Seriously, this is one of the questions that comes up multiple times per week at most insurance agencies. Because a client may have a claims free record, he or she often believes a rate for home or auto insurance “should” reduce. It’s not always the case. It’s a difficult conversation. In fact, it would be delightful if insurance rates worked that simply. But they don’t.
The whole basis of insurance is that we are POOLING THE RISKS OF MANY TO PAY FOR THE LOSSES OF A FEW. You are “sharing” in the claims experience of a similar group of policyholders. There’s no way it would work if we just saved up one person’s premium and had it ready for his rainy day. Think about it. If one person’s homeowner’s policy premium is $800/year and his entire $300,000 home burns down in 3 years…or even 30 years…it’s not enough. So instead, ALL the policyholders’ premiums are pooled together and all of their claims are paid from that “stash”. If there are a lot of claims, a lot of money can be paid out very quickly.
In our local area, we have had some extremely severe weather events in the last few years. Anyone remember the 5/14/10 hail storm? We are a SMALL agency and we had $1,000,000 of payout on claims JUST WITHIN OUR agency. Many of the claims were high payout claims. Years ago, a house claim might have been an average of $3,000. But with these kinds of storms, we had many of them in the $30,000 to $50,000 range as there were complete replacement claims for roofs, siding, etc. Our area has many more “high value” homes than it did years ago. In the past, many homes in our Lehigh Valley were cape cods, rancher style, smaller and less expensive dwellings. Today, the average home is valued at $300,000 and when there’s a bad storm, it can be pricey to bring it back to “whole”.
Some of us want to believe that insurance rates would rise “just like” general inflation for other products like a loaf of bread or a new car. It’s not that simple. In addition to the inflation we do feel through claims costs (shingles and siding cost more, labor to install them costs more, car repairs cost more) we also must realize that the number of claims and the dollar value of those claims is a huge impact to the overall pricing. With severe weather events becoming more frequent, we are seeing larger claims costs that are also part of the equation. Remember, we are lumping folks into a “pool” of insurance and then the claims costs are shared among that pool.
There are also significant liability claims settlements for our area, on both the home and auto side. People sue and courts may award huge payouts. Think about swimming pool claims, dog bites, slip and falls, car accidents. They add up. There are medical bills to be paid as well as pain and suffering issues. When this happens, total claims payouts are higher than what may have been “average” in the past.
Costs to repair vehicles and homes also continue to increase. Even if your car is older than last year, the cost to repair it may be higher as parts and labor billed by the repair shops tend to rise over time.
It is with great delight that we introduced an auto insurance program that can “lock” your rate. Ask us about it at your next renewal if you have not yet heard about it. (Be sure to ask PRIOR to the renewal date) We don’t have it for home products, nor do I think we ever will, simply because of the volatility the weather in our region presents. Yet, we are pleased to say that homeowner policy rates in our area are still quite a bit less than in other areas of the country.
Can we help reduce your rate? Sure. We can tweak deductibles or adjust coverage options. But please remember that insurance cost should always focus on VALUE and not price. When you have a claim, you want to be sure the policy you’ve chosen is going to be able to protect you optimally. This is not a part of your overall financial program where you should “go cheap”…instead, “go smart.”
Beware of “introductory rates” that some companies may offer. If it looks too good to be true, it probably is. We’ve seen carriers offer a super duper low rate for the first year and then it bounces up upon renewal, even though the client may be claims free. We are happy to report that the rates of the carriers we represent are reasonably steady. Over time, they are very stable. And the service they provide at claims time is second to none.
As your agency of choice, we’re always happy to discuss your questions and concerns. However, please know that we don’t “make” the rates. They are scientifically based by really smart folks called actuaries. We can’t “cut” the rates. We can’t adjust them just because we “like” you. Rates are filed in Harrisburg and we have to abide by them as we are an agent FOR the carriers we represent. As an agency owner, I also ask that you treat my team with respect when discussing this subject. They, nor I, can “set” a rate. We can advise, guide and explain options. Understand that if profanity or shouting comes into the mix, I am supportive of my team members discontinuing a call. And for those of you who are surprised by this comment, please know that some folks truly do behave in way less than what would make their mama proud. Grace and kindness can never be appreciated enough, so I thank 99.9% of you for being totally gracious, kind and awesome!