Car insurance premiums are calculated based on a complex algorithm that assesses risk. Individuals who are at a higher risk of being involved in an accident (or filing a future claim) will pay more for insurance than those who have a lower risk.

The reason that insurance companies charge higher premiums to people who have accidents is so that they can recover the cost of claims. An insurance company can only profit if it gathers more in premiums than it pays in claims. Every claim costs money not only in the cost of a settlement but also to pay claims personnel like adjusters and call center associates. Some claims may cause rates to increase more than others, but all claims may have an effect on a policy.

Determining Fault

As a rule, at-fault claims are more likely to cause a driver’s premiums to increase. There are several reasons for this. First, drivers who cause accidents may be more likely to cause more accidents in the future due to reckless driving habits. Second, whenever a driver causes damage, his insurance must pay for damage to two vehicles rather than one. This causes at-fault claims to be much costlier for the auto insurance company.

After an accident occurs, an insurance adjuster will review the facts of the loss and obtain statements from both drivers as well as a police report or witness statements. Based on this information, the adjuster will determine who is at fault for the accident. Some accidents have clear liability; for example, a rear-end accident will always be the fault of the driver in the rear. Other accidents will require more extensive investigation to determine fault.

Different states handle fault differently; in some areas, if a driver is 51 percent or more at fault for an accident, his insurance will pay for the total cost of the claim. In other areas, the driver’s insurance will only pay for damage up to the percentage of fault. When the adjuster has assigned fault to the claim, he will discuss this with the insured to explain how the coverage will be applied and what portion of the loss the driver is responsible for.

After the claim has been settled, the not-at-fault company will file a claim against the at-fault insurer. This process is called subrogation and it is used to recover the cost of the claim. Through subrogation, an insurance company can also recover and reimburse an insured’s deductible. The subrogation process may take several months, and it sometimes goes through an arbitration process if the insurance companies disagree about liability.

In most cases, accidents that are not a driver’s fault will have a minimal effect on his policy due to the funds being recovered in subrogation. Some not-at-fault accidents may still cause a rate increase, though, especially if the insurance company is not able to recover funds used in the claim.

Somebody Else Hit Me. Why Did My Rates Go Up?

If a person is not at fault for an accident, his car insurance may still be affected. The insurance company may be unable to subrogate due to the at-fault driver being uninsured or if the accident was a hit-and-run. An insured driver may also see auto insurance rates increase if they have filed multiple claims in a short period, even if none of the accidents were their fault. This is because car insurance companies can only recover settlement costs, not man hours, through subrogation.

In most cases, the insurance company will not know in advance exactly how much a policy will be affected by a claim. The process of assessing risk and setting premiums is known as underwriting, and most underwriting is completed by a computer. The computer uses a complex algorithm that takes into account all facets of a driver’s history and demographic information. This means that one accident may cause premiums to increase more than another accident, or that two drivers with similar policies may pay very different rates after an accident occurs.

Some car insurance companies offer protection from rate increases. Allstate, for example, is famous for its accident forgiveness. Other companies are working to implement similar rewards. It’s a good idea to ask your insurance company if there are any programs you can enroll in that would mitigate the rate increase caused by an accident. Even if the protection costs slightly more to add to your policy, the additional fee will likely be less than the price of an accident on a driver’s policy.