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Blog category: Driving

Why Has My Car Insurance Premium Increased if I’m Claim-Free?

5 min read

Across the country, but especially in California, car insurance rates seem to be skyrocketing — along with the cost of most other goods and services. Most of us now understand the reasons for these increases, post-pandemic. In the last few years, we’ve seen supply-chain slowdowns, raw materials shortages, and staffing issues that result in everything taking longer to complete and costing more.

But when it comes to car insurance, drivers often get frustrated as to why their rates increase if they haven’t had any recent tickets or accidents. The expectation for many is that good, careful driving and a clean record should result in lower rates. While that’s partially true, it’s not the whole story.

In this article, we’ll uncover the reasons for rate increases.

Accident Scenario

Say you’re the proud owner of a brand-new car. You saved up a hefty down payment, but still owe $28,000 on your wheels. Now, imagine you’re cruising on the freeway when debris in the road forces you to swerve to avoid it. You collide with another vehicle totaling your new car, damaging the other vehicle, and injuring the other driver. The good news is that you’re shaken but unhurt and the other driver has only minor injuries. The bad news: you’re on the hook for some major expenses.

Cost breakdown example:

  • Paying off the car loan on your totaled car — $28,000
  • Repairing the car you hit — $7,000
  • Paying the injured driver’s medical bills — $15,000

If you didn’t have car insurance, you’d be on the hook for $50,000. This, in a nutshell, is why you have insurance.

Insurance is an intangible product that you don’t use until something goes wrong but look at it this way: In the scenario above, say your premium costs $200 a month. Since the purchase of your new car, you’ve made 2 payments, totaling $400. Now, consider the amount of protection your policy gives you for all sorts of potential incidents, including your freeway accident. Then look at the amount your insurer is going to pay out to settle the claim.

Insurance companies take on the risk, so you don’t have to — giving you peace of mind that you’re financially protected in a collision, or if your car is ever stolen or vandalized.

Becoming a Member

When you purchase an insurance policy from Wawanesa or any other car insurance company, you’re becoming a member of an insurance group or family, as it were. Every member contributes to the account by paying a premium. You’re sharing the overall risk of claims and their costs between all the insured drivers in the group.

When a claim is made, money from the account that holds all the premiums is used to pay for those claim costs. This is known as “risk sharing” and is the model used by all car insurance companies.

Good Driving (Still) Has Its Rewards

Rest assured, if you’re a driver with a clean record, you’ll typically see lower rates — all else being equal. If you have no tickets or accidents, and you’re claim-free, your premium should be less than drivers in the group who’ve had accidents or traffic infractions.

Protected by the Department of Insurance

Many insurance customers assume that when their insurance company raises rates it’s to cover past claims. But it’s more about having enough money to pay future claims. The Department of Insurance (DOI) requires insurance companies to ensure they have sufficient funds to pay for potential claims. So, each policyholder pays a six-month premium that goes into the account.

Another common misconception: when some customers see their insurer raise rates — especially during periods with high inflation — they tend to believe the company is trying to capitalize on the situation. But each state’s DOI, particularly in California, has strict consumer protections in place to prevent gouging or discriminatory practices. Every proposed rate increase must be vetted and approved by the DOI.

Why Wawanesa Is a Smart Choice

Wawanesa Insurance can offer lower rates because we only insure good drivers, resulting in fewer claims overall. In a typical year, only 10 percent of our policyholders file a claim. Standard insurance companies, on the other hand, insure drivers who present a bigger risk and have more accidents and claims. This means that you, a careful driver with a clean record, may have to pay more to cover those less careful drivers if you choose a standard insurer.

How Premium Is Calculated

Insurance companies charge a premium based on two factors: the likelihood of that customer making a claim, and the economic factors involved in settling claims. Insurance actuaries predict the likelihood of a claim being filed based on multiple factors including miles driven annually, driving record, and the make and model of the vehicle in question. This information is used to set the premium.

However, the primary cause of premium increases is the costs involved in settling claims.

This includes the cost of:

  • Medical treatment for accident injuries
  • Auto parts and repairs for damaged cars
  • Used cars to replace totaled vehicles

Wawanesa has seen these costs jump by an astounding 40 percent or more since 2018. This increase in the cost to pay claims is spread among all the group members.

Your premium goes into the account to help pay for those who file a claim after an incident.

And if you happen to break your lucky streak of being accident-free and need $50,000 to pay off your brand-new car and take care of those who were injured, your insurance family will be there to back you up.

Do you have enough protection in case anything unexpected happens while you're on the road? Speak with a helpful Wawanesa agent today to ensure you’re carrying enough coverage.

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The above content is for informational purposes only and is not a direct representation of coverages offered by Wawanesa or its policies. The information does not refer to any specific contract of insurance and does not modify any definitions, provisions, exclusions or limitations expressly stated in any contracts of insurance. All references within the above content are illustrative and may not apply to your situation. The terms and conditions of the actual insurance policy or policies involved in a claim are determinative as to whether an accident or other loss is covered. To understand the coverage under your current policy, please log into the account management platform to review your policy or contact an agent directly.

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