Rates, like everything else, are on the rise, but why?
I often get asked in the agency and online why insurance rates go up, so I thought I’d do my best to explain it. Please don’t read this, as I’m wanting you to feel sorry for insurance companies. Simply trying to explain why rate increases happen. I'll go ahead and apologize for the length as well. I'll try to be as concise as I can while painting the whole picture.
Insurance carriers rely on historical data to price their products, so the last year or two of inflation has just now shown itself in their losses. Pre-pandemic, we were seeing rate pressure in the industry because the technology being pumped into vehicles was causing repair prices after accidents to soar. What used to be a $3,000 claim became an $8,000 claim over the course of about 4 years. The days of an accident involving two metal bumpers that could easily be replaced were gone, and the days of backup cameras, sensors, and automatic lift gates (all great features) meant higher costs.
Carriers were struggling to predict what claims costs would be because they were changing so rapidly. Carriers were already a little behind when the pandemic hit, and they did the right thing and paused their rate increases during that time. Many refunded premiums.
Post-pandemic supply chain issues caused parts delays at body shops, which led to increased expenses for rental vehicles after accidents. Labor shortages caused labor rates at body shops and on home repairs to go up by 20% or so.
It had a similar effect on vehicle parts and building materials, as we’ve all heard. The value of used vehicles also went up by 40% at one point, which meant substantially higher payouts when a vehicle is totaled in an accident.
On top of the increased costs to repair damaged property, litigation has increased dramatically.
Looking at the top 20 carriers in the country for 2022, only two of them were profitable, and the average company lost about $1.20 for every $1 they brought in. The industry experienced a $26.9 billion net underwriting loss in 2022, more than six times the $3.8 billion underwriting loss in 2021.
All that’s to say, the industry is in a tough spot, even before our summer storm and hurricane seasons.
How do we combat it? And how do I help you?
Carriers have tightened up their underwriting guidelines, and for things they didn’t use to rate you up for, I’ve noticed them holding against you now. Things like towing claims and glass claims. I would personally recommend trying to avoid filing those claims when at all possible.
AAA towing is a great standalone towing option that won’t show up on your insurance history. Removing roadside assistance from your policy in favor of AAA isn’t a bad idea.
For glass claims, many smaller local glass shops can replace most windshields at a reasonable rate, and many are mobile. It’s worth at least getting a quote from them before filing the claim.
Home claims can cause carriers to deny quoting. One claim in three years isn’t usually a big deal, but more than one, even weather-related, can lead to issues finding affordable coverage. If you’re able to handle smaller claims out of pocket, I’d advise you to do so for the time being because you never know when you may have a bigger second claim. If the estimate for repairs is only $500–$1,000 (more if you’re able) above your deductible, I personally wouldn’t file it.
Rates in general are tied to several factors in addition to claims history. What the industry calls an “insurance score” carries significant weight in your rates. An insurance score is heavily influenced by your credit score, but it also includes the length of time you have been with your current insurance company. Three years is usually the threshold to receive a solid discount when moving to a new carrier, with it maxing out at about five years.
The coverages on the policy matter against the rate, but not nearly as much as the insurance score or life changes.
If your credit has significantly improved, you’ve gotten married or divorced, you’re adding children, or you have moved a significant distance, these are times I’d recommend getting new quotes.
The beauty of working with an independent agency is that I don’t deal with only one insurance company. I work for you. I have over a dozen different carriers, both for personal and commercial insurance, that I represent to find the one that fits you the best. Every company has the perfect client in their eyes, and the closer you fit in to what they’re looking for, the better their rate for you will be.
I have processes in place to review your policies automatically on your behalf as they approach renewal. I will often re-shop your policies if a rate increase is out of line with what I’m seeing from other carriers.
If at any time you’d like me to re-shop them for you outside of the parameters I’ve set, please shoot me an email.
I’m here to help you in any way I can. If that’s re-shopping your policies, if that’s answering questions, if that’s offering advice, or if that’s dispelling rumors, I’m happy to do it.
I appreciate the opportunity to work with you and am thankful to be connected. Have a phenomenal day!