“My insurance premium went up! It’s supposed to go down!”
If I had a dollar for every time I’ve heard that line in the last fifteen years, I’d be able to self-insure all of my stuff.
But seriously, why do insurance prices go up almost every renewal? There’s a bit more going on behind the scenes than you might realize.
Most people would simplify the relationship into: the carrier takes everyone’s insurance premiums, pays claims, pays agents a commission, and then keeps the rest.
“But I didn’t put in a claim!”
It’s easy to forget that insurance carriers still have to cope with the same costs of doing business as any other company. Advertising, printing and sending (or scanning and e-delivering) policies costs money, and of course, their payroll. Before it was sent to you, an underwriter reviewed your application, approved it and sent it to a processor for it to be issued. It may have also been mailed out by someone else. Staff also need to be on hand to service that policy, along with additional staff to handle any claims that you might have. Also, all of these people need a computer network that works efficiently AND keeps your information secure.
“But what about commissions? Couldn’t I just buy online directly from a company and cut out this middleman?”
It’s been said that you can’t put a price on experience, but if you did, that’s what I’d consider commissions to be. You’ve invested years of savings and hard work into your home or business. You’ve worked hard for that new car. Do you really think it’s enough protection to just click the Help link on a website and go with the “recommended package”? What if you missed something small?
Ask the owner of any championship team and they’ll tell you that talent comes at a price. Talent, in this case, is the ability to review a policy jacket at the time of a claim, and find a way that that exclusion you overlooked just might not apply to this loss. Talent is the ability to negotiate with those employees the carrier has in order to get you a lower rate. Talent is the foresight to see how a simple certificate of insurance request could be asking for a bit too much, and exposing you to far more liability than you initially bargained for. It’s also important to keep in mind that a carrier won’t ever raise your insurance premium for the sole purpose of increasing an agent or broker’s commissions.
Finally, if your carrier is paying more for everything from advertising to electricity, it also stands to reason that the costs of claims are increasing too. Fifteen years ago, you’d spend $150 after a fender bender to get a dent popped out. Now, vehicles have far more intricate systems as well as safety features built in to almost every part of a vehicle. That fender bender today could cost you about $3,000-$4,000. And that’s just an auto claim for example. Liability costs especially in business insurance claims have risen to astronomical levels. All of this translates into carriers needing to have enough left over after covering costs to cover the cost of your average claim as well.
If you have a unique business, it’s easy to think that your carrier is charging a high price “because they’re the only game in town”, but conversely, it’s also important to remember that if they’re the only one writing your variety of policy, they’re also writing ALL of the policies for businesses like yours. Well, not really all of them but I’m sure you get what I mean.
We at Allan Block Insurance understand why your first reaction may be a negative one. We know that no one likes a price increase, but there are generally reasons to explain why it’s occurring. Our first goal is always to provide you with the best product to help protect your investment, and we are happy to discuss the specifics of your policy so you understand what you’re paying for.