Forget the Script – three reasons insurance premiums increase

If you work in an agency or a call center, you know every other call is the insured complaining about their insurance premiums.  When you look you see no accidents, no violations, no endorsements, or any other blatant signs of change to the policy.   Yet, there is an extra $150 buck staring at you.


Now the question is how to explain this to the insured.  It doesn’t matter who you work or write for they all go through this yearly.  Sure, you can rewrite them or find a way to add that obscure discount; but you know next year the insured is probably going to get hit again.

Rest assured, they’ve probably already filed and marketing has already prepared the script.  Here are some reasons why.

Climate Change

In 2007, there was some form of flooding in every state in the union.  That is pretty incredible.  In fact, so remarkable, the government recently redid the flood zones and they are now speculating about another revamp sooner than later.

Everything from droughts in Texas and California, wild fires in the Utah, Montana, Arizona, and California to monster hurricanes and snow storms in the Midwest and East is taking its toll on the outcome.   As we all know rule number one – too many claims equals higher premiums.

Poor Underwriting

I once had a VP of underwriting tell me that due to newer cars and cheaper gas, we have to raise our rates.  What’s that guy going to say when cars become electric and autonomous?  The insurance research council tells us that between 2005 and 2013 the average cost of a bodily injury claim rose 32%.  Maybe it’s the inflated health insurance costs?  Sure, it’s all those things, but actuaries should be accounting for that already.

It’s the companies that want to be everything to everybody.  You just can’t.  You have to underwrite and price for profit and reserves.  Have a large market share and tons of customers is great; but those insureds cannot be the only one being ‘careful’ in the relationship.

Further, jamming up agents for a high loss return when your own is well about 50% is unacceptable.

Interest Rates

When the loss ratio is too high, that means the carrier has to depend on investments to make up any overages.  Unfortunately, between 2006 and 2015 the federal government did not raise the interest rate, so any insurance company investments lay stagnant.

To make up that loss, carriers have options to boost their margins.  They could merge with another carrier.  Currently you see this a plenty in health insurance with Anthem buying Cigna and others trying to save their bottom line.

They can become for efficient and transform their inner workings; hence the recent systems upgrades and inner company shifts.  Many of the larger carriers and MGA’s have laid aside their DOS systems for newer internet based rating systems.

In the end though, the rates will still be increased.

It’s up to you on how to break it down for the insured.  May be you have an observant and knowledgeable insured who is aware of the current climate – maybe not.   Wouldn’t be nice if insured’s called when something was going right?


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