One question we often get is, “Why are my premiums going up?” We understand increasing premiums can be frustrating, especially if you've had no claims or accidents over a number of years. But, there are a number of reasons why your personal insurance premiums may go up and we can assure you it's not because insurance companies are greedy. Some of these factors you have control over, and some you don't.
Let's begin with a quick review of how insurance works. For example, if you own a home worth $500,000, most people cannot afford to cover a loss for that amount. Therefore, you pay a small premium to an insurer to take on that responsibility for you. That insurer makes the same arrangement with thousands of other homeowners. In the event of a total loss, you would be paid $500,000 to rebuild your home. The insurer is taking a chance that not all the homes they insure will not have a loss at the same time.
There are specific reasons why insurance premiums or rates increase, which can include the following:
- Insurance Company or Industry Operations — The insurance companies who insured the homes and businesses in the recent Campfire will most likely need some level of premium increase. Having a large number of claims in a short period of time causes pressure to increase rates. That is why after any natural disaster insurance premiums tend to go up. Insurance rates are controlled by the State of California, so only they can approve rate changes.
- Economic and Financial Conditions — If the economy is doing well, more people buy insurance, which actually helps reduce insurance premiums. If investment returns are trending upward, then the insurer is given more flexibility because of investment returns.
It's under these conditions in which the insurance buyer has no ability to influence insurance premiums. The good news is many actions or conditions within our control can lead to increased or decreased premiums.
What Causes Auto Insurance Premiums To Go Up?
- Type of car — Different cars cost different amounts to insure. Vehicles with poor safety ratings will cost more because they tend to cause a greater number of injuries. By the same token, a vehicle with more safety features will cost less to insure. Some foreign cars cost more to repair, which will result in a higher cost to insure. Call one of our agents before you make your final decision on an auto purchase — they can help you understand how the insurance costs vary between vehicle makes and models.
- Where you live — It costs more to insure your vehicle if you live in a city as opposed to a smaller town or the suburbs. This is because the more vehicles that are on the road, the greater the chance of having an accident. The claims within each zip code will most likely have a different number of auto accidents, thefts, vandalism, fraud and other issues affecting claims and premiums.
- Accidents and violations — If you have more than one accident or violation your premiums may go up. Some insurers offer accident forgiveness for your first accident.
- Age of drivers on the policy — Younger drivers cost more to the insurer since they are the least experienced behind the wheel and statistically have more accidents.
- Not requesting available discounts — We can help you identify what auto insurance discounts you are eligible for, which will help reduce your overall costs. If you buy your insurance online, you may not even know what discounts are available.
- Gender — Most insurance companies develop rates based on gender because data shows that males are more likely to have accidents.
- The purpose for which the vehicle is used — Vehicles that are used to drive to school or work regularly are more likely to have an accident than those used to drive to the store.
- How many miles you drive — If you drive more, you have a higher risk of having an accident that those who drive less.
What Causes Home Insurance Premiums To Go Up?
- Age of your home and roof — As your home ages, the materials used tend to wear and can create problems such as water damage. Replacement costs, including material and labor, go up over time.
- Pools and trampolines will increase costs — Pools and trampolines are fun, but they create more risk for you and your insurer.
- Not having a home security system — Home security systems are a good way to reduce your premiums. Homes with security systems are less likely to be burglarized.
- Where you live — Your home’s distance to a fire station, among other factors, will help determine a part of your home insurance premium.
- Owning high-end jewelry, guns, or art — If you own high-valued items, then it will cost you more to insure them since your potential financial loss is higher.
- Claims history — If you have frequent claims, your premiums will go up. "There's a significant correlation between claims that are made and future additional likelihood of claims being made,” says Chris Hackett, senior director of personal lines policy at the Property Casualty Insurers Association of America.
Want to learn more ways you can reduce the cost of your insurance premiums? Call one of our professional insurance agents today to see how we can get you the best coverage at an affordable price.