This is a question that people are constantly asking and with good reason. You are paying more for something that seemingly hasn’t changed. Let’s dive in.
There are several reasons insurance rates increase. Some you have control over. Some you don’t.
Things that you do have control over include:
Personal Driving- Insurance carriers will pull your Motor Vehicle Report on the renewal of your policy and if there are tickets or accidents. You can often expect to see rates go up. This goes for anyone who is listed as a driver on your policy.
Credit History- Along with your Motor Vehicle Report, Insurance Carriers also pull your credit report. Poor credit history often results in higher insurance premiums.
Types of Vehicles- Some vehicles are cheaper to insure than others. Insurance Companies operate off of statistics. Some vehicles are more likely to be involved in accidents than others. For example, it is cheaper to insure a minivan than it is to insure a sports car.
There are also other reasons that your insurance premium goes up that have nothing to do with you. These can often be the most frustrating to deal with.
To understand these reasons you need to understand a little about how insurance companies make their money. They do this in two ways.
The first is Underwriting Income. Insurance companies collect premiums and then from that they pay claims, employees, and administrative costs. Whatever is leftover is called Underwriting Income.
The next is Investment Income. When insurance companies collect premiums, they put a certain amount of that money into a reserve account to pay for claims. While that money is in that reserve account, it is invested. The interest paid on that money comes back to the insurance company in the form of investment income.
Now that we know a little about how insurance companies make their money we can now look at why our insurance rates go up for seemingly no reason.
If an insurance company has higher than expected claims that they have to pay, the amount of money earned from Underwriting goes down and is often made up by increasing rates on all customers to make up for the losses.
Higher than expected claims can also affect the Investment Income. The more claims paid the less money can be invested and the less income that is made through investments. Also, if the investment portfolio of an insurance company does not perform well, the insurance company may have to raise rates to supplement that income.
So what can you do to keep your insurance rates low?
Keep your driving record as clean as possible. Avoid speeding and risky driving habits such as using mobile devices.
Maintain a good credit score or strive to improve yours.
Be mindful of the types of vehicles you buy
Have your Independent Insurance Agent check with other insurance companies every one to two years to make sure you are getting the best rates or after an increase of 10% or more.
Insurance rates are always going to be changing. By following this guideline you will be able to have a say in how those rate changes affect you. Working with a good Insurance Agent can get you individualized recommendations and solutions to help keep your rates low. Contact us here for a free policy review, insurance quote, or both.