We continue to get questions regarding insurance rates increasing, and instead of avoiding the question, we thought we’d address it.
Keep in mind this important fact, insurance companies must have their rates approved by the state insurance commissioner. This means for any rate increase; it must be justified and approved. Contrary to popular belief, insurance companies cannot file for a rate increase just to make higher profits.
What factors are behind insurance rates increasing?
Insurance companies are affected by the same economic factors as any other business. They too are incurring increased costs in many areas of their business. We would like to highlight these costs below.
- Increased Wages: The increase of minimum wage laws in the state and the changes in the overall work environment has caused wages to increase significantly. When wages increase, so do other expenses that are wage driven like: workers compensation insurance premiums, wage-based taxes (FICA, Medicare, etc.) and 401k matches. For insurance companies, this also increases the cost to repair a vehicle or property. The cost of labor for repair shops and construction companies has increased dramatically.
- Increasing Costs of Healthcare: The ever-rising cost of healthcare in the US has a huge impact on insurance rates. Since injuries are covered by various types of liability insurance, the rising healthcare costs can also influence the following: auto insurance, home insurance, workers compensation insurance, etc.
- Rising Costs of Technology: Insurance companies must keep up with the latest technologies to stay competitive. This includes investing in software and systems that allow them to provide better services for their customers.
- Increased Costs of Goods/Supplies/Inflation: We have all seen the prices of goods increase over the past several years. For businesses, we see our office supplies costs go up and the cost of goods sold (supply chain). Insurance companies are affected by the prices increases and slowdowns in the supply chains as well. When the price of lumber jumped in 2020, it affected the expenses of every insurance company who sells property insurance. The cost of replacement parts are rising due to a combination of increasing demand and decreased availability and is leading manufacturers to set higher prices for components that are needed by businesses.
- Increased Natural Disasters: The scope and frequency of natural disasters have increased over the past decade. How many fires, tornados and storms do we see on the news every day? With an increase in natural disasters, insurance companies much charge more to cover potential losses due to property damage and other destruction. The extreme weather events have impacted the insurance company’s reinsurance rates. The insurance companies actually buy insurance to protect themselves in case of large claims. Due to the increased extreme weather events, the reinsurance companies have been paying more claims than ever before. This causes the companies to raise their insurance rates, who in turn, must raise their rates for us as consumers to cover their increased costs.
- Growing Number of Lawsuits: An increasing number of businesses and individuals are facing lawsuits over minor infractions or perceived violations. Defending these lawsuits is expensive for insurance companies. Defense costs are a significant expense for insurance companies these days.
R.C. Keller & Company can help ease the pain of increased costs.
Bottom line is insurance rates are increasing due to the increased costs across the board. Although it may not seem fair when you see your insurance rates go up, just remember the insurance company is a business. They can’t operate if they are losing money by paying more in claims and expenses than they take in for premiums.
We are an insurance consumer just like you and we are feeling the pain of our insurance rates increasing too. You can be rest assured that you are still in good hands with R.C. Keller & Company and we will strive to make sure you are getting the best coverage at the best value.