Odds are you’ve noticed that insurance rates seem to be going up in recent years. Especially for auto and homeowner’s insurance, it seems like no matter how clean the record is, we still pay out more and more. Why is this?
I decided to speak with a local insurance broker to get some answers. Contrary to what some may think, it’s not just the insurance companies “taking advantage” of us as consumers. It’s a very intricate situation and there are legitimate reasons why insurance premiums have gone up substantially in recent years.
Let’s hear from our expert, Jason Conner of Conner Insurance Group. I posed some questions to him about the topic. Here’s what he had to say.
“I haven’t had a claim in many years, but my premiums still spiked. Why did this happen?”
The average insurance company is operating at approximately a 140% loss ratio on personal lines of insurance. This means that for every $1 they receive, they pay out $1.40. If it wasn’t for their commercial lines, the insurance industry would go bankrupt.
So, just like us if we have more money in bills than our take-home pay, then we have to side hustle to get our income up. Increasing rates is their “side hustle.”
On homes, having premiums increase is NOT a bad thing. Your value of your home goes up every year. The replacement cost of your home also goes up (i.e., it will cost more to replace your home now than when you bought it). The premiums increase to ensure that you are 100% insured to value. With homeowner’s insurance, you are at least getting higher coverages for the price increase.
But a more problematic area is auto insurance. Companies are paying out a LOT of money on uninsured/underinsured claims because so many people have state minimum coverage levels. In Tennessee, the state liability minimums are $25k for bodily injury, $50k bodily injury max per incident, and $25k for property damage.
So if you get into a crash that the other party caused and they are underinsured, then your insurance carrier has to step in. Your carrier shouldn’t be paying this claim, but now they are and therefore they take a loss. This is happening quite frequently, and in order to remain financially viable, premiums need to go up.
“How often should I shop around for insurance, especially after my premiums go up?”
It is NOT all about price. However, we know price is important, so I suggest shopping every renewal. But when you shop around, be POSITIVE that you do not sacrifice any coverages just to lower the premium.
Also have a good working relationship with your agent. The price increase is often justified based on this value of having a direct contact with your agent and an understanding of how your policies work for you.
“If my rates have gone up, why should I still look at increasing coverage levels?”
The rates are not going to matter if you have a claim and something doesn’t get paid out because you wanted to save $25 a month. Have a professional review your policies and make coverage recommendations before there is an incident. Because once a claim happens, it is too late.
You could lose A LOT if you don’t plan accordingly and know what types of coverage you do and do not have.
At the end of the day, it’s all about the “endorsements” on your policy, especially on homeowner’s insurance. But fairly few people add them. This is for a few reasons:
- These endorsements cost money;
- You don’t know to ask for them, as you don’t know what they are; and/or
- The agent doesn’t tell you because they just want to sell you the cheapest option and move on to the next person.
There are at least two things not to buy cheap in life:
- Insurance
- Wine
Both will leave you with heartburn!
When assessing your insurance premiums, it’s important to consider the value as opposed to just the price.
“What are some specific things I can do to keep my premiums from increasing so much?”
Three specific practices will help keep your premium increases down.
- Use the “double my deductible” rule. If your deductible is $2,500, don’t file a claim for anything less than $5,000 in value. Especially if you are handy yourself or are otherwise well-prepared financially (i.e. having emergency savings). If you can avoid filing a claim, this will put some downward pressure on your rates.
- Carry a higher deductible. A higher deductible equals lower premiums because you, as the insured, are carrying more of the risk. Less risk for the insurance company means less potential cost to them, savings that gets passed on to you.
- Bundle your policies if it makes sense, and maximize all discounts (driver’s ed training, alarms in your home, telematics program, etc.).
Final Thoughts on Increasing Insurance Premiums
This was some great information that Jason shared with us. I understand that it’s been frustrating for a lot of people to see their insurance premiums go up, but it’s not without cause.
A lot was disrupted nearly 4 years ago when the world was forcibly locked down. Supply lines were pushed to the brink, inventories were low, and many people were not allowed to work. And many people decided to relocate in response, causing the housing market to go into a tizzy.
Actions have consequences. And we’re still seeing the results of that today. The best thing for us to do as consumers is to take the initiate and educate ourselves so that we can make informed decisions.
To review your insurance coverages, reach out to Jason for a conversation. Conner Insurance Group is a full-service Insurance Agency offering all lines of insurance to include auto, home, renters, motorcycle, boats, life, retirement, annuities, 401(k) rollovers, and much more. He is licensed in TN, KY, AL, GA, NC, SC, OH, TX, KS, MO, AZ, CO, OR, VA & WV.
