Why do my rates keep going up?

young blond woman reading letter containing bad newsThe most common insurance question on the planet is “How is it that I haven’t had a loss in years and my insurance rates keep going up?” Even as an insurance broker with years of experience I have asked that question of my own insurance companies, and I can certainly empathize my customers. Trust me, I as much as anyone would like your rates to stay where they are, because it’s the domino effect. Rates go up, you get mad, you call me, we shop you with other companies we represent, and we hope we keep you, but sometimes we lose you. It’s a big hassle that no fun for either of us.

So, what’s the answer? I will try to keep it short, but you have to understand what insurance is. Its risk transfer. Now before you run off, thinking this is already dull, let’s look at this closer. You have an asset, maybe an investment property, a mobile home, an RV, a car, whatever. It’s expensive and, a loss to it would be catastrophic to you and your family. So you pay a little money (in comparison to the value of the asset) to transfer the possibility of a loss to someone else, the insurance company. Now if the insurance company only insured you, that would be a terrible risk, now before you get offended, you’re not a terrible risk, but if you paid me $1000 to insure your 250,000 house and it burned to the ground I am out $249,000. But If I am able to get 249 other people to give me a $1000 and your house burns to the ground, then I can pay you, and assuming no one else’s house burns to the ground then we got it just right. That’s insurance, and it’s the world that insurance companies live in. A constant game of Goldilocks and the three bears. Insurance companies have to get it just right. Not too expensive, just expensive enough to cover the cost of the losses, and make a small profit. Now before you yell at me about the adjective, we are talking percentage wise, not dollar amount wise. Maybe we should table how insurance companies make money for another day.

So if you never have a loss, how do the rates keep going up? Well the short answer is your neighbor, and the thousands of other people, or however many are in your particular group, are terrible risks. They have terrible tenants that burn their houses down with Candles and let their Rottweilers maul people. They forget to keep the heat on their vacant homes, which causes them to flood. They have snot nose teenagers that text while they drive, and honk their horns to summon their friends, they back their RVs into gas pumps, and so on and so forth. So, please before you call your broker and yell at him, remember two things. First, if he is an independent agent, like Gila Insurance Group is, we might be able to find you a better price with better neighbors, and a better group, and we can save you the time of shopping all over the place. Second, the next time you get a letter in the mail from your insurance company that has your rates going up, and you haven’t had a loss, remember it’s your neighbors fault, and by the way, he still hasn’t returned the rake he borrowed 2 years ago!

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