Why Are My Insurance Costs Going Up So Much? Expert Advice from Richard Bibb with Goosehead Insurance
As an independent insurance agent, the question I get asked most often by clients when they get their renewal notifications is “Why have the premiums increased so much over what I was paying last year?”.
There are many factors that influence insurance rates and there is not one simple answer to the question. Insurance is a complicated business and insurers use hundreds of factors to establish what “rates” they are going to charge you to insure you and your property. Let’s look at some of the factors that influence the two most common forms of insurance that most people purchase – homeowners and automobile insurance.
The simplest explanation comes down to two factors – costs to insurers to pay out claims and the increased risk environment we all live in these days.
Costs to insurers have been rising faster than the overall rate of inflation for several years now. As reported by Reuters (https://www.reuters.com/markets/us/remarkable-surge-auto-insurance-costs-fans-us-inflation-2024-01-11/) consumer prices rose in the US 3.4% in December on an annual basis but with the rise automobile insurance costs had the highest annual increase in nearly half a century and contributed significantly to the increase and show few signs of abating soon. Motor vehicle insurance premiums rose by 20.3% in December year over year, the largest rise since the mid-1970s.
Some factors adding to the rising premiums are the increased costs of labor and materials to repair damaged vehicles and the overall rise in vehicles prices which increases the value of all vehicles directly affecting the price insurance companies must charge to insure them. The average cost of a new car was $48,247 in December 2023 according to Kelly Blue Book, directly leading to overall insurance rate increases.
Another factor is the increasing rate of accidents on the road. One only has to drive a heavily travelled highway like our own I-95 to witness firsthand the increased traffic and daily incidents to realize tis fact. With more accidents come more insurance claims with increased costs to repair or replace those vehicles. Something has to give, and insurance rate increases reflect that reality.
Homeowner’s insurance premiums reflect similar trends. As is all too familiar to anyone purchasing a home in this area the costs have been steadily rising. This directly affects homeowner’s insurance rates which, according to a Policy Center analysis, increased 21% on average, for homeowner’s insurance policy renewals from May 2022 to May 2023 (https://www.policygenius.com/homeowners-insurance/why-did-my-homeowners-insurance-rates-go-up/).
Some factors other than the increased costs of building and repairing damaged homes are contributing to this rise. If you seem to notice an uptick in natural disasters, you are not imagining things. By September 2023 there were 23 billion-dollar disasters seeing an all-time record for the insurance industry. In the first six months of 2023 the property and casualty industry recorded over $24.5 billion in losses comparing to only $6.6 billion in 2022. While these losses tend to be concentrated in the western and southern states the overall insurance company practices is felt nationwide. Combined with overall construction costs, material and labor shortages insurance companies have resorted to drastic steps to restore their overall financial health.
As a consumer what can I do to help mitigate these rising costs?
While you cannot dramatically affect these overall trends here are a few simple things you CAN do to help:
Shop around – there are literally hundreds of insurance companies to work with. Reach out to an independent insurance agent and have them analyze your current policies and obtain competitive quotes. While all insurance companies have increased rates, they all do so at various times and in different areas. As an agent I often see differences in premiums of over $1,000 per year between different companies to insure the exact same home or car for an individual. Insurance companies use hundreds of factors to determine the rate they may charge you -many having little to do with you. Insures limit their risk exposure by not concentrating their business in one local area, for example. Often switching to a company that does not have as many policy holders in your zip code can make a huge difference. The only way to find out is to shop around among many companies and an agent can do that shopping for you quickly.
Another thing you can do is to look at your deductibles. Most car insurance policies are written with a $500 deductible – the amount you are going to pay yourself when you have a claim that is deemed your fault. Raising your deductible to $1,000 can drop your costs significantly. It is one way to lower your costs. While having to pay more out of pocket will hurt it may allow you to keep insurance more affordable for those times you really need it – like a major accident when losses can run into the hundreds of thousands of dollars.
Lastly, while many “like” their insurance company and are hesitant to change after sometimes being with them for years, you must keep in mind that all insurance coverages are pretty much the same and you should look at insurance somewhat like a commodity. So, get some comparative rates before you just decide to accept whatever your current company is offering you. It might just save you hundreds or thousands of dollars per year.
For more information, visit Richard Bibb with Goosehead Insurance