Why do insurers increase the premium?

Let's start the answer with a word of reassurance. Assuming you have given an honest set of answers describing who you are, what vehicles you drive and how often you drive, the company will not change the quoted premium once you sign up for the policy. Now a sad fact of life. Businesses exist to make money out of us and marketers have devised many different ways to persuade us into deals. Once committed, we can all suddenly find the small print entitles the company to increase rates or impose charges - take credit cards as an example. That's the way they make their high profits. With auto insurance, all companies quote very attractive introductory rates. The idea is to capture new drivers with the offer of low rates or persuade an experienced driver to jump ship to a new company. Once the policy is in place, the insurer then looks for an excuse to increase the premium. If you are lucky, the claw-back does not come until the annual renewal, but some companies give short notice during the year and increase the amount collected from your bank account All companies want to recover their introductory discounts as soon as possible. This leads some drivers to change insurer every year. The idea is to cash in on each company's introductory discount and then move on before the premium rates rise. This can be successful for two or three years but, sooner or later, you will run out of “good” insurance companies or all the companies will notice the pattern and load up the quoted premium. Almost everyone should be resigned to accepting some increase in premiums every years. Although many companies offer loyalty discounts if you renew, this will not always offset rises forced by price inflation, i.e. the costs of medical treatment and vehicles repairs have been rising fast over the last ten years.

But there is a more common reason for an increase in premium. When you make your honest declaration about your driving record and get the quote, say a prayer never to make a claim. Once the insurer is asked to pay out, its attitude towards you changes. You are now threatening its profit margin. If the claim comes very soon after you sign up, the insurer wonders whether you were completely honest. It may reassess its calculation of the risk you pose and increase the premium immediately. If you managed to go a reasonable period of time before making a claim, the company may accept this as an unlucky one-off event and not increase the premium. But make a second claim and the rate will inevitably rise. The premiums will also rise if you change your vehicle with a make and model more likely to be involved in an accident or to be stolen. Move to a new neighborhood with the wrong zip code and your rates will also rise.