Q. I have had coverage with the same carrier for years, have good credit, a clean driving record and no claims but my premium continues to increase- why?
A. Unfortunately for the consumer (myself included) we don't get much say, or any at all rather, in what our insurance rates will be. Hopefully though, I can make it a bit easier to understand and also offer some advice in coping with the insurance markets throughout your lifetime. In this blog I will answer the question asked above by explaining how your insurance premiums are determined and how the market condition will affect them. My goal is to offer you confidence in your insurance related decisions and premiums.
While we can control certain factors which are used to determine our rates (for example; credit, driving record, insurance score), we have no control over the actuarial rates or premiums. All insurance companies use their own "rating basis" that are used to determine rates based on the risks involved. The risk and premiums associated are determined by actuaries, who are statisticians hired by the companies.
Without getting into the logistics (because let's face it, I'm no statistician) we can say that the increase in premiums would be directly linked to an increase in risk. So naturally, when the risks around us increase, our premiums will increase. Then if you consider the fact that the very definition of insurance includes the term "risk pooling," which means the majority contributing funds to pay for the losses of the minority, it becomes apparent why your rates occasionally increase when you aren't the one who's filed claims or gotten tickets in your vehicle.
Besides the concept of risk pooling and the increased premiums due to losses and risk increase there can also be increases based on the condition of the company you're insured with. If the insurance company that you're insured with begins to struggle financially, for instance, they will likely increase the rates to make up for it. This is an excellent reason to stay insured with an A rated company- and also why I chose to partner
only with A rated or better (A+ through A+++) companies at
Principle Insurance.
Not only does the condition of the company your insured with matter, but the condition of the market does as well. Like many other markets, the insurance market can be either hard and soft - we are in the midst of a "hard market." Premiums across the board have increased and competition between companies becomes very minimal because they are all offering the same thing for the same price. A soft market is the opposite- when there is a lot of competition in the market and the buyer is more likely to shop extensively for the most competitive coverage and rate.
Coping with a "hard market" can be frustrating for consumers faced with seemingly inexplicably higher insurance premiums. The shopping often turns from being strictly rate based, to coverage and service based. Underwriting also becomes much more strict and policies become harder to obtain. This is extremely great news for surplus and excess lines agents, who specialize with "hard to place" risks.
The good news is that there is a constant cycle in the insurance markets, so what is once hard will again go back the other way. Stricter underwriting and less competition inevitably result in a decrease in losses and therefore an increase in reserves- which generally lowers premiums. Keep in mind that this works within each individual insurance company based on their book of business and financial stability, but the hard and soft market usual do exist pretty regularly across all companies simultaneously.
So in this blog I have answered the "Why me?" question regarding your insurance premiums. Risk pooling, financial condition of the company you're dealing with, and market condition all contribute- and though you may feel like you're being targeted for having a clean driving record or being responsible, you're not. It's how the markets work and means they are working properly.
Just be patient and things in the market will adjust. Be sure to shop your policies at each renewal and make sure you have a licensed and insured agent that you trust!
Principle Insurance, Inc.
7219 Bryan Dairy Rd. Seminole, FL 33716
727-289-7219 local 855-329-7199 toll free
.jpg)
