09/25/2024
Insurance: Don’t Blame Your Insurance Agent
Understanding the real reasons for rising insurance costs
September 15, 2024, By Erin Fosson, Lane Report (Excerpt)
Over the past few years, Americans have faced steadily increasing insurance costs. From auto to home and even your business, the premiums we pay seem to be rising faster than our incomes.
Many consumers, frustrated with these hikes, often turn to their insurance agents for answers, or worse, place blame on them. However, it’s important to understand that insurance agents are not the cause of these rising costs. The reality is far more complex and the reasons behind these increases stem from a variety of factors that extend far beyond the control of your local insurance agent.
To understand why insurance premiums are increasing, look at the factors driving these costs. Insurance companies set their prices based on how risky they think it is to insure you or your assets. If the risk goes up, so does what you pay. Lately, a few things have been driving up these risks, which means higher costs for everyone.
· Increased Natural Disasters: It seems the frequency and severity of natural disasters have risen dramatically in recent years. Here in our state, many Kentuckians find it hard to forget our own recent disasters, the west Kentucky tornadoes of 2021 and the east Kentucky flooding of 2022. One year after the tornadoes, the Federal Emergency Management Agency (FEMA) estimated that close to $100 million in insurance payments had flowed into these communities, helping homeowners and businesses rebuild. To offset these costs, insurers increase premiums across the board, especially for home and property insurance.
· Litigation and Legal Costs: The United States has a reputation for being quick to sue. This has a direct impact on insurance premiums. Legal costs associated with defending against lawsuits are rising, particularly in auto and home insurance. When people win big settlements in court, insurance companies have to foot the bill and they do that by raising your premiums. The Insurance Information Institute estimates this “social inflation” rose by 14% in the 2010s.
· Economic Inflation: In addition to social inflation, economic inflation is another contributing factor to rising insurance premiums. As the cost of goods and services increases, so does the cost of repairs and replacements. For example, if the cost of building materials rises, it becomes more expensive to repair or rebuild homes after a disaster, leading to higher home insurance premiums. According to the National Association of Homebuilders, residential building costs have increased 38% since March 2021. Similarly, the rising cost of car parts and labor drives up auto insurance premiums.
The misconception: Blaming the insurance agent
Given the frustration that comes with rising costs, it’s understandable that consumers might look for someone to blame and often, the insurance agent becomes the target. However, it’s crucial to recognize that insurance agents are intermediaries between consumers and insurance companies. They do not set the rates; rather, they work within the parameters established by the insurers.
Insurance agents are there to be your trusted advisor, to help you find the best coverage for your needs at the most affordable price. They can offer advice on how to manage your risks, suggest discounts or recommend policy adjustments that might reduce your premiums. However, they do not control the underlying factors that drive premium increases.
What can consumers do?
While the rising cost of insurance is frustrating, there are steps consumers can take to mitigate these increases:
· Increase Your Deductible: By choosing a higher deductible, you can lower your monthly premium.
· Bundle Policies: Many insurers offer discounts if you bundle multiple policies, such as home and auto insurance.
· Take Advantage of Discounts: Ask your agent about any available discounts. Some companies offer them for safe driving, home security systems or even being a loyal customer.
It’s easy to point fingers when costs rise, but it’s important to understand that the factors driving insurance premiums higher are often beyond anyone’s control, including your insurance agent. By recognizing the true causes and taking proactive steps, consumers can navigate these challenging market conditions more effectively. Your insurance agent is there to help, not hinder. Work with them to find solutions that best fit your needs and budget.
