No one gets excited about an increase in their insurance rates, but understanding why these increases are occurring, especially if you haven’t had a claim, can at least soften the blow a bit.
Why Do Premiums Change in the First Place?
Rate increases can occur for a number of reasons. The easiest and most understandable explanation is that something has changed on your end—obviously, if you add a new vehicle, move to a new home, or have to file a claim, you would expect a change in your insurance rate.
But there are other factors that impact insurance rate increases that have little or nothing to do with you and everything to do with the broader state of things in the world.
General rate increases occur when an insurance company realizes that their claims reserve is too low to cover projected claims. It’s these general rate increases that can be the most frustrating for individual policyholders. Unfortunately over the last few years, there has been an increase in both the number of claims AND the size of those claims, which means that claims reserve has to be much larger in order to be able to process those claims.
Want to know what factors into rate increases? Keep reading.
Want to know how to lower your costs? Skip below.
Factors Affecting General Rate Increases in 2023
So, why have we seen more claims at higher values in the last few years? There are several reasons. Insurance specialists have identified the following broad-reaching causes:
- More Natural Disasters: The last several years have seen a dramatic uptick of extreme weather events that have led to damage and sometimes total loss of property.
According to the NOAA National Centers for Environmental Information, Over the last 40 years, the United States has averaged 8.1 extreme weather events with losses that exceeded $1 billion each (CPI-adjusted). However, in just the last 5 years, this average has been 18 events (CPI-adjusted).
In 2023 alone, as of October 10, we have had 24 confirmed weather/climate disaster events with losses exceeding $1 billion each. The claim pool has to be replenished in order to keep meeting the needs of these losses.
- Economic Inflation: Inflation has affected gas prices, grocery prices, and surprise, surprise, even your insurance premiums.
Inflation’s impact on the cost of materials to repair and replace losses means higher claims, which means a quicker depletion of that claims reserve.
- Workforce Shortages: On top of the increase in material costs, the labor shortage in the United States has driven up the cost of repairs.
It’s more expensive to recruit and retain good workers, and when there are fewer workers available, it takes longer to complete repairs.
This means higher costs for repairing damage to both vehicles and properties.
- Corporate Legal Challenges: The average size of claim settlements in court has continued to climb as people’s attitudes towards corporations shift. These shifts include higher jury awards, increased litigation costs, and elevated legal expenses.
Higher claim settlements means, you guessed it, a more rapid draining of that claims reserve, which leads to increases in premiums.
- COVID-Era Premium Refunds: Insurance companies gave back an estimated $14 billion to policyholders in 2020, thanks to reduced driving and accident rates during the pandemic.
This was pretty great at the time, but in the long-run it ended up hurting insurance companies’ financial stability.
Once everyone returned to the roads, claims skyrocketed again, and insurance companies were forced to increase their rates to meet the rise in new claims.
- An Overall Increase in Auto Claims: Even though there were fewer drivers on the road, 2020 had the most fatal traffic accidents since 2007, according to the National Highway Traffic Safety Administration.
The trend in risky driver behavior hasn’t gone away as more people returned to the roads, either.
The increase in frequency and severity of traffic accidents puts an increased burden on the overall claims reserve pool, resulting in general rate hikes.
Those are some of the reasons why your premiums are going up. Now, what can you do about it?
What You Can Do to Lower Your Costs
First and foremost, please don’t hesitate to reach out to your local Wichert insurance agent to discuss how you can adjust your policies. We’re not offended; in fact, we encourage you to connect with us regularly so that we can make sure your policies are just right for your properties.
When we discuss your policies, a couple of factors can be taken into consideration to help you make smart choices and save money:
High Deductibles vs. Low Deductibles
Over time, low deductibles cost you money. How? Lower deductibles typically come with a higher monthly premium. Regardless of whether you make a claim, this is the figure you pay on a monthly basis in order to retain that lower deductible. If you rarely or never have a claim, then you could be paying more for coverage you don’t use that much.
It might be better for you to take on a higher deductible to save money monthly, which you can use to offset other insurance increases, pay other bills, or squirrel away for a rainy day.
Insurance to Value (ITV)
ITV represents the relationship between the amount of insurance coverage you have and the actual value of your insured property. It is a critical measure for determining your monthly insurance costs.
When it comes to insurance, Wichert agents are looking for the Goldilocks plan for your coverage.
A property that has coverage that is significantly lower than its actual replacement value might save you monthly insurance costs, but it means that your property is underinsured. You have too little insurance, which means your insurance may not be able to cover the cost to fully rebuild or replace your property.
On the other hand, a property that is over-insured means you are paying more for coverage than you actually need. This might be an opportunity to make sure the value of your insured property is accurate, so that your provider can adjust your premiums accordingly.
The goal is to have ITV that is just right: coverage that aligns with the true value of your property.
The value of your property can shift and change over time, which is why it’s so important to reevaluate your plan with us regularly. These periodic reviews can help you save money and maintain the appropriate balance between coverage and cost.
Connect with your independent, local Wichert agent if you have any questions about your insurance rate increases. Really, we want to hear from you, we want to save you money, and we want to make sure you have adequate coverage for your property.
Let’s make sure we get this just right.