If you get nabbed for a moving violation or need to file a car insurance claim for an accident, your car insurance company might punish you by slapping a surcharge onto your bill. Surcharges are the equivalent of putting your car insurance rates in the penalty box. And those higher rates could stay there for three to five years.
Depending on the state, insurance company and reason for the hike, a surcharge can run anywhere from 10 percent to 20 percent, says Billy Van Jura, an insurance broker in New York.
“Usually, the amount will vary depending on what triggered the surcharge: Was it a ticket or accident? How much the insurance had to pay out, and what was the amount of your premium? Every insurance company has a different formula for determining the exact amount of a surcharge,” says Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute.
Car insurance companies usually use a mathematical formula that converts the severity of your accident or traffic ticket into a dollar amount. And once that happens, Worters says, the next step typically is that a driver receives a "surcharge notice" from his car insurance company explaining that his rates will go up.
However, this doesn’t necessarily mean you’re doomed to higher premiums; drivers can appeal surcharges. Yet a study from the New England Center for Investigative Reporting says drivers in Massachusetts aren’t pushing back against penalties for claims, accidents and tickets.
Not appealing a surcharge can cost drivers a lot of money, says Linda Sherry, director of national priorities at Consumer Action, a nonprofit consumer advocacy group. But appealing isn’t cheap, and the associated costs often turn people off, Sherry says. “That’s a mistake, because it pays to look into what you could potentially save if your appeal is successful, which a large proportion are, and compare it to the costs of appeal fees,” she says.
Navigating the appeals process
The first step in fighting a surcharge is contacting your auto insurance agent to see whether he'll plead your case, such as explaining to the insurer's underwriters why the accident wasn’t your fault. Underwriters review your data to set your auto insurance rates and surcharges.
“You should always appeal an increase in auto insurance for an accident in which you were not the at-fault party. Consumers who believe they have been treated unfairly or who have a good reason to argue that they didn't deserve a ticket should also always appeal,” Sherry says.
If your agent can’t successfully argue away the surcharge, the next step is a formal appeal.
Printed on the back of a surcharge notice is a form you can fill out and mail to your state insurance department within 30 days of notification, Worters says. You must include a check or money order to cover the fee for the appeal to be heard. “Most states charge about $50 to appeal,” she says.
Once your request is received by your state's insurance appeals board, your case will be scheduled for a hearing. You’ll receive a notice about three weeks ahead of time to inform you of the date, time and location of the hearing.
“The appeals process could take a long time; in some cases, you will not even get a (hearing) date for more than a year,” Worters says.
When you finally attend your hearing, it'll be with a representative from your insurance company and a member of the insurance board. “After the hearing, the … board has 30 days to send you a letter informing you of their decision,” Worters says.
If you win your appeal, send a copy of the letter you receive from the state board to your insurance agent, who'll forward it to your insurance company for removal of the surcharge. You should also ask for a credit of the extra premiums you paid as a result of the surcharge.
However, if the state board rules against you or you disagree with the ruling, you can continue to fight by filing an appeal with a higher court. The fee to file that appeal is about $250, depending on the state. You can hire an attorney to represent you; however, that’s not necessary.
Depending on the amount of the surcharge and the time it will remain in effect, the court fees could be worth it. Over five years, you could pay thousands of dollars for a 20 percent surcharge.