They're goin' up!

Why did my insurance rates go up?

If I had a nickel for every time I’ve answered that question…..

In light of the impending insurance increases, let me see if I can help you understand a little about the way insurance works. 

Company A writes insurance in almost every state in the US.  The company divides up their areas either by states or by regions.  Each state or region requires a certain percentage of funds to be available from Company A to cover potential risk.   The insurance commission in each state or region sets this percentage based on the risk assessment, meaning the greater the risk of claims,  the more money is required to have in reserve.  In other words, the states lining the Gulf of Mexico would require a higher percentage of funds in reserve due to a greater chance of hurricanes there than in  Arizona or New Mexico. 

When the funds for a state or region are exhausted, Company A has to pull money from reserves from other states/regions.  To make up for this loss, the company has to increase their rates for not only those people in the state or region affected, but also in the regions the company had to dip into.   This is why our rates went up after Hurricane Katrina.  If Company A doesn’t make up that difference or doesn’t have enough funds to handle the claims, they get penalized by the insurance commission.  This can mean a lot of things for the company, the most important one being that they can no longer write insurance in that state, meaning all their customers have to find insurance elsewhere.

The claims from the storms this spring and summer wiped out the reserves in Oklahoma.  The hailstorm that went through Oklahoma City cost insurance companies a combined 2.4 billion dollars.  That’s billion, with a “B”, for one single hailstorm.  So you can imagine how much money overall that insurance companies have lost from ALL the storms we had this year.  Some of the companies here have taken losses for three years in a row, and then this one comes along and wipes everybody out.

So, this is why your home and auto premiums are increasing.  I know, I know, I didn’t have any claims either, but my premiums have gone up anyway.   We are currently in a rough economy and we live in Oklahoma, so the odds are against us for now.  The insurance companies have to hold up their part of the bargain so they can continue to do business here, yet try not to raise rates too much that they lose a lot of business.

It’s not much consolation, but that’s the process in a nutshell.  I’m not happy about it either, but I’m going to keep my fingers crossed for better weather and no more earthquakes!

Keep in mind, there are always things we can do to lower premiums.  If your renewal offer is higher than you can reasonably afford, give us a call.  We’ll check it over for you and see what we can do.

Family Insurance