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I have just received a new auto insurance bill for the next six months for my comprehensive insurance. It is about 8% higher than the previous six months whereas I have had no new moving infractions and the vehicle is the same as before, meaning older, meaning costing less to replace.

What actuarial reasoning could explain this increase?

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    Anecdotally - I had this happen 2 years ago. I called my insurance agent and her response was "Our company lifted rates statewide. You've done nothing wrong, our base rates have just gone up". They then signed me up for the vehicle tracker thing that plugs into the ODBII port, and that got a bigger percentage lowered. – BobbyScon Jan 24 '17 at 20:06
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    "vehicle tracker thing that plugs into the ODBII port" -- that sounds creepy. BTW, it is OBDII – amphibient Jan 24 '17 at 20:08
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    @amphibient Haha, sorry. That wasn't a very scientific way to describe it. Nathan is correct. It measures driving distance, acceleration speed, deceleration speed, and average time spent driving. They then calculate how risky a driver you are based on your driving habits. I believe the device is typically installed for 90 days. I ended up getting a 17% reduction in my rate because the device showed I was a pretty safe driver. You know, at least when big brother is watching. – BobbyScon Jan 24 '17 at 20:55
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    If your vehicle is old enough, your insurance premium is likely dominated by the liability component, rather than the loss-of-vehicle component. – Mark Jan 24 '17 at 23:42
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    @davidbak Maybe they know that and by the time you're done gaming the system for 90 days you've now established the habit and now are always safe. xkcd.com/810 – corsiKa Jan 25 '17 at 2:22
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I assume this happens to everyone in the US, and I believe the reason is simply due to competition. Here are my data points:

I was with Allstate for 17 years, and the rates were pretty consistent for a long time, then about 6 years ago every 6 months my rate would go up slightly. After 2-3 years of that I called and I asked why? I was told it was due to the average rates in my area increasing, etc. I pointed out how loyal of a customer I was, and nothing helped. So I got a quote from Geico which was $130 lower per 6 months. I called AllState and asked them to match it or I'm leaving. They wouldn't. So I switched to Geico. 1 month later my Allstate agent called me and told me she could match (or beat) the rate I had with Geico if I came back. I said no.

2 years with Geico and my rates started inching up. After 18 months of increases I went through the shockingly identical process, and ended up switching to StateFarm. Now I've been with StateFarm for coming up on 2 years and it's happening again.

Note I have never had a claim or a ticket in over 15 years.

My conclusion is that (all?) car insurance companies in the US lose money on new customers, and they are willing to do that just to get the customer. Slowly they raise rates to price them to where they should be. The only way to get the lower rate is to switch companies every few years.

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    It's the metaphor of the frog in boiling water. – user662852 Jan 24 '17 at 22:46
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    @user662852 - exactly! For $20 increase I don't want to spend the time to shop around and switch... – TTT Jan 24 '17 at 23:08
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    I have heard this referred to as the lazy tax, or a tax paid by people who are too lazy to shop around (I don't mean this in a pejorative way, as I'm in the same boat!. – LeopardSkinPillBoxHat Jan 25 '17 at 3:04
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    This isn't just the insurance industry, it's true of Banking, Telecoms, etc. .... Basically any industry where the average consumer is overwhelmingly likely to stay on whatever contract/product they are currently on, rather than jump from one product to another to get the best rates. The businesses have huge incentives to acquire you as a customer, and then 'get rich' off you being "too lazy" (c.f. LeopardSkin) to move, or not noticing that you're substantially off the current market rate (c.f. TTT/user662852) – Brondahl Jan 25 '17 at 14:41
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    The average rate in your area went up, because they raised the rate of everyone in your area. – Bradley Uffner Jan 25 '17 at 18:07
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Part of auto insurance is your potential liability cost. I'm personally in the same boat as you, no infractions, same car, and my insurance went up (though less than yours). I live in California, in an area where I'm likely to hit a Mercedes (or some other luxury thing) if I hit anything. Lots of people in my area buy expensive cars and as a result I pay significantly more for the same liability coverage as I would in a lot of other zip codes.

Add to that normal inflationary pressure on auto-body repair shops and you have increases even if you, personally, don't present any new risk.

In response to the discussion below I'm revising this point.

