A question on everyone’s mind, let me try lay out a brief explanation.
- Cost of claims – Unfortunately the weather claims this year have been higher than a typical year
- High Interest Rates – I was honestly unaware of the impact that interest rates have on insurance pricing. Insurance companies must find a way to make money on premium paid by their customers. They are also regulated on what exactly they can do with premium funds. High interest rates have led to higher costs with lesser returns on investment. One of those higher costs being “Reinsurance”. Reinsurance is, basically, insurance that insurance companies purchase. This helps the company when all those storms roll in and the money starts going out the door in claims. Reinsurance is provided by companies we don’t ever hear about, and with interest rates staying high for an extended period of time, these companies are either finding other ways to invest their money, or they are charging more for their reinsurance contracts.
- Lawsuits – There is plenty of data out there about the increasing number of lawsuits involving insurance policies. When an insurance claim may pay out $10,000, attorneys get involved and suddenly the payout increases to $25,000.
There are other factors, but these are 3 of the big ones. To make a long story short, insurance companies have to make money to stay in business. They pay out for claims, they pay to operate a business, all those costs have increased, so their premiums must increase.
You can look right here in Oklahoma and see what happens when insurance companies mismanage their financial position. They close. Then their insureds receive a letter in the mail basically stating, “hey, you have 30 days to find alternate coverage, and if you are in the middle of the claim, well, good luck” (exaggerating for dramatic effect, but that is the gist). I have had several prospects contact our office in the past 3 months that are in that very position. That is why it is important to know what you are buying, and who you are buying it from.
Our office has been hit hard by the insurance rates. Lisa actually moved her insurance from one carrier to another to help offset some of the price increase. I decided after looking at all the numbers that my best option would be to raise some deductibles and ride it out.
If you are in the Edmond, Oklahoma City, Yukon, Piedmont, Guthrie, or Mustang areas you certainly know the pain Lisa and I have felt regarding our premium increases. The best thing I can recommend is to look at your options, see what is out there. Maybe you will be like Lisa and find a better fit with a new carrier, or maybe you will end up like me, raising deductibles and riding it out. Either way, we would love to help.