Why Does My Renewal Go Up?

Photo by Jerry Bunkers.

If your auto (or homeowner's) insurance renewal goes up it’s not necessarily what you did or didn’t do, it’s probably just a statewide (or nationwide) rate increase by the insurance company. Insurance companies are not in the business to lose their shorts, they are in the business to be profitable and, at the minimum, to cover their losses. If their losses ratio is up then they are not bringing in enough premium to cover their losses so they will increase premiums across the board.

Traditionally, insurance companies have made their money by collecting premiums and then investing it in the stock market and other ways to make a return, which would add to profits and cover overhead and losses. We all know how the stock market is doing, so lately they haven’t made the kind of return they would like. Insurance losses are at the same levels, if not higher, and they need to be covered. To stay in business, a company has to be profitable and sometimes the answer is to raise premiums on you and me. 

Let me also say that when the economy is bad and everyone is hurting for money, insurance fraud rises. (Here's some stats from the Coalition Against Insurance Fraud.) When the insurance companies spend tons of money on fraud, everyone’s premiums increase.

Of course, there is a chance your renewal may also be going up if you are considered more risky to insure. It's important to know that insurance companies will rate you on your driving record, accidents or claims record, and your insurance score. Your insurance score is made of a lot of different factors, but it usually corresponds to your credit. If you have great credit, chances are you will have a great insurance score which will result in lower premiums - and vice-versa. I have heard former executives say that out of the three reports, if they were to choose just one of those reports to look at and be profitable in choosing your rate, it would be the insurance score. Statistically, I was told, if you have great credit chances are you are responsible, which means in turn that you are a safe driver, less likely to file claims, commit fraud, etc. In other words, you are less likely to add to their losses. It may seem unfair, but that's the reality of the insurance business. These guys are in it to make money and the more of a financial risk you are to them, the more you will have to pay to be insured. 

“What does my credit have to do with my insurance premiums?” is a question I get asked a lot. Now you know. During an insurance quote, I ask about your credit. I don’t see your credit score or your credit report. I don’t know how many credit cards you have and what the balances are, nor do I want to know. I'm just trying to get an idea or what to expect when we start running numbers and checking out providers. 

The good news in all this, is that the insurance business is highly competitive. There's lots of companies out there, some you may never even have heard of before, fighting for your business. Instead of going from site to site filling out free quote forms, call me. I know who gives what deals on what types of cars, how you can combine policies for the biggest discounts, and when the best time will be to renew or re-shop your policy. Best of all, it doesn't cost you anything extra and only takes a few minutes.