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Understanding Your Insurance Rate Increase

Why are insurance rates so high

INSURANCE GUIDE: Understanding Insurance Rate Increases

We all feel the impact of increases in the products and services we buy, and an insurance rate increase is no exception. The recent rise in inflation rates, increased material and labor costs, frequent natural disasters, and market instability contribute to increased insurance rates. The insurance industry is experiencing rate increases for most home and auto insurance policies.

While it may be tempting to react by shopping for a new insurance provider, it’s essential to understand the reasons behind the increase, your options for reducing your rates, and the potential drawbacks of changing insurance providers.

Why Current Insurance Rates are Increasing

The main reasons we’re experiencing rate increases:

  • Rising inflation rates cause a rise in home prices and vehicle prices, making these more expensive to replace and repair.
  • Increased material and labor costs add to the increased cost the insurance companies face when responding to insurance claims.
  • Frequent and more severe natural disasters add to the volume of claims made due to any single weather event.
  • Market instability – Insurance companies buy their own insurance from “re-insurance” companies, which are tied to the ups and downs of the financial markets. If you’ve experienced a rate increase, it’s likely your insurance company has experienced one, too.

While times are financially challenging on many fronts, the role of the insurance companies remains the same: to provide their customers with financial security against big losses. To do this, they must remain financially stable so they have the resources to respond to customer needs.

In addition to the recent rate increases there are other factors that effect insurance rates. It’s helpful for customers to understand how insurance companies assess risk. If the company sees an increased risk that may cause your rates to go up.

6 Common Reasons for Insurance Rate Increases

  1. Industry-wide insurance rate increases. It may be hard to find reduced rates for the same coverage when industry-wide increases happen because most carriers will have similar rate increases.
  2. Increased claims activity in your area. Natural disasters like hurricanes, floods, or wildfires that produce frequent claims for an area mean higher financial risk for insurance companies, resulting in rate increases or stricter underwriting standards.
  3. Signs of property neglect. A house that shows signs of disrepair is a red flag for insurance companies because it signifies an increased risk of damage or loss. A house in poor condition or one that needs repairs could make getting a new insurance policy with another provider difficult unless updates and repairs are completed.
  4. Changes in the local crime rates. If crime rates increase in your neighborhood, the insurance company may raise rates to cover the added risk.
  5. Impact of an unfavorable change to your Credit Score. Your credit score is one of the factors used by banks and financial institutions. Insurance companies as well. A poor credit score could negatively affect your insurance rates.
  6. Frequent or large claims. Increased claims activity could increase your insurance rates because your insurance company will now see you or the property at a higher risk of additional claims, resulting in increased rates.

Real-Life Examples of Insurance Rate Increases

Example 1:  You experience a house fire that requires major repairs. You reach out to get quotes from local contractors. Most are busy or understaffed and cannot start the repairs for several months. In addition, material costs have increased dramatically, and contractors have tripled their labor costs in response to the labor shortage. You get several quotes and are shocked at how much it will cost to repair your home. You pass the quotes on to your insurance adjuster. Now, multiply this scenario over thousands of customers. The cost of helping customers replace or repair damaged property has increased exponentially for insurance companies. In order to remain financially sound so they can continue to respond to the needs of their customers, insurance companies have increased their rates.

Example 2: The recent increase in storm frequency and severity has unfortunately hit your hometown; high winds and driving rain cause damage to many homes. Downed trees have fallen on cars and rooftops and taken down garages and sheds. When you go out and drive around, you notice at least 20 homes in town that suffer damage! That means 20 homeowners are now filing claims with their insurance company. And that’s just your town; neighboring towns also had a lot of damage. Insurance companies need to respond to the claims that are rolling in and help their customers pay for the damages and losses.

Example 3: You are traveling home one night, and due to low visibility and poor road conditions, you cause an accident. Three cars are involved, along with multiple drivers and passengers. One of the vehicles is a new electric vehicle, and the other is a high-end SUV. The EV was totaled, and the SUV had heavy damage. The combined damage to both vehicles is well over $100,000. Not only are these expensive cars, but the parts and labor costs over the past couple of years have increased dramatically. Luckily, you took your agent’s advice and increased your auto liability limits so your claim is covered. Imagine the cost for the whole accident if you add up all the property, liability, and medical expenses related to the crash. The cost of auto accidents has increased year over year due to expensive cars, disruptions in the parts supply chain, and increased labor costs. The insurance companies have increased their rates to continue responding to claims like these.

Coverage and Financial Protection are a Priority.

