How much can one accident increase your auto insurance rates?

by Peter Nero, April 26th, 2010

When shopping for car insurance, drivers choose mainly based on price, service and reputation and forget to consider the company's "surcharge schedule".

A surcharge is a predetermined amount your insurance company adds to your insurance premium, which is the amount you pay for your insurance, because of some event or occurrence. Surcharges should be expected on your car insurance premium when you either receive a ticket for a moving violation, or when you are determined to be at-fault for an accident.

The following information will help you to understand auto insurance surcharges so that you are prepared to discuss it with your insurance agent before purchasing a new auto insurance policy.

What is a Surchargeable At-Fault Accident?
How is the Insurance Surcharge Determined?
What is The "Point" System?
What are Some Reasons Why Your Rates May Increase?
What Is the Difference Between a Minor and Major At-Fault Accident?
What Else Should You Know?

What Is a Surchargeable At-Fault Accident?

An accident is defined as surchargeable if:

The involved operator is more than 50 percent at fault as determined by the Standards of Fault;
The vehicle is a private passenger automobile;
The accident involves a settlement of more than $500 (after deductible)
The accident causes bodily injury (liability insurance) or property damage (collision/comprehensive insurance) for which your insurance company makes a claim payment to the other party.

If you are at-fault for the accident there are various reasons why your insurance premium will increase, but what is a standard increase after just one accident?

How is the Insurance Surcharge Determined?

Insurance rate increases are normally hidden by the insurance companies unless you specifically ask the company for their "surcharge schedule." Car insurance companies are required to include this schedule with the rates that they file with each state insurance department in which they operate.

Insurance rates and surcharge schedules may be complex. However, in general, the surcharge schedule provides the percentages and points that apply to different types of accidents.

Many companies follow the Insurance Services Office (ISO) policy, which states that on multicar policies, for the first two vehicles on the policy, the surcharge is 20 percent of the base rate, and 40 percent for a single-car policy.

As an example, say you insure two cars at a premium of $200 each and the insurer's base rate is $300. After an accident, you may get a surcharge of $60 (20 percent of $300) on both cars, so your total surcharge would be $120 - an increase of about 30 percent on the policy.

The surcharge usually will remain on your policy three to five years. The period will vary depending on what caused the surcharge, how much the insurance had to pay out, and the amount of your premium.

Since many insurance companies operate with their own surcharge schedule, and it varies by state, it is very important that you ask before purchasing their policy.

What is the "Point" System?

The point system is used by each state's motor vehicle agency ("DMV" or "BMV") to track unsafe drivers and suspend or revoke their drivers' licenses.

Each type of incident has a number of surcharge points assigned to it. The point values are usually as follows:

5 points for a major traffic violation, such as driving under the influence or while intoxicated (DUI/DWI)
4 points for a major at-fault accident, which is when the claim against your insurance is over $2,000
3 points for a minor at-fault accident, where the claim is more than $500 and less than $2,000
2 points for a minor traffic violation, like speeding

A driver is assigned a surcharge point total, which is simply the sum of the surcharge points for each driving incident. Points then will have an equivalent in dollars or percentage in which the premium will increase.

What are Some Reasons Why Your Rates May Increase?

Some companies only focus on at-fault accidents for which they have to pay more than $500 ($750 in some states) after the deductible has been applied; others also consider moving violations in the rate increase.

The economic concept of "supply and demand" plays a significant role when determining rate changes. When the supply is high and the demand is low, the price will decrease. Conversely, when the supply is low and the demand is high, the rates will increase. If you caused an accident, some companies might not want to insure you, which reduces your supply options, thereby raising your rates.

Actions you take following a car accident may also lead to an increase in rates, perhaps by as much as double. For example, if you've made a claim, and then purchased a more expensive car, you'll likely see a significant increase - perhaps as much as 100 percent.

On the other hand, there are factors that may help lower your rates. For example, entering a lower-risk age bracket, or buying a less expensive car to insure, might offset any increase due to an accident.

What Is the Difference Between a Minor and Major At-Fault Accident?

Whether an accident is a minor or major at-fault accident is determined by the amount of the claim payment (in excess of any applicable deductible).

Minor at-fault accident: Claim payment of more than $500 but less than $2,000 for causing bodily injury to others or damaging someone else's property.
Major at-fault accident: Claim payment of more than $2,000 for causing bodily injury to others or damaging someone else's property.

What Else Should You Know?

Forgiving First Time Accidents:

Some car insurance companies "forgive" customers their first at-fault accident claim, but since the practice is not industry-wide it's hard to tell which company will hold your rate steady the first time. They often also require that you fit a certain profile.

When shopping for insurance, ask the insurer if they offer first-time accident forgiveness. It might save you a lot of money on your car insurance over time.

Defensive Driving Courses:

Traffic schools offer defensive driving courses to educate drivers, increase safety and help reduce traffic accidents. Taking this course may allow you to dismiss traffic tickets, reduce insurance rates and obtain driving records. To learn more about Defensive Driving Courses to lower your insurance rates, click here.

All content on Accidents.com is for informational purposes only and is NOT intended as legal or medical advice. Please seek advice from a professional on any related topics.

Tags: Car Accidents · Car Insurance · Insurance