Have you noticed your insurance premium increasing? You pay your bill every month, or every year, and if you’re keeping tabs on it, you will see that the premium you are paying is going in one direction — up.
Here are the five top reasons your insurance premium is going up — and will continue to do so.
1. Inflation
Yes, your bestie and mine, inflation. Inflation has a way of making things more expensive. That’s why when I was growing up, I could go see a movie for $2. Today, that movie costs me $20 or more.
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You know and love all the stories. Your parents say how a newspaper was a dime. Side note: If you don’t know what a newspaper is, you can Google it, or just imagine a blog printed on thin paper with ink that rubs off on whatever touches it.
Karl is an insurance agency owner, insurance expert witness in state, federal and criminal courts, and radio talk show host. For more than 30 years, Karl has helped consumers understand the complex world of insurance. He provides actionable advice and distills complex insurance concepts into understandable options. He appears regularly in the media, offering commentary and analysis of insurance industry news, and advises lawmakers on legislation, programs and policies.
Because of inflation, your dollars buy less today than they did yesterday and the day before that. Your insurance company also has to pay those higher dollars for the things it buys for you.
So yes, your premium will go up to cover the increased prices that your insurance company must pay to cover your losses.
2. Climate change
The changes in the climate are creating weather patterns that we have never seen before. They are leading to billions of dollars being paid out in insurance-related claims, which we also have never seen before.
This isn’t hyperbole — climate-related disasters are on the rise, and not a little bit and not for just a few years, but a lot and for a long time.
Your insurance company has to take into account the massive disasters that we are seeing more regularly now, and that means an increase in your premium.
3. Big verdicts
These days, people like to sue other people. Or other companies. Or just about anyone they can find to sue. Personal responsibility is a thing of the past, and if a scapegoat can be conceived of, then folks are out there looking for them.
In the past, these so-called frivolous lawsuits would be dismissed outright, or the plaintiffs would be paid a pittance to go away. Now, we are seeing juries handing out verdicts for massive amounts of money. We’re talking millions, sometimes tens of millions, or more.
A large part of these verdicts are being paid for out of insurance company proceeds, which means — you guessed it — when insurance claim amounts jump way up, the premiums to keep them funded will do just the same.
4. Today’s vehicles are computers
You are in the drive-through at Starbucks, waiting to nab your grande Iced Brown Sugar Oakmilk Shaken Espresso with extra cinnamon powder and light ice, and the driver behind you lets their boot off the brake and bumps you. Looks like a minor ding, but a message has popped up on your car’s screen about a camera being unavailable.
Fast-forward, and you find out your entire bumper needs to be replaced, because, you know, all that tech goodness is integrated. It will take four to six weeks for the part to come in, putting you in a rental car.
The new bumper is $4,600, and the technician who will install and calibrate it says it will take six to eight hours of labor to get it installed, set up and tested.
All in all, this is a $10,000-plus claim you just filed — after what seemed like a minor bump in the drive-through. Turns out, there are no longer so-called small fender benders. Most claims today mean serious buckies being paid out. Hence, your insurance premium goes up.
5. Reinsurance costs are increasing
Reinsurance is a funny thing. It is a way for an insurance company to spread the risk they are taking, allowing them to take on more risk and still maintaining access to enough money to pay your claim.
The thing is, it comes at a premium, literally. When your insurance company purchases reinsurance as a way to better ensure there is money when needed, it has to pay the reinsurer for the privilege.
Reinsurance costs have been climbing, and those costs trickle all the way down to your personal insurance premium.
Listen, I get it. We all want to pay as little as we can for our insurance premiums. We want just what we have to have — well, that is until we have a claim, then we want to have the best of the best. But I digress.
In the United States, insurance companies are for-profit companies, with shareholders and boards of directors, and are required to make a profit. When the cost to do business as an insurance company increases, the only way to maintain or reach profitability is to increase premiums.
What can you do about it? The best thing is to shop around, educate yourself on discounts and let competition work its way into the game to help keep the premiums we pay affordable.
Want to learn more about insurance? Visit KarlSusman.com.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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