When considering changing insurance providers because of a rate increase, keep in mind the insurance coverage necessary to provide you with the financial security you need. The reason why people have insurance is to protect them from financial risks. Here are some examples:

  • If you have a stolen car, do you have enough money to replace your vehicle?
  • If you suffer a home fire, do you have enough coverage to restore your home to its original condition and replace the lost personal belongings?
  • If someone slips and falls on your property and sues you, will your policy limits be enough to cover the legal expenses and a lawsuit settlement?

Claims payouts vary according to the policy terms, limits, and exclusions. Talk to your agent about how much and what types of coverage you’ll need to be fully protected. Reducing coverage to lower your premiums could leave you exposed to financial risks. If you know and understand the trade-off, you can better assess the effects of a policy change. Changing insurance carriers to save money is reasonable if you get the same coverage for a reduced price. If you understand and accept a coverage reduction to save money, you may determine that the price vs. coverage compromise is worth it to you.

What to consider before deciding to shop around

Switching providers to get lower rates may not always work in your favor. Here are some reasons why.

  • Will you lose discounts with your existing carrier, such as claims forgiveness and loyalty/ longevity discounts?
  • The price increase could result from higher cost to rebuild estimates. Insurance companies use “cost to rebuild” estimators that calculate the amount of money it would take to rebuild your home if there were a total loss. These estimates have increased dramatically across the industry due to the sharp increase in building materials and labor.
  • The same underwriting red flags will be present when shopping for a new policy. If red flags exist with your current provider, it’s most likely any potential new providers will flag these same issues. New quotes may reflect equal or higher rates.
  • A new property inspection may unearth new underwriting concerns. Insurance companies continue to tighten their underwriting standards. Items such as chipped paint, a cracked garage window, or the need for porch railings might become issues during the quotation process. A new property inspection could identify problems that may result in costly home repairs.
  • Not all policies are created equal. A lower-priced policy may not offer the same coverage as your current policy. Ask if the coverage and policy limits provide the same protection you have with your existing policy.
  • Your new insurance company may implement rate increases. You may go through the effort of changing insurance companies to find out your new provider is implementing a rate increase at your next renewal, leaving you to start shopping for insurance all over again.

”With insurers raising rates so aggressively, it is more likely than usual that the premium quote you are offered today will increase when your policy renews.

Douglas HellerDirector of insurance for the Consumer Federation of America, a Washington, DC.

Steps to Help Offset an Insurance Rate Increase.

As with any increase in the cost of goods and services, insurance rates go up over time as well, but there may be some steps you can take to help reduce the cost besides simply price shopping for the lowest-cost provider.

Mitigate risk to prevent claims

A large claim or several small claims can increase your insurance premiums. Here are some risk mitigation tools:

  • Central fire and burglar alarm systems.
  • Automatic water shut-off devices.
  • Electrical surge detectors
  • Clear trees and vegetation from around your property
  • Update outdated home systems such as plumbing, HVAC, and electrical.
  • Replace older roofs (20+ years)

Inform your agent of any upgrades to home systems. Sometimes, these upgrades can work in your favor regarding a reduction in your premium.

Increase your deductible

A higher deductible can lower your monthly premiums. Be sure it’s a deductible that you can afford. Your deductible is the out-of-pocket expense you will incur if you file a claim before your insurance company starts to pay. If, for example, you have a $500 deductible, increasing it to $1,000 could help reduce your premium.

Bundle your home and auto insurance

Receive a home and auto bundled policy discount and gain the convenience of having both your home and auto with one insurance provider.

Take advantage of all available discounts

Along with bundled policy discounts other discounts are available and vary by carrier. Examples of discounts you should ask your agent about include good student teen driver discount, home security discounts, customer loyalty discounts and more.

Maintain a safe and secure home

One way to potentially avoid home insurance rate increases is to maintain a safe and secure home.

Tips include:

  • Installing smoke detectors, carbon monoxide detectors, and security systems.
  • Keep your home in good repair, including fixing any leaks or damage to the roof or foundation.
  • Make sure to keep your home free of clutter and hazards that could cause accidents.

By taking these steps, you can reduce your risk of filing a claim and incurring a claims-related rate increase.

Understanding Your Changing Insurance Needs

A regular policy review can help you avoid surprises and ensure you have the necessary coverage for your needs. It’s also important to review your policy periodically and make changes as needed to get the coverage you need at a price you can afford.

If you decide it’s necessary to shop around, you can rely on your independent agent to help you compare rates from different providers. Remember that switching providers could impact your premiums, coverage, and benefits positively or negatively. Please consult with your independent agent; they can advise you and make recommendations based on your unique situation.

Rely on your agent

to advise you and help you understand the reasons for the rate increase, make recommendations to help reduce costs, and help you determine if shopping for another insurance provider is worthwhile.

CALL 800-392-6532

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