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Insurance - Pricing

Your Insurance Premiums Are Going Up

So you were notified that your insurance premiums are going up.  Again.  What to do?  If you’re like most people, you’ll head straight over to the computer and start typing. C-H-E-A-P_I-N-S-U-R-A-N-C-E.  But, is that going to solve the real issue?  Probably not.  Why did your premiums go up in the first place?  The answer, unfortunately, is most likely: Because of YOU!!!

Not me, you say.  But the fact is, whether you are an individual or a business and whether this is life & health or property & casualty, insurance is primarily based on the perceived risk involved.  Yes, the company (or in many/most cases the company’s actuary-tweaked computer system) is looking at you and determining how risky you are as a client.  My goal is to point out a few things you need to know about why premiums increase, and if you can do anything about it.

Why Premiums Go Up:

1) Claims

This is a major reason many people see a spike in their insurance premiums.  But, isn’t paying claims what insurance is for?  Well, yes and no.  Insurance is designed for protecting you from catastrophic losses that most of us could not recover from financially.  If your home burnt down, could you rebuild it tomorrow with the money that’s in your savings account?  Probably not. 

But, many people use their insurance policies like a product warranty.  The old roof that need replacing turns into a “hail” claim.  You need to understand that the more you use your insurance policy, the more likely the insurance company is going to want more premium.  But, I’d argue that it’s completely fair.  If a company has paid out $7400 in claims and your homeowners insurance went from $435 to $490, you’re still getting a very good deal. 

Just be certain that when you turn in a claim, you understand that it might affect your loss history in a negative way.  This goes for all lines of insurance.  So, what to do?  Well, the more proactive you are about protecting yourself, the better your insurance rates will be.  In other words, the less risky you will appear to the all-knowing computer.

2) Changes in the Exposure

Many people don’t put it together that a change in the “exposure” will result a change in the premium.  Up or down, there will be a change.  So, if you buy a new car, it might cost more to insure.  If your 16 year-old gets their drivers license, it WILL cost more to insure. 

Factor that in to purchasing decisions.  I know the last thing on your mind at the car dealership is your boring insurance agent, but you might need to hear that your 2011 BMW 550i will cost $120 more per month than your 2002 Honda Acura does.

3) General Rate Increases

Contrary to popular belief, Insurance companies are not made of money.  They do need to take in enough money to pay the claims and their staff.  Most companies operate with a very small margin of profit.  Most of their income is dependant on the stock market. 

Due to inflation and the general increase in the cost of living and goods, most companies need to periodically increase the rates.  Fortunately, the rate increases are usually very small (2-4%).  You should know that many times a rate increase affects all companies in a certain region or state.  So shopping around for better rates may be counterproductive.

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What can be done about keeping costs down?  Well, fortunately, the vast majority of insurance premiums are controllable to a degree.  Below is a small list for personal and business insurance that will help you understand your role in what you pay.

Personal Insurance (Home, Auto, Boat, Umbrella, Etc.)

  • Practice Safe Driving – Make sure all drivers in the household know that speeding tickets, at fault accidents and other “reckless behavior” will be rewarded with a rate increase. 
  • Be wary of “Free” Roofs – Know that many roofing companies are approaching homeowners indicating that they have “hail” or “wind” damage and that they are entitled to a free roof.  While those claims are covered under most homeowners policies, they are very rarely the sole cause of the damage.  Put simply, roofs in good shape do not suffer hail or wind damage frequently.  Whereas, old roofs in disrepair do.  Understand that a $7000+ roof claim, in addition to others, can increase your insurance premiums – or worse, make you uninsurable at all.  Make sure if you turn in a claim, it is for an occurrence that is sudden and accidental.
  • Check out Consumer Websites on the cheapest autos to insure.  Many times, two equally priced and equipped vehicles will have vastly different insurance rates.

Business Insurance (Liability, Property, Workers Comp, etc.)

  • Implement a Safe Workplace Program – Businesses have the most control over their Workers Comp pricing.  Therefore, making sure your employees stay happy, healthy and productive is critical in keeping your Workers Comp costs in check.  For more information about how to do this, check out our Work Comp page.
  • Implement a Vehicle Management Handbook – Business Auto claims can be catastrophic.  Make sure all employees know how vehicles are to be used and how they’re NOT to be used. 
  • Implement Good Hiring Practices – Most claims begin on the date of hire.  If you knew that a person you’re considering hiring for a driving position has three DWI convictions, you may want to look elsewhere.