Well I just read a long post from a gentleman who experienced a 60% premium increase from the prior year and felt that since I am in the insurance industry I should try to set the record straight. I understand insurance in general can be very confusing and therefore it can really make people's blood boil. I just want to help ease some of that confusion.A couple doses of reality: 1) In most states (not sure about MO or WI for example) there is a department of insurance which strictly governs the percentage premium increase an insurer can take per calender year. Each company applies to the state to take an increase and has to show that they cannot make a profit at current premium levels in order to be granted the ability to increase premiums. If you feel your premium increase is not justified, contact your state's Dept of Insurance to find out if your company is operating above board. There are, however many other factors that can drive up premiums. Claims, adding more coverage, losing multi policy discounts, etc are very common, but also bear in mind that re-valuation of homes by insurance companies is very much the rage right now. So if you had your home insured for $100,000.00 last year, and they do an updated valuation of your property and the cost to rebuild it (including clean up, excavation, permits, etc etc) is now $160,000.00....you are going to see an increase because in the event of a total loss, it is going to cost the insurance company a LOT more $ to make you whole than you thought. Very simply, increase in coverage=increase in premium.
A 60% increase is unheard of however...and I would want a thorough look at what changed as there MUST be something. 2) It is ABSOLUTELY TRUE that auto and home insureres have very small profit margins per policy. Think of it. If your homeowners costs you $500 per year, how many years would you have to pay into that for the insurance company to make any money if you had one $15000.00 loss (doesn't take much damage to get to $15000.00).
THIRTY YEARS....and that is not counting what it costs them to pay their people, maintain offices, etc. The insurance companies make their money by the law of large numbers. They invest the premium money they take in and that is how they make money. The general rule of thumb is that if an insurance company can keep 4 cents of each dollar of premium they bring in, they can be profitable. It's really not big $, but when there are millions of policies in force, the numbers add up. When there is a big catastrophe loss (hurricane, floods, etc) the insurance company pays out VASTLY larger percentages than they would every predict paying. And thus they have to spread that cost out....Insurance is sharing risk rather than absorbing the risk yourself. 3) You might not think your company does business in Florida for example, but almost every company has "sister" or "offshoot" companies that write in other states under a different name. This is usually due to varying state regulations and the parent company's desire to establish "fire-walls" in the event that a company in one state goes sour,the effect on the parent company would be minimized. 4) I would never accept a substantial premium increase without a) discusssing it with your agent to make sure it is accurate b) shopping around. Agents sometimes are just too busy to put a lot of time into trying to find a way to reduce your premium. It is afterall taking $ out of their pockets so you can imagine the motivation is not too high. The best thing to do is be very persistent. If you are dealing with a small town agency they may think they have you by the nose, but with today's technology (email, fax, etc) it can be quite convenient to deal with another agent in another town. If anyone has specific questions about their insurance, let me know....I would be happy to try to give you some advice....FREE OF CHARGE.
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