Hello everyone! I hope you are having a wonderful summer. Wow! It’s hard to believe it’s been over 3 years since Aunt Junebug and I moved out of the city to the country. I’ve been chasing my tail and trying to slow down enough to work on this blog. Carving out the time has been so difficult! (FYI- Started this one over a year ago)
And, still, the most frequent question that keeps popping up is: “Why does my home and auto insurance keep increasing?”
The conversation normally begins like this:
Client: “Hey Russ, I’m a good driver and have had no tickets or claims. So why do my premiums keep rising? Why am I being penalized for other people’s claims?”
Listen, the truth is, there is no simple answer. However, I will do my best to answer this question, keeping in mind all of the complexities and nuances in the insurance industry.
So, let’s all go back in time to early 2020, when the Covid pandemic was just in it’s infancy and insurance rates were significantly lower.
Almost overnight, no one was driving as much anymore. Under quarantine, we were not going out to shop, dine, or much else, for that matter. So, due to less driving, the auto insurance industry decided to give back some premium and lower rates. (Insurance premiums are based on risk and exposure, so if you’re not driving as much, there is less risk) As a result, gas prices began to fall fast, and we were all rejoicing! Hallelujah! (excepting the oil companies)
As you can see, we weren’t on the road as much. And, for some of us, our short-term savings were increasing – thanks to no vacations, no eating out, no buying Knick knacks, etc. Less mobile, we were stuck at home (hello, Netflix subscription!).
Bear with me, I’m going somewhere with this.
So, we rocked on for a couple of years, and then, the world began to re-open. As a result, a couple of things started to happen:
- The supply chain slowly began to work out all the kinks of getting everything rolling again.
- This meant there would be more delays in receiving the goods and services we were used to having before the pandemic.
- This meant there would be more delays in receiving the goods and services we were used to having before the pandemic.
- Inflation took off like a rocket (This is a biggie).
- Money became cheap, interest rates were at zero percent, and everyone who wanted a job had a job. Some folks chose early retirement and decided it was the perfect time to step out of the work force. At the same time, many others received a boost in their pay or took another position that offered more compensation. So, this was/is on the economic side of things.
- Money became cheap, interest rates were at zero percent, and everyone who wanted a job had a job. Some folks chose early retirement and decided it was the perfect time to step out of the work force. At the same time, many others received a boost in their pay or took another position that offered more compensation. So, this was/is on the economic side of things.
- Catastrophic events: In Louisiana, we had 7 major events in the span of 18 months.
- Whammo! Throw in a few catastrophes and here we are!
Because of all this, the insurance companies took a major hit. Unfortunately, come to find out, our state was only set up to manage 2 catastrophic events a year. Like in Florida, most insurance companies either went bankrupt or left to make their fortunes in more profitable, less risky, states. The few that remained started to “take rate,” (what we in the business call price hikes), and the industry model began to shift.
This is a quick answer to why insurance rates are increasing but stay tuned – this will be continued in my next blog.
Thanks again to everyone who has taken the time to read this. As always, I hope these posts are helpful (and somewhat entertaining).
And finally, I’d love to hear your thoughts and ideas. Until next time……
Russ
