I get this call at least once each week. “I just got my renewal, and my rate didn’t go down. Why is that?” Here is why that is: It is not a profitable business model to have rates continuously lower, because eventually you would end up paying the customer just to maintain their policy. It makes zero business sense. Yet people get incredulous with us when their rates go up.
“I haven’t had an accident or a ticket, why did my rate go up?” So, let’s think about this for just a moment. Why does the cost of bread go up? Why does the cost of clothing go up? Why do the prices on automobiles rise? Because somewhere along the line, it cost the company more to make their products. Does it cost us more to insure you? Yes it does. Because some of our customers don’t drive so well, and go around hitting things. Some uninsured drivers go around hitting our customers. Some of the body shops charge more now, and when it comes to your home, well, construction material is not less expensive now than it was last year, even though your market value has taken a nose dive. If your home burns to the ground, we have to rebuild it, and that costs more today than it did a couple of years ago. And you can thank the natural disasters for increasing costs on our side, because when a hurricane, tornado or wild-fire comes along, we pay out the nose. And if your rate goes up $50 in a year it makes little difference in your mortgage payment. Conversely, if your home burns to the ground and we rebuild it, if you pay premiums at your current rate, you will never repay the cost of rebuilding your home.
The insurance carrier, according to the law, has to keep enough money in the coffers to be able to pay all of our claims. When we start paying out on claims, the reserves go down. Yes, we are bringing in premium to restock, but you would be surprised at how little there is marginally for reserves when all is accounted for. There is the staff of underwriters, claims adjusters, policy service staff, not to mention, state office staff, district managers, billing, and our executives. Then comes the advertising; lots of advertising. This is necessary to keep the brand out there, so we can sell more policies, and put more money in the coffers. And there is the cost of our insurance on top of all of that, because sometimes people sue us. Lastly, there are the fraudulent folks who, until they get caught, tend to make claims and pocket money. That drives up rates overall, too.
Now, there are a few things you need to be aware of also. There are gimmicks out there aplenty. My favorite is the “price gun,” where you, the consumer, gets to “name your price.” This may keep your budget in tact, at least for the first policy period, because they aren’t going to guarantee that is what you will pay forever more, just a set period of either six or twelve months. After that, it’s anybodies guess what you’ll pay.
The best part about the whole “name your price,” come-on is that the average person has no idea what their coverage is supposed to do for them. So, they take the lowest possible limits allowed, and skimp on coverage such as medical (protects you if you are at fault, or not) and underinsured motorist coverage (one of those price gunners hits you and sends you to the hospital, you can bet they don’t have enough to cover your injuries, then YOU get to pay the balance) or even such things as towing. Ever lock your keys in your car… at night… in the rain or snow? You get the idea.
There is the vanishing deductible, and accident forgiveness. These are sweet deals, right? Nowhere does it say that while your deductible goes down, your premium will remain the same or go down as well. Chances are, in relation to that deductible going down the premium is going to go up.
Accident forgiveness… sort of. Under a certain dollar amount, say $800 for example, the insurance company won’t surcharge your policy at renewal. The limits are typically low on these programs, and sometimes the way they work is to lock in the rates for a couple of years, then hit you all at once with the increase.
Remember when the cute little cartoon character comes on your television screen that you are being sold to. These companies will do what they feel is necessary to gain your trust, and if that is by way of cute, harmless icons, so be it.
There is one more thing I would like you to take away from this little information session… While there are agents out there that are unscrupulous, not all of us are. There are some of us that will do the right thing for our customers, because we would want to be treated that same way. Do we make our living from you buying your insurance through us? Yes. Do we make a lot of money off of each policy? No we do not, at least not typically. We make a percentage, typically around 10% for the term of the policy. So the next time you are really mad at your agent for “ripping you off,” remember that we don’t set the rates, and we aren’t planning our next European vacation on your dime.