September 12, 2023
Nine months into 2023 and at this point all insurance companies have had rate increases on their auto, home, and business insurance policies. Naturally, we are experiencing a very high volume of clients and prospects asking us why. So to summarize and simplify the answer we have listed the 3 top reasons why this is happening.
1. INFLATION
So, you’re paying 250% more for your groceries, gas, electric, propane, oil, credit card interest, etc. You have to imagine how that affects insurance companies as well. The inflation we are experiencing is due to bad federal monetary policies, but also from the supply chain debacle of 2022-2023. When it takes longer to get parts and services, it costs more. Now the cost of repairing your vehicle after an accident has gone up exponentially as well.
2. INVESTMENT RETURNS
Inflation affects investments When the cost of living goes up, the cost of doing business goes up. When the cost of doing business goes up, it diminishes a business’s return on its investment (ROI). In the business world, that cost gets passed down to the consumer in order to maintain their profit margin. Insurance companies run on extremely low-profit margins. Most of their money comes from investments just like banks. That’s why banks are fees.
3. FRAUD
Historically, when families, individuals, and businesses start experiencing cash flow problems, some of them start seeing their insurance as an income opportunity. Please note, that this is a small minority of the populous, but even a 10% uptick in fraudulent claims can cause a very noticeable increase in insurance rates across the board. Fraud in New York alone costs insurance companies billions of dollars a year. Fraud is not new to the insurance industry, but every year someone else thinks they are the first person to devise a clever scheme to defraud their insurance company. Most fraudulent claims are minor, but they really do add up.
In summary, your rates may be going up, but it's most likely not because of something you did. Insurance is collective monies (premiums) pooled to pay out losses to those in that pool that have experienced a true loss. But when the losses accumulate at a rate higher than the collected premiums a deficit occurs. When the return on the monies pooled diminishes, a deficit can occur. And when the cost of doing business increases, a deficit can occur.