If you have a home insurance policy, you might have noticed recent increase in your rates (or warnings of rates to come). It’s happening, and it’s widespread. A recent article in USA Today noted both home and auto rates are increasing, but:
It’s hard to pinpoint exactly how much rates will increase because they vary by location. But analysts generally estimate the average increase will range between high single-digit to low double-digit percentages.
So, while your rates might increase 7%, a relative in another state could see increases of 11% or more. According to Bankrate.com, most drivers will see insurance premium increases this year.
There are eight reasons for increases at this moment in time, most of which have little to do with insurance company profits and a lot to do with the intersection of many different factors.
Who’s to blame?
Your home and auto rates (and business owner’s rates, too) increase for a variety of reasons. Some you can control, and some you can’t.
In this article, we’ll look first at things you can control, then at the things you cannot control. Then we’ll look at some things you can do to help ease the strain on your budget.
The things you can control
You moved to an area with a different cost of living.
If you have lived in different areas, as a driver it will come as no shock to you that different locations mean different rates. It costs more to insure a driver in New York City than in Cairo, Georgia or in Lobelville, Tennessee.
The difference in your commute to work makes a difference as well. If you previously worked from home, but now have a 30 minute commute, the odds of your being in an accident have increased, which means you will likely see higher rates.
Your credit score changed.
In case you were not aware, or forgot, your credit score affects much more than how many credit card offers you receive in the mail on Tuesdays.
A low credit score can affect mortgage rates, your apartment rental options, your career opportunities, and your insurance premiums. From CNBC:
Most U.S. states allow credit-based insurance scoring, giving auto and homeowners insurance companies permission to factor your money habits into their assessment of your risk.
A dip in your credit score will not automatically increase your premium, nor will your policy be canceled if you drop below 600. But a bad credit score could prevent you from getting the lowest possible rate.
If your credit score dropped without a reason, you can and should dispute it with the reporting agencies.
You filed a claim.
Not simply if you caused an accident. If you are merely in an accident some insurance carriers will consider you an increased risk. This can result in increased premiums.
You lost your multi-policy discount.
Remember when you got that sweet discount for bundling your home, auto, and personal liability policies? Well, when you sell your home and rent an apartment, your auto premium might increase.
Or if you owned two cars and scale down to one. Or if you move to an area with mass transit and decide not to have a car.
Multi-policy discounts are great, but be aware if your insurance needs change, your premiums might go up as a result.
The things you cannot control
The economy
To semi-quote the old presidential campaign slogan, “It’s the economy, silly.” The powerful forces of the national and international economy shape many things, including what you pay for insurance. Consider these:
- Inflation
Rising prices affect insurance companies, too. Replacement costs for car fenders, stolen jewelry, or house damage have risen. Those rising costs cost insurance companies more, too. - Supply chain
Inflation is just one part of the economic puzzle. The Covid pandemic (and Ever Given, the sideways ship) slowed the global supply chain in historic ways. Those slowdowns put upward price pressure on the supplies that are available. - Costs of doing business
Insurance companies, like all companies, have employees; everything is not run by Artificial Intelligence.
And, like other employees they have salary and benefit requirements. As those increase (like in all industries), costs of doing business sometimes lead to rate increases.
Total claims in your state
Another thing you cannot control is that total number of claims filed with your insurance company in your state. Damage from more frequent and more catastrophic storms, rising costs of rental cars to drive while yours is being repaired, new and more expensive tech in automobiles, and lawsuits all affect your premiums even if you don’t file a claim yourself.
Every state requires insurance companies to maintain statutory reserves, an amount “held in cash, or in readily marketable securities that can be converted into cash reliably and on short notice.”
When claims increase, a company can reach a point at which statutory reserves must be replenished to stay compliant with state law. Premiums contribute to refilling those coffers.
Insurance fraud
There is a good chance you do not know anyone who has committed insurance fraud; that’s a good thing. However, insurance fraud happens. When it does, insurance companies lose money.
Whether filing a claim for a non-injury, exaggerated vehicle damage, or padding the cost of home repairs, it all adds up to more costs for insurance companies, and higher premiums for customers.
Rising costs for your insurance company.
Consumers are not the only ones facing rising costs. This is the sad, current state of affairs. Businesses are also impacted.
Have you been shut out of the housing market, forced to look for rental property only to find double-digit percentage increases in rental houses and apartments?
Are you a small business owner renting office space faced with a large rental increase when your new term begins? A nonprofit in my city that had previously paid $2,500 a month for meeting space was forced to find a new location when their monthly rent jumped to $13,000.
That is not a typo.
Rent, utilities, repair costs, and other expenses rise for insurance companies just like any other company. Those rising costs factor into premium increases so insurance companies can pay their bills, too.
What can I do to reduce my insurance premiums?
Since both things in your control and things out of your control can contribute to premium increases, let’s look at some things you can do to reduce your premiums.
Bundle your policies
Just like you might see your premiums increase if you unbundle policies, you can take advantage of bundling to lower rates on the different policies you have.
A common mistake people make is having their auto policy with one company and their home insurance with another company. This usually has the effect of leaving money on the table; your money, to be exact.
Raise your deductible
One of the easiest ways to lower your premiums is to raise your deductible. This is an especially smart move if you have been able to put back enough money to cover the higher deductible amount or if you have been accident-free for several years.
Sell a vehicle you no longer need
This one might sting if you really love that ‘55 Chevy in the barn, but it might be a good time to let her go. Paying for coverage on vehicles you rarely or never use is not given a second thought when cash flow is good, but when things get tight, it might be time to reevaluate.
Another thing to consider is, if you and your spouse are working from home, do you have an extra car you can sell? If you can go from three to two or from two to one, that will free up money monthly.
Review your policies with your agent
The insurance industry, like many sectors, is always adjusting. It is entirely possible your carrier has modified their coverage requirements or costs. A policy review (which you should do annually) will help you find ways to save.
Wherever you are in life, our team at the Egly Agency can be trusted to help you evaluate your needs and goals, and the insurance coverage you’ll need at every stage. We’d love to have a conversation with you, so call us at 615.250.2723, or fill out the form on this page.