Regardless of where you live, what you drive, how good your record is, the number of miles you travel, and what you do for a living, at some point in time, everyone will find themselves asking why their rates have gone up. Hopefully this is a question that causes you to have a conversation with your insurance agent before you just start shopping around, and hopefully your agent is able to guide you to understand and possibly mitigate, those increases.
If this conversation didn’t go as planned or happen at all, and you are still seeking enlightenment on the issue, though, keep reading!
Rates go up when risk changes. This basically means that if the probability of you being involved in an incident goes up, then your rates will go up to match. In many cases this is something like a ticket, an accident, a new zip code, adding a child driver, or buying a newer car. All of these things increase the risk that you’ll have an incident or the cost of any incidences. This increases the amount that the insurance company will need to pay out, and as a result, they will increase your rates accordingly.
What if you didn’t do any of those things? Perfect record, no new cars, no kids driving, no accidents, but your rates still went up? This happens because of the fact that risk is shared amongst all of the people who have car insurance policies with your company in the entire state. Thus, there are trends that can impact your rates even when you are doing everything right.
The reason for this is that Insurance companies are pretty strictly managed by each state that they operate in according to the rules of that state, and one of the most important rules that impacts rates is that no company can operate at a loss at any time for any reason. If it appears that a past projection was wrong or an upcoming projection puts a company in the red, it’s required that they ask the state for permission to increase their rates and show the state the documentation to prove it.
These projections are built and then tracked by teams of actuarials who analyze big data to inform their calculations and decisions. Everything from weather predictions to the cost of replacing the backup camera on the new Honda minivan is taken into account.
For example, here in Minnesota every car insurance company raised their rates midway through the year. The root cause of these increases began when the price of gasoline plummeted in October/November of 2014. This caused people to drive more because it was suddenly more affordable again. They did not, however, start driving better. This intersection of more miles driven and less attentive driving, lead to a record number of accidents in the first two quarters of 2015, many of which were lower speed collisions caused by inattentive driving. Low speed collisions, though, are still enough to cause airbags to deploy which usually cost around $400 or $500 each to replace. 10 years ago that meant one or two per car……now that can mean up to ten airbags in a 3 row van, crossover, or SUV. We have also added quite a lot of technology to our vehicles, things like backup camera systems that can cost north of $4K to replace when the back gate of your crossover is crunched when you are rear ended. So now every company was looking at a record number of accidents and a record average cost for those accidents, combined with the requirement to operate only at a profit with reserves in place, and we all have a recipe for our premiums to go up.
No one likes insurance rates to go up, especially your agent. Rates’ going up cause people to start shopping and increases the likelihood of customers leaving them to go to another company. Which brings us back to where we started; when rates go up, make an appointment to sit down and review your policies with your agent to make sure that you are covered properly. Then ask them to find ways to mitigate your costs so that while your rates may increase, what you are paying stays a little more stable. When all else fails, shop around to find out if there is a better policy for a better price out there with another company.
Car insurance is a vital coverage but it’s not something that you can set up and forget anymore, it requires some regular maintenance to make sure it is doing what you want it to do, at the price you want to pay. Maintaining this balance over the long haul means understanding what is happening and why, and that usually only comes from having a good agent.
This post was written by Eden Prairie Chamber member Aaron Nickley with Farmers Insurance. Aaron can be reached at firstname.lastname@example.org for more information on this topic and more.