Why did my insurance premiums increase?

Insurance Premium Increases

Why did my insurance premium increase?  I did not file a single claim! This is a common question we get, and it has a complex, yet simple answer: insurance rates are increasing because of the numerous recent natural disasters and companies’ poor investment returns in the stock market.

The past 7 years have seen a frequency of enormous costly storms to hit the States and the World. 2012 was the second most costly year ever in U.S. history, costing U.S. insurance companies an estimated $58 Billion. (2005 was the most costly year with Hurricanes Katrina and Rita.) Superstorm Sandy is just one of the 2012 disasters yet it only accounts for 43% of the total 2012 estimated costs. Sandy  alone “resulted in about 1.38 million insurance claims — 71 percent for damage to homes; 17 percent for damage to automobiles and 12 percent for damage to businesses” , said Robert Hartwig, an economist and president of the Insurance Information Institute, a New York-based trade group and research entity. Travelers alone, according to their most recent publically available financial statements, attributed Sandy to $669 million of the $689 million in after-tax catastrophe losses at Travelers (and more than $1 billion pre-tax).  Between 2000 and 2011, insurers, on average, paid $27 billion each year to cover insurance claims related to hurricanes, tornadoes, wildfires, earthquakes, hail, and all other natural catastrophes in the U.S., according to Munich Re’s research.  The world’s most costly year was 2011, think tsunami in Japan and the horrendous tornadoes in Alabama and Mississippi, costing $121.8 Billion. This is not just a Global phenomenon.  Remember the large hail storms that hit Lexington, SC and the rest of the Midlands area in 2011 and 2012? One storm will not make rates rise, but a series of many catastrophic storms will!   The insurance companies have to be able to pay the costly claims, which they do by raising rates and thus premiums.  Due to insurance risk pooling, carriers spread the cost of these storms throughout their entire customer base in order to keep premiums down for all. (Pooling is one way we can get a $1 million umbrella limit for only $150 a year). The average combined loss ratio of P&C carriers for the past few years is 101.1%, i.e. they lose money on every dollar of premium received. Now, we all have been affected by the down economy in many ways, insurance companies included.  And while the stock market is improving and Insurance Companies’ market returns are increasing, this will only help lessen the amount of rate increases they will need to return to an underwriting profit. When the stock market was performing well, Insurance Companies could offset poor loss ratios with gains from the market, which they cannot do in today’s market. So, if you are located in Columbia, Lexington, Irmo, West Columbia, or even Roswell, GA expect to see some increase in your insurance premiums over the next few years! Rates are of course actuarially determined and there are many factors that contribute to the rates. In order to head off some of these increases, you can consider increasing your deductible, bundling your homeowners/renters and automobile coverages (i.e. place with the same carrier), and watching your Claim Activity by driving safely and properly maintaining your home. This can be as simple as driving the speed limit and trimming limbs overhanging your house.  P.S. Don’t drink and drive. That can literally cost you up to $10,000 per year for the next 5 years in insurance alone!

You may be thinking I’ll just shop my insurance each year to ensure I have the cheapest premium possible. This is not recommended as longevity is still valued within an insurance company.

We have been on the underwriting side of the business, and we did look to see how long a customer had been with a company before non-renewing or considering the size of an increase. Although, it would be wise to at least check out the market once every 5 to 7 years.  A good Independent Agent, like Livingston Insurance, can do this for you and will also know their markets well enough that you will be satisfied with your insurance