There are loads of factors insurers consider beyond your claims history, driving record and good student status. Maybe a lot of people in your neighborhood are buying Mercedes or some other expensive vehicles. Maybe your newly attained age triggers a different risk evaluation in their models. Any number of criteria related to you could have changed apart from your personal driving record. The carrier has a pool of people and the ability to price certain criteria related to you. The insurer's overall pool needs to be profitable and sometimes that means higher risk people are subsidizing the cost of lower-risk people, and sometimes the opposite can be true. Every part of the risk spectrum will generate claims, claim expenses aren't exclusive to the high risk segment of the pool.

When an insurer increases it's prices that means that relative to the expected claims of the pool, or some piece of your specific underwriting classification, it's not generating enough top-line revenue. Maybe this price increase hits everyone in the pool, maybe it's only the higher-risk or the lower-risk people, maybe it's only the folks with big limit coverage, maybe the student discount gets smaller. No matter the adjustment, the carrier has determined that it either can or should generate more revenue and/or shed some individuals from some facet of its pool.

No matter your personal driving record and perceived risk category, if you get an 8% increase you should go shopping. It's likely that some other carrier wants someone in your underwriting category more than your current carrier does. An 8% increase from your current carrier indicates they expect some number of people like you to leave.

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    why does my presence prevent them from underwriting more risky drivers? – amphibient Jan 24 '17 at 19:47
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    @amphibient Insurance underwriting is an art. When my driving record was particularly bad I was reshopping my coverage every month, and changing carriers every three to six months. The risk appetites of carriers changes, sometimes they need more risk and will price coverage to attract that risk. Sometimes they're overloaded on safe drivers and can afford to lose a few, then they price it accordingly to encourage some to leave. Your carrier just nudged people in your risk category to go shopping. – quid Jan 24 '17 at 20:17
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    @quid You're saying it makes sense for carriers to sometimes drive customers away even though taking their money would carry relatively less risk than the customers they're trying to attract? That would seem to either mean that the safe drivers weren't priced correctly in the first place (their premiums were too low) or that carriers that do this are missing out on (statistically) free money. – Jay Jan 24 '17 at 23:21
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    The blend of risk represented in the pool will fluctuate as folks shop for insurance or as people get licensed to drive or whatever. The only way to adjust the blend is to change the premiums. Each specific risk category doesn't need to be individually profitable, the entire pool does. The carrier may think, that it could be equally or more profitable while expending the same effort if it took on more risk or that it needs to collect more from its low risk drivers (or everyone in the pool) because of attrition or a string of bad claims (mis-pricing as you put it). It's an art, not a science. – quid Jan 24 '17 at 23:43
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    I'm with Jay on this one, and I disagree with your last paragraph. In a risk based business, even if the low risk customers have a lower profit margin than the high risk customers, there would be no reason to purge the profitable low risk customers from your pool, unless for some reason your pool size was maxed or there are laws dictating price spreads. (e.g. A law saying you can only have 1M customers, or the max you can charge a high risk person is 5X what you charge a low risk person for the same level coverage. Though I have no idea if either of those exist.) – TTT Jan 25 '17 at 4:44
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Because it's profitable

Insurance companies have found that if you raise peoples' premiums by 5%, a few of them will switch, but most of them either won't notice, or won't want to deal with the hassle and admin of switching in order to save a few %.

Net Result? They have (a few) fewer customers = fewer payouts, and more revenue.

Hence more profits. So they keep doing it. If they lost more in revenue than they gained in higher premiums, they would stop doing it overnight. But they don't, so they don't.

The same dynamics happen in (almost all) recurring-subscription service industries where people expect the prices to vary: Car insurance (in fact, most insurance), mobile phone contracts, rent, leases etc.

The only way to avoid it is to keep an eye on your bills and shop around as soon as they start going up.

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Depending on where you live local regulations allow insurers to rate you based on many factors besides the type of car and how many accidents/tickets you've had historically.

Your rates might go up if you have recently moved, if your credit score has taken a hit, if you've become divorced, or if they have concluded that they have to raise all of their policies in your area by a fixed percentage due to a higher number of claims from your neighbors.

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As with many other industries, they are betting you will not consider the cost increase is worth the hassle of switching. Loyal customers and well off customers are easy targets. If they try to increase too high, you may be willing to switch. If they increase too low, then they miss out on potential profits. They probably have tested various amount increases and found a happy medium.

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If you live in New York, and you took a driver safety course over three years ago, you can expect to lose the 10% mandatory car insurance discount that you would have been receiving.

Other states may have other discounts, I don't know all the details.

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