About a month ago, our insurance company sent renewal information for our combined homeowners and automobile policies. We were surprised to see our auto rates had gone up enough to more than offset a slight decrease in our homeowners insurance. In all, our combined policies were going to cost about 5% more for the next year.
While we knew our rates could increase even if we didn’t file a claim (which we hadn’t – more on that in a minute), we also hadn’t received any tickets or had any accidents. We reached out to our independent insurance agent to see if it made sense to consider changing carriers.
We also wanted to know the reason our rates went up. After all, with no claims and automated payments, we’re a seemingly good risk for the company, right?
You probably already know a host of personal data affects how much you pay for all kinds of insurance, including auto, homeowners, renters and even life and health. Those data can include your age, credit score, driving record, claims history and value of the property you’re insuring, depending on the policy.
While you can’t always control whether you need to file a claim, a lot of the other factors impacting your premiums are within your control. So, if you get a bunch of speeding tickets in a short period of time, your auto premiums will probably go up. Or if you have some financial problems and your credit scores take a major hit, you could see your premiums increase. But there is also a lot that goes into calculating premiums that is completely out of your control, like an increased cost of doing business in your region.
In our case – we live in Austin, Texas – Hurricane Harvey had wiped out literally thousands of vehicles along the Texas coast, especially around Houston, resulting in a lot of claims and payouts for insurers doing business in the state. We suspected that was the reason for our premium increase. Sure enough, a quick call to the Texas Department of Insurance pretty much confirmed our suspicions. According to their media relations department, it was very likely that our insurer and others were raising rates as a direct result of Harvey-related losses in their automobile business.
“Home and auto insurance rates are based on many factors, including a company's past losses over time,” TDI spokesperson Jerry Hagins said. “So changes in the overall costs to provide coverage to an area – from things like higher rebuilding costs or more traffic that leads to more accidents – ultimately affect rates.”
Or hurricanes. According to our insurance agent, comparable carriers had also increased their premiums as much or more than our carrier, so switching just didn’t make sense.
But if that was the reason for our increase, shouldn’t our homeowners premiums have also gone up? After all, Harvey impacted a lot of homes as well, right? While true, most homes were impacted by wind or flooding, perils that are not typically covered by homeowners insurance in Texas, so that line of business wasn’t impacted like auto was.
Of course, it’s not just an increase in claims due to a natural disaster that cause an insurance company to raise rates unrelated to anything you’ve done. Sometimes it’s as simple as improving profits. For example, if analysts or stockholders are expecting specific financial results, the insurer could raise rates in some lines of business in order to meet those expectations.
Other times, insurance companies raise rates in a particular state to avoid writing coverages where losses may be steep. For example, let’s say there are problems with the concrete slab foundations in newer homes across a particular state. Insurers may not want to take on the risks of insuring these homes, so instead of withdrawing from howeowners policies entirely in that state, they dramatically increase premiums for homes with slabs. This may initially result in a loss of business, but allows them to avoid paying inevitable future claims associated with those slab foundations.
Insurance companies aren’t able to just make these changes willy-nilly. Whenever an insurer wants to make a rate adjustment, it needs approval by the state’s department of insurance. In Texas, for example, this process is called “File and Use.” In a nutshell, File and Use means the company files for a rate change and implements the change while it is under review by the state. And while these changes are typically approved, in the off chance they are denied, the rate increase the company has already passed along to insureds gets refunded.
Anytime you see a premium increase, contact your agent to find out why it happened. As in our case, a majority of insurers raised rates because of the Hurricane Harvey auto losses, so we stuck with our company and we’ll see what happens next year. But in other cases, it's worthwhile to review other coverage options. (Policygenius, for instance, can help you easily compare life insurance rates here.) If the premiums are lower and the coverages are the same, you’re better off changing carriers.
Of course, if the premium increase was due to claims, your credit scores dropping dramatically or some other issue within your control, changing carriers probably won’t improve your payments. Still, it’s worth reviewing your options with an agent. After all, insurance is all about saving money when things go wrong. Those savings should begin – but definitely not end – with your premiums.
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