You did everything right. You were careful on the road, trained your staff to avoid workplace injuries all year, and didn't offend anyone for a full week. It wasn't easy but the dream of seeing a smaller number on that insurance renewal kept you motivated. So why the heck is my insurance bill higher than last year!
There is no easy answer to this but I wanted to lay out some factors you may not have thought of that cause your insurance to go up.
#1 - It's not all about you
Insurance companies are bigger than they used to be. The top insurance companies are now global behemoths with thousands of employees and do business in dozens of countries. That means a tsunami in the Philippines or a volcano eruption in Iceland can affect the price of your car insurance in little Destin Florida.
For example, the California wildfires last year caused insurance companies to pay more than $11 billion in claims. The insurance companies could try and recoup that money directly from the people in California by charging an extra $1000 for every household in the entire state, whether they owned a home or not. Instead of doing something wildly unpopular, they spread the cost out over all of their policyholders in all 50 states and maybe all over the continent. You may not think that is fair until your house is the one that burns down and it's rebuilt using money paid by other policyholders.
#2 - It is about you
Your personal credit score is often a factor. Your age is a factor. Your zip code, road rage, medical history, experience, and education may all affect the price. The way data is passed around these days, your preferred toothpaste could one day be a factor. Insurance companies are always looking for more data to better predict the risk YOU pose so they can price your insurance relative to the average. Actuaries focus their entire careers analyzing data, identifying trends, and forecasting statistical probabilities on which insurance prices are made. You think your job is boring, just read that sentence again.
When you get a DUI, your auto insurance goes up a LOT and much of the time it comes as no surprise. When people move from Milwaukee to Rosemary Beach, their home insurance is going to be a lot higher because hurricanes don’t often hit Wisconsin.
#3 - Nobody did anything
Insurance prices are partially based on what the insurance company predicts will happen in the future. The odds of getting it exactly right are about as good as finding kangaroos in Alaska but they put a little "uncertainty factor" into their prices. Believe it or not, insurance companies are not highly profitable in the long term. A few years may pass without a storm but eventually disaster strikes and all that money you paid them over the years is back in your pocket, plus some.
A change in underwriting philosophy within the insurance company may cause them to treat certain risk groups differently, possibly raising rates for some while lowering them for others. Underwriters are people and some are more cautious than others.
#4 - Government action
This kind of change is not usually sudden but it could quickly cause substantial changes in premium, usually in the wrong direction. Even talk about the posibility of government action can cause rates to increase in anticipation. An article by Seema Verma from the Centers for Medicare and Medicaid Services said of the change in health insurance as related to the Affordable Care Act, "…the law did nothing to control underlying costs. The very structure of the law which imposed billions of dollars in new, costly regulations also led to higher and higher insurance premiums." * It is not so much the regulation or law itself, but the new costs for insurance companies which gets passed on to policy holders.
Each state has minimum requirements for certain types of insurance, those minimums could change causing your price to increase. Sometimes a judge's ruling on an existing statute could fundamentally alter the amount of risk insurance companies face. This happened in 2016, when the cap on attorney's fees in workers comp cases was removed by the Supreme Court of Florida. ** This caused two years of rate increases for many workers compensation policies in anticipation of higher expenses. It turned out to be a bit of an overcorrection so rates have declined since then in some areas.
#5 - Inflation
Insurance companies have two major expenses- claims and underwriting; both tend to increase year over year. As internal expenses go up, they have two options- decrease underwriting expense (cut payroll, which hurts customer service, attracts lower quality talent, causes high quality customers to depart, and eventually leads to utter demise) or increase revenue (aka, how much you pay for insurance). It's not hard to see which option they prefer. I will go more into this complex issue in a later blog.