Getting into an accident is no fun. It can certainly be a traumatic experience, and it’s almost always an inconvenience and disruption to your life. What’s even worse is when your insurance rates go up on top of all that. Unfortunately, it is the reality that Auto insurance rates are based on your statistical level of risk.
After an accident, when your next renewal arrives, your insurance company re-assesses your comparative level of risk as a driver and adjusts your rates accordingly. Auto policies are written for either a six or twelve-month term; so your next renewal could be anywhere from a month to a year down the road. When your next renewal does come, your rates are likely to go up because you are now statistically more likely to have a future loss than you were before.
So how much will your rates go up at renewal? Unfortunately, this can be difficult to predict. The rates you pay have been filed by your carrier with the state, but they are quite complex. I often see increases that range anywhere from fifteen to fifty percent after an accident. Obviously, that’s a big range, and I’ve definitely seen cases outside that range as well.
One thing worth mentioning is that the amount your premium increases is not based on the amount that was paid out on your claim. This is because your rates reflect your statistical likelihood of filing a claim in the future; it's not about recouping what was paid out in the past. (However, some carriers may not raise your rates if your claim was under a certain amount, such as $500 or $1000.)
Most insurance companies surcharge accidents for a three-year period. This means that at your next renewal after the accident’s third anniversary, typically you’ll see your rates go down. However, many carriers also have a safe driver discount that can look back as far as five years; so there could be some effect on your rates for up to five years.
But what about not-at-fault accidents? By and large, you shouldn’t see a big rate increase if the accident was someone else’s fault. Keep in mind, however, that if the insurance company pays a claim for collision damage to your vehicle and there weren’t any other drivers involved, the accident is automatically considered your fault. So, unfortunately, if you back into a tree, hit a parked car or slide into the ditch due to icy conditions, your rates will go up just as much as if you fall asleep at the wheel and cause a five-car pileup.
So is it a good plan to switch carriers after an accident to avoid the rate increase? If only it were that simple. Because insurance companies base their rates on your likelihood of having a loss in the future not as a means to recoup what they paid out in the past, any other carrier you ask for a quote is likely to surcharge your accident just the same as if your accident had been with them. This doesn’t mean that you can never find a better deal with another carrier, but it’s unlikely you’ll be able to avoid any increase in insurance cost.
You may have heard about a friend being non-renewed by their carrier after they have had an accident. The good news is that this doesn’t happen as much in Minnesota as in other states, because of Minnesota’s consumer protection laws. However, if you’ve already had other accidents or tickets in the past three years, it is possible that your most recent accident could be the straw that breaks the camel’s back and allows your carrier to legally non-renew you. In that case, you would have to move to a new carrier willing to accept your driving record, and unfortunately the rates you find might not be pleasant.
It’s worth noting that there are now a number of insurance carriers offering optional accident forgiveness, which means they won't surcharge your first accident. You have to pay extra to add this feature up front before your accident happens; it doesn’t apply to an accident you’ve already had. Typically, only your first accident in a three-year period is forgiven. In my office, two of my eight carriers offer this option.
When working with my clients, I realize that an accident is an unpleasant experience for my clients, and I try hard to help and guide them through the claim process and also dealing with the affect in their rates afterward. Sometimes I can find clients a better option with another carrier; or we can talk about other ways to cut costs if need be. If you’ve been in an accident and need assistance, let me know how I can help.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
Coverage descriptions found in this blog are summaries provided for general educational purposes and cannot fully detail the terms, conditions, limitations or exclusions of a specific insurance policy. Please read your policy carefully.