As an insurance professional and owner of an insurance agency, this is a question I hear frequently. As one who is a professional in this industry, it often intrigues me when I get the question. But as a consumer of insurance, I completely understand the thought behind the question so I thought I would take a moment and provide a few reasons why your insurance rates may be increasing even though you haven’t had any tickets or accidents.
Let’s start with the principle of insurance. The concept or principle of insurance is when a large group of similarly situated people all contributes a small amount of money into a very large bucket. And then as each person has a need to get some of it, i.e. file a claim, that money is available. In essence, the group shares in the risk of each person in the entire group. Therefore, if the group as a whole becomes “riskier” because of driving habits (tickets or accidents), claims or other actuarial reasons, then the cost to the group increases and each individual in that group incurs that cost. So, while you may not have had to file a claim, the group may have filed some and everyone’s cost is affected. The science is much more involved but that’s a quick snapshot.
Secondly, nearly everything that insurance pays for such as car parts, paint, labor, medical care, rental vehicles and so on, all increase in cost over time, as does just about everything else. Therefore, the cost of the insurance follows suit. You may ask why, if my vehicle is now 10 years old, does the cost still go up? Well, your vehicle may be 10 years old, but to repair it is based on current costs. The cost of that 10 year old bumper is based on today’s cost. The insurance company isn’t going to go and find a 10 year old part for your car. It’s going to be a brand new part that made to fit your 10 year old vehicle.
Next, insurance companies have to file and defend their rates with the Department of Insurance in each state that it operates. So, even if a company wants to lower rates to be more competitive, if the actuarial science doesn’t justify the decrease, then the insurance company can’t simply lower rates. But more importantly, the insurance company needs to maintain a certain level of profitability in order to assure its clients that it has the financial ability to pay the claims. There have been many companies that have gone out of business when disaster strikes because they didn’t have enough revenue or profit to pay claims. So, part of your decision in choosing a carrier, should be not only how low can the rates be, but also, is this company financially stable enough to handle my claim and the thousands of others.
Furthermore, insurance companies set their rates , in part, based on predictions. They look at history and trends and determine how to price in the future based on those historic trends. Well, just like the stock market, past trends don’t guarantee future results. So, sometimes rate adjustments are needed.
In summary, these are just a few reasons why your rates may be increasing even though you haven’t had any tickets or accidents. Because we all share in the risk pool, we all contribute accordingly. The alternative is to self-insure. In other words, don’t purchase any insurance at all and be willing and able to pay for any damage you cause to your own vehicle, anybody else’s vehicle, any medical bills, loss of wages to those who may be injured or lawsuits. None of us really wants to accept that risk on our own although there are many out there that choose not to purchase insurance. Thank goodness for Uninsured Motorists Coverage!
Charles Sueing is the owner of Sueing Insurance Agency and has over 20 years of experience in this industry. Visit www.sueinginsuranceagency.com