Incentive to Drive Carefully: the Stunningly High Price of an Accident

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Here's the penalty -- which insurance companies call an "adjustment of risk" -- you pay when you file a claim. It's not pretty.

What’s the accident “penalty” on your auto insurance?  A 44 percent increase to your premium, according to a new study conducted by InsuranceQuotes.com. For a driver with an average-priced policy (premium $841), that’s a $370 price hike.

More incentive to drive very carefully.

The average comes with a whole wheelbarrow full of presumptions. Accident penalties vary wildly by state, which we’ll get to in a minute. And the type of claim, along with the dollar amount, has a big impact, too. Not surprisingly, bodily injury claims cause the biggest increases (and the highest claim amounts); comprehensive claims, such as theft or fire, lead to the smallest increases.

The insurance industry doesn’t consider these increases a penalty, but rather an adjustment of risk. Drivers who file one claim are more likely to file another, explained Mike Barry of the Insurance Information Institute.

“Experience tells insurers that a driver who erred once is considerably more likely to do it again. This means you are now riskier to insure, and that risk is reflected in a new rate,” he told InsuranceQuotes.com.

Consumers who’ve seen their rates jump after an accident probably have their own name for the increases.

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Location, location, location

Where you live plays a dramatic role in how much an accident claim will raise your rates. The average increase in California is 89 percent, the study found, while in Maryland, it’s 21 percent.

The gap is explained by different rules governing rate setting; each state has its own insurance regulator that dictates how insurance companies operate. In California, for example, it’s illegal for insurers to consider credit scores when setting rates. That places extra emphasis on driving records; hence the huge accident penalty.

That’s not necessarily a bad thing; many consumer advocates object to the use of non-driving factors like credit scores to set rates.

“Things like credit-based insurance scores are not fair to consumers, but there’s nothing wrong with insurance premiums based on your driving record,” J. Robert Hunter of the Consumer Federation of America, told InsuranceQuotes.com.

Hunter says claim penalties last three to five years; after that, premiums return to their original level, assuming there’s no additional claims.

Here’s a few more factoids from the study:

Greatest increases after bodily injury claim

1. California: 89 percent
2. Massachusetts: 73 percent
3. North Carolina: 59 percent
4. Wisconsin: 58 percent
5. Iowa: 51 percent

Greatest increases after a comprehensive claim

1. South Dakota: 14 percent
2. Nebraska: 9 percent
3. Louisiana: 8 percent
4. Wisconsin: 6 percent
5. Ohio: 6 percent

InsuranceQuotes.com describes its methodology this way:

Averages are based on a 45-year-old married female driver driving sedan, employed, with a B.A. degree, excellent credit score and no lapse in coverage, who has never filed a claim and has the following limits: $100,000/$300,000 (bodily injury) / $100,000 (property damage) / $100,000/$300,000 (UI/UIM), $10,000 (PIP or Med Pay) and a $500 Comprehensive and Collision deductible. Data based on making one auto insurance claim within a 12-month period. Dollar amounts based on NAIC 2013 data, which is the most recent available.

Click here for more reporting from tech skeptic and consumer advocate Bob Sullivan.

Stacy Johnson

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