March Madness - Why do My Insurance Rates Keep Climbing?

I know what you’re thinking… today’s the day… you’ve got your insurance bill in hand and you’re going to call your agent and tell him you’ve had enough!

He needs to stop increasing your rates! Well, before you do that, please consider the many factors that go into the calculation of your insurance rates.

I’ll categorize these factors into two categories: factors you can’t control and factors you can control.

Let’s start with factors you can’t control…

1. Inflation

Unfortunately, we all fall victim to the general increase in prices of goods and services over time. Think about it: when was the last time you saw the cost of auto parts decrease or labor costs go down? What about building materials or energy costs? Over time, the answer is probably never. Simply put, your insurance policy must adjust right along with these prices or the insurance companies are going to go out of business.

2. Change in Product

The next factor that is out of our control is the change in product. Not too long ago, property and casualty insurance was very simple. It catered to a much more utilitarian generation who did not see the need for “fancy” coverages and options. Today, we’re a different society. We expect more and the insurance companies are glad to offer all kinds of coverages. More coverages translate to more costs. More coverages also translate to more claims which, of course, will result in increased premiums as well.

3. An Increasingly Litigious Society

Nowadays, you can get sued for just about anything. Unfortunately, there is an entire industry that caters to these lawsuits… and business is good. It’s become contagious and the insurance industry has no other choice but to pass the costs onto the consumer or close shop.

4. Distracted Drivers

The next time you’re at a red light, look at the drivers around you. A good number of them are focusing more on their email or text messages than the world around them. This reality has directly resulted in more auto claims. It has also translated to more serious injuries, property damage, and sadly, fatalities… all of which will result in increased auto insurance rates.

5. Technology

20 years ago, if you accidentally knocked the side mirror off your car, you could install a new one yourself for under $100. Today, it’s a different story. That same mirror - packed with sensors, gears, and a heating element - can cost you well over $1,500. Bumpers, side panels, air bags, you name it… your car is packed with the latest technology. Repairing these systems is complicated and expensive. Just one more thing to add to your premium…

So what can you control?

1. Stay claim and violation-free.

This should be obvious. A driver with a bad driving record should and will pay more than a driver with a flawless record. It’s the same with your homeowner’s policy. Insurance companies really do bend over backwards to give the best possible price to the customer who has a perfect driving record or the homeowner who has never filed a claim. This has a flip-side… these discounts will evaporate soon after you have an incident.

Will adding “accident forgiveness or violation forgiveness” to my policy eliminate this problem? Yes, no, and maybe. In many cases, incident forgiveness is an optional coverage. In other words, you pay extra to have this feature on your policy. What you’re really doing is financing an accident or violation that you may never have. Also, what happens if you run into trouble a second time? Odds are, there is a limit to exactly how many times you may be forgiven. Even worse, your original “forgiven incident” can get added back on your record in the event of a subsequent event. Incident forgiveness is not a “cure-all”. Under the right circumstances, and at the right price, this feature does have its place. But you’ve got to be careful. Make sure you and your agent have read the fine print!

2. Keep your home updated.

Insurance companies know that a home that is not well-maintained is just an accident waiting to happen. For this reason, having an updated home will, in most cases, give you a nice discount. New roofs and new furnaces give you the biggest discounts. Keeping your plumbing and electrical service updated can help too. Consider a central alarm system. The discount varies by company, but it can be substantial in some cases.

3. Pay attention to your credit score.

This will impact your pricing more than you might guess. Statistics show that there is a direct correlation between personal financial responsibility and claims frequency. For this reason, credit score is a big factor in determining price. Have an excellent credit score? Congratulations, you’re going to pay a lot less for your insurance. Credit score not so great? I’m sorry to tell you that, generally, you will be paying a lot more for your insurance.

4. Pay in-full or via EFT.

Just like you, insurance companies like to be paid promptly. When bills are not, it costs your company money. Insurance companies will pass these added costs onto you in the form of fees and penalties. They will also give you additional discounts for paying your policy in-full or signing up for an automatically drafted payment (aka EFT). Paying in-full can result in a nice discount – usually in the area of 4% - 6%, or more. That’s far better than you’re going to earn in a savings account these days so, if you can afford it, pay in full! If you can’t swing it, sign up for automatic drafts. You’ll avoid installment fees that can range from $5 - $10 per month and you’ll eliminate the chances of paying late. Lastly, many policies build in a “good payer” discount. It’s usually given automatically to new customers, but is taken away at your next renewal if you have been late on any payments.

5. Take advantage of Good Student Discounts and Away at School Discounts.

We’ve all heard the nightmare stories about how expensive it is to add a young driver to the policy. While it’s nearly unavoidable, you can certainly mitigate the increased costs when your child has a GPA of 3.0 or better. The discount varies by company but, generally, it’s a noticeable discount. If your child is attending college and is more than 100 miles away without a car, you may quality for an “Away at School Discount”. This discount can be substantial.

6. Take advantage of occupational discounts.

Many companies give discounts depending on your profession or your employer.

7. When in doubt, hold firm with your current policy (as long as it’s a good one).

Jumping around may hurt you more than it will help you. A small minority of policyholders will routinely shop for new insurance rates each year. While this may seem like a good idea, it will eliminate a nice discount that loyal customers enjoy. First, a good insurance company will give you a discount the longer you are with them. Additionally, rival companies will also give you a discount the longer you have been with your current company. With today’s technology, policy tenure is easily verified. Every insurance company is looking for a loyal customer and they will give you a nice incentive to entice you over to their side of the fence. Lastly, you may eventually find yourself involved in a claim where coverage falls into a “gray area”. Play a Claims Manager for a minute: Are you more likely to give the benefit-of-the-doubt to the customer who has been a loyal customer for years or the one who jumps from company to company each year?

There are several other discounts available that I do not have time to mention here. Really, the best way to uncover any discounts is to review your policies with a trusted, independent agent. It’s something that simply can’t be done in 15 minutes or less.

You’re worth more than 15 minutes.

About the Author:

Robert Heed is a licensed insurance agent located in Medina, Ohio. Robert has been in the insurance business since 1994. He shares his practice, Agency One Insurance, with his wife and fellow insurance agent, Christine Heed. Robert focuses on Personal lines, while Christine’s focus is with Commercial Insurance. They have two children, Patrick and Grace, and have been married since 1995.