"What? It's going up again? But I haven't had any tickets or accidents."
Most people that have had any type of property or car insurance have experienced an increase in cost after being with a company for a period of time. If we got paid based on the number of times we heard people repeat the above statement, we'd be in high cotton. Insurance rate stability is as elusive as that pink unicorn in my backyard. Brent crude just topped $80 a barrel, and an MRI is like $5000 bucks, but for some reason we've been led to believe insurance rates should remain static. How we were led to believe this, I'm not quite sure. But I'm going to try to offer a little perspective, not to defend the insurance industry as a whole, but to possibly save you some angst when that pesky renewal bill comes.
Why do rates fluctuate, sometimes down, more times up, with little or no quantifiable explanation? I'm hardly qualified to give technical explanations, as I am not an actuary(read bean counter, for insurance companies). So we'll try some things that are more easy for us to relate to. Insurance companies are complex organizations that have many different moving parts.
Most people think they profit directly from insurance premiums, and to some degree they do, but that's only a piece of the puzzle. One of the challenges is the puzzle is constantly changing. Offering insurance for cars or houses at rates that will be both competitive in the marketplace and yield a profit to the company is very difficult.
That new $50,000 Suburban is a lot more expensive to repair than your parents 1988 Buick. Backup cameras, plastic panels, 42 air bags and a concert hall in the dash cost a bit more to repair than a real metal bumper with real metal fenders and 15" steel wheels. Shoot, some of the wheels and tires on these new cars are more expensive than the actual cars were 20 years ago! ( not really, but you get my point) Then there's the impact of claims and the cost to settle them. I know we want to argue that we shouldn't have to pay for other people's mistakes. But when a business incurs expenses beyond their budget, they have to make up the extra cost by raising prices. And insurance companies are businesses too. For example:
Have you paid an electric bill lately? How about defend 10,000 computers against hackers that want to hijack all your data and sell it to the highest bidder? Do you like to get pay raises every now and again? Had to pay your legal team to defend against fraudulent cases brought against your customers, or even worse, your own customers trying to get over on you by filing a $10k claim for a $6k loss.
According to an ongoing study by the Insurance Research Council, up to $7.7 billion in auto insurance injury claims filed in 2012 were fraudulent or contained padded figures. That’s a 33% jump from the $5.8 billion reported in 2002. And those numbers are now six years old. Fraud alone could account for several hundred dollars of your yearly premium. This is just a sampling of factors that affect the ongoing operating costs of insurance company. And that doesn't even begin to consider the impact of government regulations and taxation that are constantly changing.
Insurance companies are always having to look ahead, setting rates now for what could happen in the future. They are required to file their rates with the states in which they operate, and must adhere to those rates. And unfortunately, they can't predict the future any better than you or I can. I may sell insurance, but I'm a consumer too. And my rates usually go up a little each year too. One of the best defenses against rate increases is having an independent agent that can shop for the best value for your situation at any given time. We aren't beholden to any single company. When one company's rates get out of line, we've got many others to consider. And that just makes good sense.