Why are insurance costs going up? Why is everything going up?
Many people are noticing a rise in their insurance costs. Insurance just like everything else that we tend to purchase today is certainly increasing. And while there are steps you can take to help reduce these higher costs, be sure that you do not sacrifice valuable coverages that may be more important than ever in the event of a claim.
I am going to cover a few of the reasons that insurance costs are going up and some options to help reduce these costs as well.
Homeowners insurance/ Property Insurance: A good amount of the increase that you see in a typical homeowners insurance policy can be contributed to the increased coverage or additional coverage that would be required to build your home back. Over the past few years building costs have increased/ labor costs have increased and to put your home back the way it was before certainly will cost more than it would have 10 years ago. A lot more. Most homeowners insurance policies are written to be at replacement value and therefore your coverage has to be in line with what it would cost to put the home back. And if you have a mortgage they will require the policy to be written this way.
This problem is two fold since when you have a claim the insurance company is paying to replace the property that was damaged in the covered loss. All of these claims are costing significantly more than they did in the past as well as the turnaround time is much longer. Which again creates additional costs since the insurance policy will pay for you to live somewhere while you can not reside in your home due to the covered loss. And claims and catastrophe losses have been on the rise as well.
A simple solution would be to look at increasing your all peril deductible and raising that to lower your premium. Also look over your policy for additional discounts. Some companies offer large discounts for renovations. We constantly ask our insurance family in our policy reviews if they have made any renovations to the roof, hvac, electric, or plumbing. Did you install an Alarm or a smart sensor of some kind? Again these new devices can offer some additional savings. Chances are these changes alone may not knock out the entire increase however it could drop the cost you pay substantially.
There are often several other discounts that can be found doing a policy review and we often hear I didn’t know that would make a difference! And that is exactly why we ask these questions when we are reviewing a policy.
Auto insurance: What is causing the rise in Auto Costs? You guessed it, the same thing. According to AM BEST the US private passenger auto sector had an underwriting loss of more than $30 billion last year. And so far this year isn’t looking much better. The cost to repair cars has skyrocketed. So has the value of cars. Newer electric cars cost on average 52% more to repair than combustion engines according to Best’s review October 23 article.. And even though you do not drive one your policy will have to pay to put one back if you hit it. And so many of these newer cars are totaled today when they seem to be involved in a somewhat minor accident. In the same article by Best’s review the share that a Hyundai EV that damaged the underneath after blowing a tire had to be totaled. A blown tire caused a total loss. The price of most cars and not just electric cars have gone up as well. The parts are not as readily available and this leads to longer repair times and longer rental times. Rental car costs have also increased substantially (if you have not increased your daily dollar amount on rental you will want to do that too).
What can you do to help reduce the cost on your auto insurance? Start with again your deductibles. If you have $500, consider $1000. Yes that is a lot more money that you will have to pay but stop and think what you could have bought with $500 10 years ago vs. today. So that is why you might want to start there. Do you have multiple cars? If you have 3 cars and only two drivers you might want to remove collision from the one that sits in the yard more than it is driven. Do you have a rental on all three? Maybe you want to consider removing that. Good student, maybe a company car, or recently retired all of these things can be addressed while doing a quick review with your agent.
There are new telematic devices and pay per mile auto types of policies that claim to offer substantial savings. And in some cases some people can save a good amount of money but more often than not we find that people switch and find that they are paying even more money at the end of the day. This is especially true for people that only have one car. Many times we discover not only are they paying more but they actually have far less coverage than they had before.
So why not just find another company? What are some reasons that you would want to try to reduce the costs of your current policy and not just try to find another company to begin with? Well I will start with all of my personal and business policies and they have all increased a good amount from where they were last year. And even though I have multiple companies I can consider, I didn't even think about trying to move my policies from the current company they are with right now. There are some companies that have taken 3 rate increases in the past year and have plans to take additional ones. And out of every company that I have appointments I am not aware of one that hasn’t taken a increase. And that goes for just about every company that I am aware of anywhere. I have read numerous articles about this subject and it isn’t one company it is the industry. They are suffering the worst underwriting losses in history. But the biggest reason you shouldn’t just jump ship as they say is simple: you might not be able to get the old policy back and the grass may not be greener on the other side. Even if we can find a lower priced policy. How much longer will it be lower? Has that company already announced a future rate increase? Will they require an inspection? Do you have the same deductibles?
We have also seen much stricter underwriting which could cause a newly written policy to be canceled. Some companies that used to offer auto will not even allow us to quote it. Many have removed annual auto policies. More and more companies are non renewing business, many are not willing to reinstate business or make any type of exceptions.. There are new down payment requirements to include some companies requiring 50% down payments to start a new policy.
I am not saying that you shouldn’t switch companies but in today's market I have reviewed and spoken to more people than I have in the past 20 years and told them they should keep what they have. This is true when looking at not just our clients but people from other companies as well. I have also been bluntly honest with people and said yes I know it has gone up and so has everything else unfortunately. I know that doesn’t make it easier but if everything else is going up your insurance should and will go up too.
So who should consider switching companies right now? I just recently saved someone a few thousand dollars on a policy. That one was a no-brainer: it cut the premiums down by over half and much better coverage for them as well. That type of savings isn’t typical but there are several policies that haven’t been reviewed in years. I almost needed a baby aspirin when I saw how much they were paying.
So what is the magic number, the special amount of savings that it would be worth switching? I guess if I had to put a number on it I would look for savings of 20% or more to even consider switching as long as the coverages and deductibles are the same. Why 20% because if it isn’t saving you at least that much there is a good chance your new policy may go up at least that much in a year..
When your insurance policy renews it will probably go up and it should be expected with what is going on today. No one wants to have any bill increase. I don’t like it when my electric bill, or water bill, or any other bill goes up. Most of those places do not offer any type of solution at all to address the higher costs. While I have covered a few things that you can do to help reduce some of the cost on your insurance policies, the absolute best thing you can do is speak to your insurance agent to make sure you understand your policy and that way you know what you are comparing to begin with. But make sure you are dealing with a local agent, not someone on the end of a 800 number that you will never talk to again after they sell you a policy.
David Galeone
