No matter the type of insurance – homeowners insurance, car, insurance or business protection insurance – you’ve likely received a renewal bill and asked, “Why did my insurance premium go up?”
While some insurance premium increases can be attributed to rate hikes, others have more to do with your specific circumstances and the way your insurer calculates risk.
In this article, we will look over some of the main reasons why insurance premiums increase, how your insurance company measure risk, and what you can do to keep your insurance rate lower.
Why Do Insurance Premiums Increase?
As personal and commercial insurance agents, this is an extremely common question that we get from many of our clients. And it’s completely understandable. Many of our clients are confused or annoyed that their insurance costs have gone up, and don’t know why.
Unfortunately, the answer is not always simple or straightforward. There are many reasons your insurance premiums can increase, some of them are specific to you, and some are not.
A higher premium is often calculated based on a set of factors unique to each insurance company.
A lot of insurance cost and premium changes comes down to something called ‘claims probability’.
What Is Insurance Claims Probability?
In the insurance industry, many factors are used to calculate the probability of someone having to file a claim.
The higher the probability of an insurance claim, the higher your premium costs can be. When it comes to health insurance, this is one of the reasons higher premiums appear every year. For home insurance, auto insurance, or a life insurance policy, the same thing can happen.
Here are the key factors that can cause a higher likelihood of a claim and premium changes.
1) Past Claims History
As far as insurance companies are concerned, a history of past claims increases the odds that you’ll make another one. While this may or may not be fair, it is one of the ways they measure probability.
For example, home insurers will share information about claims from the last seven years through the Comprehensive Loss Underwriting Exchange (CLUE). Past claims could boost your premiums even if you weren’t the homeowner who made the claims.
Car insurance claims are also registered by CLUE, and your premium rates may increase if you’ve made a lot of claims, even if you weren’t at fault. This is because, statistically, you pose a higher risk.
Remember that when it comes to your insurance claim’s history, having more of them on your records generally means you are a higher risk of future claims.
2) Current Credit Score
Financial Lenders will evaluate your credit score, among other things, to estimate your credit risk and ability to repay a loan.
What you may not know is that auto insurance companies also look at your credit score, but for a different reason.
Insurance companies figure that people with low credit scores are more likely to get into accidents than people with high ones. Whether this logic is fair or reasonable, it is the way that they have deemed the risk probability works.
As a result, they might charge more if you have a lower credit score. Keep in mind that some states, including California, actually prohibit insurers from using credit scores when setting rates.
3) Driving Record
It makes sense that your driving record would affect your auto insurance premiums. You car insurance rate is tied to driving record, and the likelihood of future claims.
Suppose you’ve had more than two violations in the past three years (i.e., speeding, reckless driving, driving under the influence). In that case, your car insurance company might consider you a higher risk for auto accidents and insurance claims.
If you’ve had a DUI in the past, you’ll likely pay higher insurance premiums (and higher deductibles) for your auto insurance. In some cases, you may even be denied coverage if you’re labeled as a “high risk” case.
This is why a good driving record is wise not just for your own safety, but also for a more affordable car insurance rate.
4) Zip Code
When moving house, you can sometimes see an increase in insurance premiums. This is because insurance premiums and claims probability are also tied to your address. Depending on your current or new location, insurance premiums can become higher or lower.
Specific zip codes are more populated than others, which increases the risks of an auto accident or creates a higher cost of health care. This means when you move, you could see a price increase on your insurance premiums.
5) Changes in Vehicles
When you add or replace a vehicle on your policy, you might see a jump in premium. This is because certain vehicles cost more to insure than others. In the event of a claim, that vehicle would cost more to repair or replace, and these costs are calculated into the auto insurance rate.
Will Insurance Rates Increase if I Make a Claim?
Another big concern for many people is, “Will my rates automatically increase if I make a claim?”
The short answer is that it depends on who or what is at fault. A single insurance claim will not usually trigger higher rates for homeowner policies, but two or more probably will, depending on the insurer.
Keep in mind that most companies won’t raise insurance rates if the claim results from severe weather or some other catastrophe. When it comes to car insurance, some companies also offer accident forgiveness to reduce the chance of a premium increase after an at fault accident.
Can You Help Lessen Insurance Premium Costs?
As a rule, insurance premiums tend to go up rather than go down. This is just a reality of life, and it applies to your health insurance policy, car insurance, life insurance premiums, and homeowners insurance.
An increase in insurance premiums can be difficult to manage, especially if you were not expecting it.
However, there are some things you can do to help control the costs of insurance. The first of these is to drive safely, as your driving record impacts your insurance premium.
The next step you can take it to improve your credit score. Improving your credit score could improve the cost you pay for insurance.
Finally, you can check for discounts from your insurer. Many insurance carriers will give discounts if you are a student, in the military, or if you have multiple policies through them. Check with your insurance agent for any available discounts and how you might qualify.
Most importantly, talk with your independent insurance agent, as they have access to multiple insurance carriers on the individual market. If you are not happy with your current insurance premium or want to remarket your insurance, we can help you find the best price for your needs and budget.
Jackson & Jackson Insurance Agents and Brokers offer a full-service insurance center with over 80 years of experience serving the local San Dimas, Glendora, and LaVerne business communities. We offer all lines of insurance to meet your home and auto insurance and commercial business insurance needs. If you have questions about policies or need to look at extra insurance coverage, we are here to help.