Understanding the Rise in Insurance Rates and How to Keep Them Down
July 12, 2024
In recent years, many policyholders have noticed an unsettling trend: their insurance rates are steadily climbing. Whether it is a homeowner’s policy or automobile policy, this rise can be attributed to a combination of factors, including economic changes, increased risk factors, and evolving insurance industry practices. Understanding these reasons is crucial for consumers aiming to keep their insurance costs manageable. Here is a look at why some insurance rates are on the rise and how you can take proactive steps to keep your rates down.
Reasons Behind Rising Insurance Rates
- Economic Inflation
Inflation impacts every aspect of the economy, including insurance premiums. As the cost of goods and services are on the rise, so are the cost of claims that insurance companies are having to pay out. For example, if the cost to repair a car after an accident increases due to higher prices for parts and labor, insurance companies will adjust their rates to cover these increased expenses. The same is true for the cost of construction materials when making repairs to a home for an eligible insurance claim, such as a new roof after a storm.
- Increased Claim Frequency and Severity
Insurance companies base their rates on risk assessments and past claim data. For example, the number of traffic deaths in the US was up by around 7,000 in 2022, to 42,795, compared to around 35,000 before the pandemic, a nearly20% increase, according to the National Highway Traffic Safety Administration’s latest estimates. An increase in the frequency and severity of claims—such as more frequent natural disasters, higher crime rates, or a rise in severe accidents—forces insurers to raise premiums to ensure they can cover future claims.
- Advancements in Technology
While advancements in technology can lead to safer vehicles and homes, they can also increase repair costs. Newer, more modern cars often have sophisticated electronics and sensors that are expensive to repair or replace. Similarly, smart home devices, while providing enhanced security, can lead to higher repair costs if they are damaged.
- Aging Homes
Older homes are typically more expensive to insure because they are more susceptible to damage, are built to older building code standards, and are less likely to be FORTIFIED Homes. This means that an older home is more likely to sustain damage that would require an insurance claim for repair and the replacement cost would most likely far exceed the original cost to construct the home.
- Increased Home and Auto Values
Another contributor affecting the auto insurance market: the increased value of most vehicles. More expensive cars (and parts) also make repairs and replacements costlier. In addition to the cost of purchasing a vehicle, it is no secret the cost of purchasing a home is on the rise. The greater your home value, the higher your premium will be.
- Increase in Natural Disasters
As insurance companies are playing catch up with economic inflation, they are also having to contend with a mounting toll of natural disasters, and not only in the usual places like Florida and California. In 2023, there were around two dozen severe storms in the US with billion-dollar price tags, spreading lightning, hail, and damaging winds through many parts of the country.
- Urbanization and Population Density
As more people move to urban areas, the population density increases. This can lead to higher risks of accidents, theft, and property damage, which in turn can drive up insurance rates for auto, home, and renters’ insurance. This is why your insurance premium can increase based on demographics and data about where you live.
How to Keep Your Insurance Rates Down
- Shop Around and Compare Rates (… or have Sparks Insurance do it for you!)
One of the most effective ways to ensure you are getting the best rate is to regularly compare quotes from different insurance providers. Different companies have different risk assessments and pricing models, so shopping around can help you find a more competitive rate. Don’t have time to shop around? Give your RamseyTrusted Agents a call today at Sparks Insurance.
- Bundle Your Policies
Most insurance companies offer discounts to policyholders who carry both auto and home policies, and bundling can apply to other coverage such as motorcycle and boat insurance as well. Generally, a bundling or multi-policy discount can reward consumers with savings of 5% to 25%.
- Increase your Deductible
A low deductible, whether for home or auto insurance, means you pay a higher premium for coverage. You select your deductible amount when you purchase coverage and can always make adjustments later. Raising your auto insurance deductible to $1,000 could save you 40% (or even more) on your premiums. A higher deductible means you will pay more in the event of a claim, but it will also lower your premium rate, ultimately saving you more in the long run.
- Take Advantage of Discounts
If you want a better rate, ask for one! Car insurance companies offer dozens of discounts—and you probably qualify for at least a few. There are often discounts for being a member of groups like AAA (American Automobile Association) or university alumni programs, working a certain job—like a teacher or a nurse, serving in the military, having good grades if you are a student, being a senior citizen, completing a drivers safety course, and so many more. Ask your insurance company what discounts are offered and which you may qualify for.
- Improve Home and Vehicle Safety
Enhancing the safety of your home and vehicle can lower your insurance risk and lead to lower premiums. For home insurance, consider installing smoke detectors, carbon monoxide detectors, security systems, and if you are building a new home or replacing a roof consider upgrading the structure to a FORTIFIED RoofTM. For auto insurance, maintaining your vehicle and using safety features like anti-theft devices can help reduce your rates.
- Change how you Pay your Premiums
Did you know that instead of paying monthly premiums, you can pay for your insurance six months or a year at a time? Doing so is almost always cheaper since it does not cost the insurance company to process your payment each month. Some insurers also provide discounts for going paperless and setting up auto draft for your premiums (whether monthly or biannually). Look at how you are currently paying your premiums and explore what discounts are available for changing the way you pay.
- Review your Coverage.
Regularly review your insurance policies to ensure you have the right amount of coverage. Avoid paying for coverage you do not need and adjust your policies as your circumstances change. For example, if you have paid off your car loan, you may not need as much coverage or if you can afford a higher deductible in the event of an emergency make that adjustment and save on your premiums.
- Consult with an Independent Insurance Agent.
Need help navigating your insurance needs? As an independent agency, Sparks Insurance is here to help you find the best coverage at the best rate to meet your needs. Sparks insurance gives you options to consider from a variety of top-quality carriers without having to call multiple agencies. We can help you find the most cost-effective policies and ensure you are getting all applicable discounts. Give Sparks Insurance a call today and let us help you find coverage you can trust.
Rising insurance rates are influenced by a variety of factors, many of which are beyond the control of the consumer. However, by understanding these factors and taking proactive steps, you can mitigate the impact rising rates have on your finances. Regularly reviewing your policies, shopping around for better rates, and taking advantage of discounts can help you keep your insurance costs manageable. Being informed and proactive is the best strategy to ensure you are not paying more than necessary for your insurance coverage.
Reference Articles and Additional Resources:
Why Are Auto Insurance Premiums Going Up and What Can I Do About It?
What’s Behind the Rapid Increase in Car Insurance Rates?
