I talked with a client today about their renewal. The question that started the conversation was, “I haven’t had any claims, but my premium is changing. Why?” It’s an excellent question and one many people are asking regardless of who they’re with. Here are three reasons why home & auto rates change.
Inflation
Inflation is one of the chief reasons premiums increase from one year to the next. Inflation impacts all of us. Food, gas, clothing, college tuition, health care, etc. experience cost changes, usually upward. This is especially true in an inflationary cycle like we’re in now.
Insurance cost also change in inflationary cycles and this impacts both home & auto rates.
- On the home side, the costs for building materials and labor have increased.
- On the auto side, the costs for parts and labor have also increased
- In both cases it’s more expensive to repair a home or car than it was a year or two ago and that makes insurance rates go up.
Most home policies also come with an inflation protection element built within the policy. Having inflation protection is good as it lessens the possibility a homeowner will be underinsured in the event of a total loss. Prior to inflation protection, it fell to the agent or homeowner to manually review the policy every two to three years to make sure the home was adequately insured.
Large scale losses
Losses also lead to premium increases. In this case, I’m referring to very large losses such as;
- A hurricane
- Tornados
- Large and/or multiple hail storm(s)
- Large fire or a series of fires (remember last year?)
These events are typically large scale events that impact hundreds or thousands of homes at one time. Payouts can quickly reach hundreds of millions and even billions of dollars.
In the last 5 years alone, Texas has been impacted by all four event types and that has caused rates statewide to increase. Carriers may have to increase rates just to rebuild reserves, funds that are set aside as the state requires to be available for future large scale losses.
Personal Losses
People have claims. There are car accidents, a renter’s neighbor has a leak that impacts your apartment, a tree falls on a home or more. There are many reasons why a person needs to file a claim.
Having a claim does not automatically mean a person’s home or auto rate will increase next year but it can. What the impact is can depend on a number of factors such as;
- The type of loss: A person has a home fire or an at fault accident, there’s a good chance they will experience an increase in their rate next year. The result could be entirely different for a hail claim or a not at fault accident! Carriers weight claim types differently and that impacts the renewal premium.
- Length of time with the company: Some carriers still reward longevity by not increasing the premium or having a smaller increase after a claim than someone who’s just changed policies and had a claim. This practice is not nearly as widespread as it once was as few carriers provide these.
- Past claims history: Multiple home or auto claims, or a combination of both types in a given year will almost guarantee an increase in premium impacting one or both policies.
One of the biggest benefits to being an independent agent means we can explore other options and potentially save a client money on their insurance if they’re being hit with a crazy renewal premium. We’ve done this with several clients already and that’s a good thing!
