Have you ever opened your insurance policy renewal and noticed that your rate went up? Perhaps it’s already happened to you this year. We Insure understands that it’s frustrating. No one likes rate increases, but they do happen for a reason. And sometimes, you may be able to secure a better price by shopping around.
Let’s explore some of the most common reasons for rate increases and how you can shop around for less expensive coverage.
Why Do Insurance Rates Go Up?
Although insurance premiums can feel arbitrary, the insurance industry bases its rates on a few things: highly specialized professionals called actuaries use their expertise in mathematics, statistics, and financial theory to analyze risk, which helps inform rates.
Actuaries help insurance companies determine the probability that an insured event – such as a traffic accident covered by your auto insurance policy – will happen. The more likely it is to happen, the higher the associated premium. The less likely, the lower the premium.
This is how insurance companies manage the financial risk they take on. Remember, they are agreeing to pay for certain losses, should they happen to customers. If an insurance company didn’t manage risk, it might not have the funds it agreed to pay its customers when trouble strikes.
Let’s take a look at some common reasons why insurance rates increase.
Across-the-Board Rate Hikes
Sometimes, insurance rates increase throughout an entire state. One main reason this happens is because insurance rates are regulated by a state insurance body, often called the Department of Insurance (although some states use different names). Because states are responsible for regulation, one state might have more regulations than others.
One of the goals of all of these state regulatory bodies is to protect consumers from unfairly high rates. But another goal is to make sure rates aren’t too low. If rates are too low, insurance companies can become insolvent, which means they don’t have the money they need to pay claims.
In general, across-the-board rate hikes occur when overall trends change. For example, during the COVID-19 pandemic, many auto insurance companies provided rebates and discounts to their customers because there were fewer people on the road. This meant fewer accidents and less risk.
As COVID cases decline and restrictions subside, people are starting to drive again, which means more cars on the road, more accidents, and higher risk. Auto insurance premiums are expected to increase across the country in 2022 and beyond to reflect this uptick in risk.
The same goes for microtrends in your area. If your zip code sees an overall increase in burglaries, for example, your homeowners insurance rates may go up, even if you’ve never been burgled.
Rate Hikes Based on Claims History
You likely already know that claims on your insurance policies can increase your premiums. Making one claim, statistically speaking, means you are more likely to make future claims. That’s why claims can affect your premium, even if you are not at fault.
But did you know that insurance companies share information about claims? The Comprehensive Loss Underwriting Exchange (CLUE) gathers claims information related to homeowners insurance and auto insurance. Insurance companies request CLUE reports when assessing risk and assigning premiums.
CLUE reports contain information from the last seven years.This means if you moved to a new home, your insurance company will look at the home’s history of claims. If there has been past water damage, theft, or other property claims, it can affect your premium, even if you aren’t the homeowner who made the claims.
Rate Hikes that Reflect Changing :Life Circumstances
A change in your life can also increase your premiums. We’ve already discussed how and why premiums might change when you move to a new house. But other life changes that can impact your premium might not be so obvious..
For example, if your credit score decreases, it might lead to an increase in rates. Most states allow insurance companies to access your credit score, and lower credit scores are associated with an increased risk of filing a claim.
Your age might also come into play. For auto insurance, drivers over 60 are considered risky just as teen drivers are. Many insurance companies look at other customers who are similar to you. If the group you fit into tends to file a lot of claims, you might end up with an increased premium.
How We Insure Can Help You Shop Around for More Competitive Coverage
Insurance rates can increase for reasons completely out of your control, which can seem unfair. However, not all insurance companies have exactly the same rates. Remember how insurance companies tend to look at similar groups of customers to determine rates for people in those groups? Not every insurance company looks at all of these things in exactly the same way.
This makes it possible to shop around for the best rates. There may be companies whose actuary tables deem you more risky, but there may be other companies whose tables deem you less risky. The key is to compare quotes from multiple carriers.
You’ll also want to make sure you ask the right questions. Insurance is nuanced. Cost is important, but it’s not the only consideration. You want to choose a policy that meets your needs – and the least expensive option doesn’t work for everyone. For example, if the least expensive renters insurance doesn’t cover your collection of antique vinyl records, what’s the point in having it?
Gathering quotes and asking the right questions on your own can be time consuming and overwhelming, especiallly when many consumers don’t even know they’re not asking quesitons they should be. We Insure can help you shop around for competitive coverage that meets all of your needs.
We Insure agents have access to policies from multiple carriers, so they can gather multiple quotes for you to review at once and help you choose the one that best suits your needs. Contact a We Insure agent today to learn more.
The information contained in this page is provided for general informational purposes only and may not be applicable to all situations. We Insure makes no guarantees of results from the use of this information.