“Why is my insurance premium going up so much?”
This is probably the question we are asked the most in our agency. There are a few factors you need to know to understand why this is happening.
There are THREE primary reasons why this is happening in 2022, but there is one in particular.
First! This is probably the least understood aspect of insurance: Insurance is a “pool” of money that each policy holder puts into a trust, managed by the insurance company, to make sure if one or several suffer a loss, that the money is there to fix, repair or replace what has been lost. A common misconception is “I have not had a loss, so why is my insurance going up?” If you think about it, the money you pay annually to repair or replace your home, for example, is nothing close to being enough to enough to cover the loss of your home or car being destroyed; a total loss.
A simple example would be: Your home may have a replacement cost of $250,000, but your annual insurance premium may only be $1,000. Meaning it would take 250 YEARS to pay enough in premiums to cover the home in a total loss in today’s dollars. This says nothing of the increase in cost to repair the home each year (inflation). What you are doing is putting your money into a pool with many other people to make sure the money is there NOW to pay for that loss. So when an insurance company takes in premium, and they must keep a certain amount in the bank at all times to “cover the bets”, and when there are numerous losses? They have to increase price to get the reserve amounts back up. We have had wildfires, hail storms, a massive increase in the amount of car accidents, most of which involve the use of a smart phone distracting one or more drivers!
Second, and this is the biggest reason, is the increased cost to make repairs. We have seen all over the new that computer chips and equivalent are in short supply, and with supply shortages come price increases…well, then the insurance company needs to increase their reserves to cover the increases in cost.
In insurance lingo this is the Total Insurable Value, or TIV. Cars are more technical, more computer technology and therefore more expensive. And worst of all? Hybrids and electric vehicles are the MOST expensive to repair. Once those batteries ignite, they are super difficult to suppress, leading to further damage. And now, a shortage of materials to repair those same vehicles!
Third is one we all see daily: inflation. Inflation is as high as it has been in over 40 years, and we are all feeling this pinch. Insurance companies are not immune from this malady.
We would like to say your insurance premiums will decline soon enough, but the truth is we do not know when this will happen. We are seeing every single company we utilize with increases already in place, or on the horizon. One carrier is implementing a 60% increase in another state, and they are hinting this may happen here also. While this is only one carrier, it is a name you would know very well. And while we offer this company, we also have many others to make sure you are not paying more than you must….but unfortunately in 2022, we will all likely be paying a little more. We DO know this is causing some pain in the pocket book, and we will continue to advocate for you, but I felt this email may help inform you about the status of the market today.
Thank you for the chance to earn and continue to earn your trust, and we are thankful that you have done so! If you feel we are of service to you, then please send us your referrals and don’t forget that you will receive $25 Gift Card for anyone who becomes a new client!