One of the most commonly asked questions in the insurance industry is “Why did my insurance rates go up?” Everyone has experienced this at one time or another and the truth is that there could be many reasons as to the rate increase. In this article we will cover the most common reasons as to why you saw your premium go up.

Auto and homeowners insurance can simply increase because your company took on a rate increase. A few factors come about in this decision. The main one is an increase in claims. When insurance first began, the main idea was for everyone to help assist others in the case of an accident. If one person’s home was destroyed in a fire it made sense for everyone to contribute a little bit of money instead of the financial burden being placed solely on one person. Most people do not have the financial assets to pay $300,000 to rebuild a home or $25,000 to replace a vehicle so paying a much smaller amount to have reassurance that if something happens a person will not be put into financial crisis is ideal. This has developed into companies spreading nationwide and everyone in the country helping contribute to claim payments. So when natural disasters such as wild fires in California, tornadoes in the Mid-West, or the water damage in Texas happen, people on the other side of the country can see increases to their premium because companies have paid out so much in claims; a need to replenish their funds is required. This causes the companies to ask for rate increases with the state. Many may not deem this as fair, but the method of transferring risk is the main component of insurance.

If your company did not take on a rate increase there are still a few factors as to why you’ve seen your premium go up. If you have filed a claim in the last year the premium can go up if you’ve lost a claims free discount. Once a claim has been filed and money paid out, you’ve placed yourself as someone that is more at risk to file more claims and the company needs to replenish funds for the money that was paid out to you. Another common factor is moving to a different area. In regards to auto insurance, if you move somewhere where accidents and theft happen more frequently, the rates will be higher because the claim payout rate is higher. The same goes for homeowners insurance. Moving to an area that has a higher probability of wind damage claims, such as down by the shore, or an area more prone to wild fires, the rate is higher because the risk is higher.

For auto increases some other factors that come into play is your driving history, a change in vehicle, or adding a youthful driver. If a ticket has been received or an accident has occurred, your insurance score changes. Your insurance score mainly determines your risk to insure. Tickets and accidents will higher your insurance score, causing the occurrence of a claim greater. An insurance company will favor someone with a perfect driving history compared to someone who has multiple tickets and accidents. If you have switched out vehicles recently an impact to your rate will likely occur. The value and safety features play a huge part in this. Most vehicles now come with a much higher price tag compared to twenty years ago. If something happens to the car, it’s going to cost the company much more for the vehicle to be repaired or replaced.  If the vehicle has many of the new safety features in place, the vehicle is less likely to be a part of a huge payout in regards to bodily injury or even less likely to be involved in an accident at all with items such as back up cameras, brake assist, and lane assist. For young drivers, it is more likely for them to be in an accident because they are new, inexperienced drivers, and the probability of engaging in risky behavior such as speeding is greater which equals a higher risk to insure.

Homeowners insurance also has a few other factors to consider. If your home has not been updated in the last twenty years or so, the probability of items such as roof damage or fires becomes higher. It is less likely for something to fail that is newer compared to something that is twenty years old and has wear and tear damage. An increase in construction costs is a lesser known factor. When the price of wood, nails, flooring, labor, etc. increases, the price to repair the damage also increases. Companies take this into consideration by automatically increasing the Coverage A portion of the insurance, also known as Dwelling Coverage, by a small percentage every year. A common misconception is that dwelling coverage represents the value of the home if it was sold; that is not the case. Those numbers are determined by calculating the cost of removing the destroyed materials and rebuilding the home as it stands today. The sell value of your home may only be $150,000 but the cost to rebuild could be well over $200,000. If you have added a new item to your home such as a pool, trampoline, or dog, you will see a premium increase because there has been an added risk to the property. Either one of those items can cause great bodily injury meaning the likelihood of a claim has become higher.

Some good news is that there are things that you can do to help lower your insurance premiums. By keeping your house up to date or installing security systems such as a centrally monitored burglar and fire alarm systems, companies offer discounts and it puts you in a less risky tier. For auto insurance, have youthful drivers take driving courses and if they maintain at least a B average in school, discounts are offered. Discounts also apply to senior drivers if they complete a safety course every two years. If those discounts don’t apply to you or even if they do apply but are looking for even more discounts, insurance companies are offering the use of items such as Travelers’ IntelliDrive or Progressive’s Snapshot discount. To obtain these discounts, your driving will be monitored through an app on your smartphone or a plug-in device in your car. It monitors items such as your acceleration, hard breaking, time of day while driving, rate of speed and distracted driving. Your driving would be monitored for 90 days and if you perform well, you could receive a hefty discount. For example, with Travelers you could see a discount of up to 30%!

For more information please contact our office; we are more than happy to help with any questions you may have or interests in optional discounts!