Let’s face it. No one likes dealing with car insurance. It’s always a game to find out who has the cheapest insurance rates. If you own a car, you have dealt with car insurance (or at least you should have, it’s the law to have insurance you know).
One of the biggest questions people have is “Why did my car insurance go up?” Most likely that question was sparked because their premiums increased upon renewal, and they have no idea why.
So what do they do? They start the auto insurance shopping to find who has the lowest rates. But are lower rates necessarily a good thing? I know what you’re thinking…but keep reading and hear me out. Consider the following:
How are insurance rates calculated?
To understand the answer to the main question “Why did my car insurance go up?” it’s important to understand a few basic mathematical fundamentals.
Insurance companies are a business in it to make money. But in order to make money they have to provide a great product, and often times a great product has to do with price.
But think about it from an insurance companies point of view. If you are the insurance company, and you have 50 clients (I’m using generic numbers to illustrate the concept) paying you $100 bucks per month, that’s $500 in income each month right?
Yes but then what if one of those clients gets in a crash that costs $10,000? As the insurance company, how are you able to pay out a $10,000 claim if your only bringing in $500 per month? What if 10 of those clients get in an accident? See my point?
Insurance companies hire who are called “actuaries” that put these mathematical formulas together to help approximate how much to charge clients for insurance in order to be able to pay out all the incoming claims.
An actuary is basically a math wiz who lives his life in mathematical equations and understands nothing but mathematical formulas. They are math guru’s basically who are very smart.
Each insurance company has their own way of calculating how much to charge for insurance policies. So while one insurance company is charging “$xx.xx” for insurance, the other company across the street is charging something totally different.
Reasons Why Rates May Increase
“Yeah Cameron, I get how premiums are charged. But still, why do they continually go up from different companies?” Bear with me I’m getting there. Keep on reading.
First, insurance rates are different based off of different locations. Most likely insurance rates are through the roof for drivers in California compared to drivers in Idaho or Wyoming. Think about it. The more drivers that are on the road, do you think it’s more likely that an accident will happen? Of course!
As a result, insurance companies charge differently based off of location for many reasons. One being how many drivers are on the road at any given time, and the other is also based off of how well drivers drive in those given areas. Drivers from one state may have much better driving records than drivers of another state.
Last thing being, insurance companies charge premiums based off of their company financial strength. In other words, if they aren’t bringing in enough money from their customers premiums to keep up with the amount of accidents that are happening, they have to increase their premiums or the company will go bankrupt.
You see? As cars are becoming more technologically savvy and more integrated, the cost of a vehicle is much more. Since the cost of vehicles are more expensive, the cost to fix a vehicle from an accident is also more expensive. As a result, insurance companies have to make up for these increasing costs by charging more money for insurance policies.
So, what then should you look for in an insurance company?
I’m glad you asked. Now that you understand the basic concepts of how insurance premiums are charged, you can now make an honest decision in deciding what company to work with.
Do you think an insurance company with the lowest premiums is necessarily the smartest thing to do? If they are the lowest premium, what do you think is going to happen down the road? That’s right, more than likely they will on board you then raise the premiums to make up for their miscalculation of the cost of insurance claims.
“What about the most expensive company? I don’t want to pay the most expensive rates, I can’t afford it.” Well first off, their rates are most likely the highest for a reason. They probably did what many new companies entering the market do and offered cheap insurance premiums, but soon figured out that they need to raise rates or they will go bankrupt.
So knowing those differences, here are a few things I suggest when shopping for your auto insurance.
#1 – Choose A Company With A Strong Financial Rating
Companies with strong financial ratings are going to have enough money to pay out claims as they come in. Due to their financial strength rating, most likely they are charging appropriately for auto insurance, and as a result their premiums are not as likely to increase.
#2 – Choose A Company With Good Claims Reviews
Let’s face it…the product you’re purchasing when you buy insurance is the claims process. You don’t use your insurance until you need it, and once you need it you sure as heck want to work with people who are willing to do everything in their power to make life easier for you.
A good insurance company will look for any and every way to pay out the claim for your situation, a bad company will look for any and every way to not have to pay out a claim.
#3 – Choose A Company That Has A Lot Of Experience
In other words, a company that has been around for a while. There is a reason that a company that has been in business for 50+ years is still in business. And that is because they are experts in the trade. They have seen anything and everything when it comes to insurance, they invest money and time back into their insurance agents to ensure you as a customer have the highest quality service, and they know how stressful the unexpected claim can be.
Now, what do you think?
See, I told you to stick with me for a minute. Back to the question, “Why did my car insurance go up?” Well, most likely you are either a) with a company that doesn’t know how to calculate insurance rates, b) insurance rates industry wide may be going up due to the cost of accidents increasing, or the number of drivers on the road at once are increasing.
Despite the fact that insurance rates will probably increase some with any company you go with, if you follow the 3 steps above when choosing your company, they will inform you well in advance of any potential rate increases and tell you why. They will also help you determine a course of action understanding no one likes the rate increases.
My advice, give me a call. I’d love to help you out with your insurance and will give you an honest and sincere recommendation.