You expect to see premium hikes following an at-fault auto accident, but not following a loss that was not your fault. A recent limited study conducted by Consumer Federation of America found that you could receive a rate hike of up to 16% after having a not-at-fault accident!
The practice of increasing rates due to not-at-fault losses causes concern and confusion for many consumers. Learning about the rating process can alleviate some of these concerns, and at minimum, put you in a position to ask the right questions so that you can avoid these unexpected rate changes.
What Are At-Fault and Not-At-Fault Losses?
When an accident occurs, the insurance company has to investigate the claim to determine whether someone was liable for the loss.
Weather events (windstorm, hail, flood), collision with an animal, theft, vandalism, and fire losses are considered comprehensive losses and do not stem from the negligence of the driver. As a result, a comprehensive loss is not an at-fault accident.
Collision losses have the potential to be at-fault or not-at-fault losses. Sometimes liability is clear and one person is the sole liable party, in other instances, multiple drivers may share negligence.
When you are not at fault for an accident and your insurance company pays for your damage, your insurance company has a right to recover the money paid for your damage, from the at-fault party’s insurance company. If the at-fault driver is not insured, your insurance company can pursue the driver directly to collect these funds. This process is called subrogation.
If you are involved in a comprehensive loss, subrogation does not apply because no one is at-fault for the loss.
State Regulation of Rate Changes
Each state has different rules and regulations that dictate how to service policies and to handle claims. Some states carry specific laws prohibiting rate increases following not-at-fault accidents. In states where such laws do not exist, the insurance company can choose to apply a rate increase following not-at-fault losses.
Why Penalize Drivers for Not-At-Fault Losses?
If you live in a state that does not prohibit rate increases following not-at-fault losses, you may receive several different explanations to justify that unexpected rate increase.
Your insurance company may not be able to recover the money used to pay for your damage from the at-fault party. Even though you pay a premium for your auto policy, the damages resulting from your auto loss can far exceed the amount of money you have historically paid towards your premiums.
For example, in instances where an uninsured at-fault party is involved, your insurance company is unlikely to recover the funds paid out for your damage and may incur additional costs by pursuing collections. Similarly, if you have a comprehensive loss such as a flood, your insurance company cannot recover funds from Mother Nature.
Your insurance company may even indicate that you have had a number of recent losses (of no fault of your own) and the frequency of losses signals an increased risk, leading to rate increases.
Variety of other factors influence the rating process. Think about the amount of information you provide to your insurance company when purchasing a policy: driving history, age, gender, marital status, address, prior claims history, and even your credit history.
If you are involved in a not-at-fault loss, your personal information alone could send a signal to your insurance company indicating that you are likely to become a higher risk in the future.
Many insurance companies offer coverage for accident forgiveness for a minimal price. Accident forgiveness absorbs the cost of the rate increase you would otherwise pay as part of your premium, following an accident.
How accident forgiveness is applied depends on each insurance carrier’s contract.
Keep in mind that if an insurer advertises that they offer “accident forgiveness”, it doesn’t mean it will be automatically included in your new policy. If you are interested in it, make sure to ask how much it will cost and confirm that it is included in the policy you are applying for.
This is one way to avoid potential rate increases.
Protect Yourself from Unexpected Rate Hikes
Ask if your state prohibits rate increases following not-at-fault losses. Your insurance agent should be able to answer this question, but if not, an array of resources are available online. The state’s Department of Insurance website will have the most recently updated and accurate information.
Due to the complexity of this topic, talk to your agent about your concerns and ask detailed questions:
- Will your rates increase following a not-at-fault loss?
- What does your insurance company consider an at-fault or not-at-fault loss?
- Does your insurance company increase rates if it is unable to recover money from an at-fault driver or in the case of a comprehensive claim?
- Does your insurance carrier offer accident forgiveness, and if so, how is the coverage applied?
If your insurance carrier cannot guaranty that you will not be penalized for not-at-fault accidents, you have the option to switch carriers. While it requires some shopping around, it is possible to find a number of reputable carriers who not only offer competitive rates, but also guaranty that you will not be penalized for losses that are out of your control.