What is a "surcharge" in the context of auto insurance premiums?

In the context of auto insurance premiums, a surcharge refers to an increase in the premium rate due to certain factors, such as a driver's poor driving record, accidents, or claims history. When an insurer assesses the risk a policyholder presents, they may determine that the likelihood of future claims is elevated based on these factors. Consequently, they apply a surcharge to reflect this increased risk, leading to higher premium costs.

For instance, if a driver has multiple speeding violations or has been involved in accidents, the insurer may implement a surcharge to account for the higher risk of filing additional claims. This mechanism aims to ensure that those who are statistically more likely to incur future costs contribute more to the overall insurance pool. Understanding surcharges is crucial for policyholders, as it highlights how driving behavior can directly impact insurance costs.