Why not start our new blog page with the age old question? Why does my premium keep going up?
As agents we are asked this question numerous times a day. So often that sometimes the answer is almost automatic. As consumers, we ourselves have asked this question, we just ask our underwriters vs ourselves, since you know… we’re our own agents. So. Drum roll please….
And the answer is... there is no simple answer. Hold on! Before you write me off or blow up my comments section (wait... is there a comments section?), let me explain.
As agents, we get that you don’t want to pay more for something then you need to or should. I mean, who does? We also understand that insurance needs are different for every person, personal or commercial. And because of that, rates are different for every person or company. As are the increases and decreases you see over time. Let’s break that down a little bit. Remember, I said no simple answer. On ward read!
There are so many factors that go into how a company rates your insurance premiums. I realize some think that’s just a line agents use to explain the rates, but it’s actual fact. Everything from age, male or female, married or single, commute miles, where you live, environment (like city vs. country), vehicle type, vehicle size, vehicle safety ratings, your driving record – violations and accidents (most going back 5 years), to your credit history are just a few examples of the things that drive your insurance premiums. But that’s not the actual question.
Why are they increasing? Ok Ok... I hear you! We get that question, as I mentioned, a lot. We rarely get the “Hey, why did my insurance go down?” question though. I assume that’s because no one wants to draw attention to something good and have it been a mistake. Chances are, it’s not a mistake. Some of the same factors that cause an increase also cause a decrease. Shocking, I know!
Let’s use this example – the huge July 19, 2019 hail storm that came through our area. The damage to our insured’s homes and autos was massive. Insurance companies paid out hundreds of thousands of dollars on those claims. And no, I’m not here to debate the claims process in this blog – don’t fret, that’ll come in a future blog. I just want to explain what shared risk is. So, because the loss in one area was so large, that risk is spread-out over all insureds. Not just 1 company, but all companies, all insureds. Because of that, we all saw increases in our auto and homeowner’s insurance affecting our next renewals (or the following renewal) to help offset some of that massive loss. I didn’t have any damage to my home or my auto, but yes, I still saw an increase in my rates. Some may not think it’s fair that your premiums go up because someone else had a claim (or hundreds of people in this example) – but if that risk wasn’t shared or spread out, insurance wouldn’t work. Companies wouldn’t be able to pay out on those claims.
Or perhaps you are turning 78 and you saw your rate increase. It's not a pleasant reality, but it is also statistically proven that as we age, some of our abilities decrease such as reflex, timing, judgement to distance, etc. Again, the risk is increased when we get behind the wheel. Our insurance premium is going to reflect that increase in risk.
Another example - autos and homes as well, are starting to include more technology. Driver assist, smart homes, camera’s, etc that are becoming a standard. So in the event of a loss, the payout is more because the loss is more. Another factor that is overlooked is even if you do have an old purple 1989 Plymouth Breeze (yes, I drove it for years!), you might just see an increase on your renewal because simply put – the safety ratings in that car aren’t great anymore compared to current safety standards. So the risk of damage not only to the vehicle but injuries to you or someone in your vehicle, increase. Or the risk of damage to someone else's property increases. Perhaps the parts to fix that auto increase because they are harder to get, so your premium will reflect those changes. There are literally handfuls of these instances that cause a rate increase.
Now, come one, let's be fair and talk about when you see a decrease. For example, when Covid-19 hit, most of us saw decreases in our auto insurance. Our companies took into consideration that people were not driving as much with stay-home orders in place, travel risks, etc. Therefore the risk of a claim happening decreased. This resulted in a decrease in premium, or for some companies, a refund to their clients.
Or another example, when you turn 25, got married and had a child – statistics now say that you are more cautious when you drive because you are more mature, more experienced than you were at 17 or 21 (which translates in to basically you don't show off as much). And having a significant other and child says you are probably thinking of their well-being as much as your own, so again the risk of a loss decreases, which is reflected in your premium.
So the answer to the age old question “Why do my rates keep going up?” is not a simple one. We realize that's a frustrating answer. I could go on for days with examples of why we see increases. But I could also go on for days about why we also see decreases, which are not questioned. Insurance rates fluctuate for any number of reason. Perhaps some days we are the bug and some days we are the windshield. But over our life times, we do see both sides of that coin.