coverage options and be transparent about how their policy works. Let us take you behind the scenes of the Auto Insurance world so that you can understand how and why insurance companies do what they do.
Auto Insurance Companies Cannot Charge Any Rate They Want
One of the biggest misconceptions regarding Car Insurance is that insurers can charge you whatever premium they please. However, the truth is that rates are regulated by your state. Depending on what state you live in, the Department of Insurance, Division of Insurance, or Office of the Insurance Commissioner is the governing body that determines how high your premium can be. The department exists to protect consumers from unfair premium charges and ensure that all insurance companies remain financially secure so they can payout in the event of a claim.
According to California’s Department of Insurance, “Insurers base the premiums they charge on insurance company rates that are filed with and approved by the California Department of Insurance.” This means that if an insurance company wants to increase rates, it must apply for a rate filing with the state first. Once reviewed and approved by the state, the new rating is effective for new Car Insurance policies and Car Insurance policy renewals. These filings are made public and can be viewed here.
Keep in mind that your rate will not be changed during your policy term, but it can change at the time of renewal. Typically, Auto Insurance policy terms are three months, six months, or one year.
So, why do Auto Insurance companies increase their rates? It’s all about risk. Car Insurance companies use a risk assessment algorithm to calculate your premium. This algorithm considers many different factors, but basically, insurers want to know how likely you are to file a claim. They also consider external risks that can affect the Auto Insurance industry as a whole.
Here are a few reasons why insurance companies may refile their rates:
- People are driving more due to economic growth, urban sprawl, and/or low gas prices
- Technology in newer vehicles costs more to repair
- Distracted drivers are on the rise
- Car Insurance fraud is affecting the entire industry
- Cost of medical services are becoming more expensive
- Trends in your area show that you are at a higher risk for collisions, theft, and natural disasters
Insurance Companies Cannot Cancel Your Policy Without Notice
An insurance policy is a written contract between you and the insurance company. As a policyholder, you have more leeway than your insurance company, for instance, the right to terminate the contract at any time. Generally, most Auto Insurance companies must honor your policy throughout the term. However, they may cancel or non-renew your policy if they find your situation too risky or if you do not meet their conditions.
California has the most laws written by the Department of Insurance to protect policyholders than any other state. There is a cancelation clause that requires Auto Insurance companies to provide a written notice of cancelation to be sent to the insured’s address on file at least 10 days before canceling the policy. If an insurance company wants to non-renew your policy, they must submit a written notice 45 days before the policy expires. The written notice must highlight why the policy is canceling or non-renewing and the date of termination.
What are some reasons Auto Insurance companies may cancel your policy?
- Information was not fully disclosed upfront in your Car Insurance application
- You have too many at-fault accidents or moving traffic violations
- Your driver’s license or vehicle registration was revoked or suspended
- A fraudulent claim was submitted by you
- Your vehicle is deemed unsafe to drive
- Your vehicle is being used for business purposes
Car Insurance Companies Can Deny Your Application
Remember, insurers use risk assessment to calculate the possibility that you may file a claim. Although Car Insurance is required in 48 states (excludes New Hampshire and Virginia), insurance companies are not obligated to provide you coverage if you are deemed a high-risk driver. You do, however, have the right to know why you are being denied coverage.
Another reason an Auto Insurance company may deny you coverage is due to a moratorium in place. A moratorium is a temporary binding suspension that is issued when property damage is imminent. These moratoriums are subjected to state laws and are generally issued right before a storm or the start of a wildfire to help mitigate losses. For areas under a moratorium, insurance companies will not issue new policies, add new coverage, or increase coverage. After the threat has passed, moratoriums are lifted, and insurance companies can resume normal operations.
How Can AIS Help You Get A Low Car Insurance Rate?
The Auto Insurance industry operates in a highly competitive market. This can be beneficial to you if you shop around and compare rates regularly. Sometimes, insurance companies start losing customers because their rates are too high. They need to adjust and refile their rates with the state or risk going out of business. Luckily, we partner with multiple top-rated Auto Insurance companies to easily compare rates and find the lowest one. Plus, you can do it all in one place! Speak with an Insurance Specialist today at (855) 919-4247 or go here for a free quote.
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The information in this article is from various sources. This content is offered for educational purposes only. The definitions, terms, and coverage in a given policy may be different from those suggested here. No warranty or appropriateness for a specific purpose is expressed or implied.