Why Is Your Insurance Premium Going Up?

home insurance increaseOUCH! There you are, minding your own business and your insurance company hits you with a notice that your premiums are going up. Why does this happen, and how can you reverse the trend of rising rates?

First, there's actuarial science

Insurance is designed to protect individuals from risk by spreading the risk out. To do so wisely, insurers rely on actuarial (or risk assessment) techniques, used by actuaries who are required to pass an extremely difficult series of professional exams, which require thousands of hours of study over several years. In a sense, the insurer lives and dies by actuarial assessments (maybe even literally, as we mentioned in a previous blog) because they need to balance risk and payouts with the need to set a premium that is low enough to be competitive. Profit, expanding their customer base, providing good service, all these can affect your rate, but the single most important factor is a change in the risk your policy poses to them.

There's actuarial, then there's actual

Your insurer sees your building through the lens of a risk profile based on data relating to thousands of similar buildings. But what if you add knowledge about actual risk to their knowledge of the actuarial risk? For example, an insurer will judge a home with a golden retriever by statistics showing how likely it is this particular breed bites someone and causes an expensive claim. But if the homeowner has filed two claims for dog bites this year, suddenly it's not about a theoretical dog and a theoretical risk, it's about two dog bite claims in a year and a certain amount of money. The insurer raises the homeowner's rate because they can expect more claims are coming. So, your rates are set through a combination of your generic, actuarial risk, things you've done to raise or lower your specific risk and things unrelated to risk that make good business sense. How can we use that equation to keep your rates down?

Shop around

Each company sees certain risks differently. Another company may charge you less for the same coverage.

If you’re getting a good price, stick with this company long-term

Almost all companies reward long-term customers with lower rates.

Increase your deductible

This will not only reduce your premium more than almost any other action you can take, it makes it easier to follow the next tip...

Don't file small claims

Insurers tend to give more weight to the frequency of claims than the amount they cost, in part because each claim has a fixed cost to process. Taking care of a repair out of your own pocket may be painful in the short term, but it will more than pay off in the long run with lower premiums. Get an estimate from a repair company you trust and decide if you can handle the cost. If you can't, you have an estimate to compare to numbers you get from your insurer.

Ask your agent for help...

Everything you or your agent can do to reduce your premiums will either reduce the company's risk or strengthen your business relationship, so most insurers will have a long list of ways you can qualify for discounts, from installing safety equipment (security alarms, sprinklers, etc.) to multi-policy discounts.

...but be careful how you ask

Some companies add any report of damage or a potential risk to your Comprehensive Loss Underwriting Exchange, or CLUE report, which is used to determine premiums. When you inquire about whether something is covered, make it clear that you're just asking. If you're asking about something that has occurred, make sure it's a big enough problem to risk it ending up on the CLUE report even if no claim is filed.

Check your CLUE report

You can obtain it from LexisNexis free of charge. If there are errors on it you can have them removed, possibly resulting in lower rates. Plus, knowledge is power! With a little work and consideration, you can reduce the premium pain and get down to the bare minimum for the coverage you need.
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