Why Does My Insurance Premium Keep Going Up?
Individual Risk Pricing Factors To Help Explain “Why Does My Insurance Premium Keep Going Up?“If you are experiencing increases in your insurance premium it’s important to find out why. “Why does my insurance premium keep going up?” is a more than fair question to ask and you ultimately should be satisfied with the answer your receive. However, pricing on personal insurance products and business insurance products is not a simple thing and there are many important factors to understand about how insurance pricing is calculated from an individual risk factor, local, national & global perspective.
People typically understand that changes to what they are insuring will change the cost of their insurance. As an example if someone is buying home insurance on a home with a replacement cost of $300,000 and they move to a new larger home with a replacement cost of $600,000 it is understandable and expected that their insurance premium will go up. Similarly, if a manufacturer sells $300,000 in products one year and the next year they sell $600,000 of products their insurance premiums will go up too. The reason for increases in insurance premiums based on individual pricing factors are often easier to understand as they are directly correlated to the exposure/risk being insured and is most often driven by the policy holder. Effectively as the risk for the insurance company increases the cost of the insurance increases too.
To explain this more simply insurance premiums are almost always caculated through the following formula:
Individual Risk Factor/Exposure Base (i.e. replacement cost of property, revenue) x insurance rate (on a cost per $100 or $1,000 of exposure) = Insurance Premium
Local, National & Global Pricing Factors To Help Explain “Why Does My Insurance Premium Keep Going Up?”
People & businesses typically understand how individual pricing factors impact their personal and business insurance costs. However, it is often less clear how local, national & global factors impact insurance costs and when their individual risk/exposure base remains the same they are left wondering why does my insurance premium keep going up? (Click here for an example) It’s understandable to be surprised when insurance costs go up when your individual risk factors remain unchanged, but its important to note that the P&C Insurance industry is a global marketplace and ultimately is just one big pool of money which all policy holders pay into and some collect from. In addition, it is also important to note that the 1 large global pool of insurance dollars is made up of smaller pools of money that are dedicated to certain geographies and insurance product lines. Ultimately the size and cost to access each pool is determined by the financial performance of all other pools and if significant claims are paid out from any pool the cost of accessing other related pools also increases because the total amount of insurance dollars has shrunk, but the insured exposures remain unchanged (think same demand, but less supply) which is when rates are increased and insurance premiums go up even when individual risk factors remain unchanged.
An example is as follows:
Year 1: $0 .5 rate per $100 of Total Insurable Value (TIV) for manufacturing buildings with steel frames, brick exteriors, that are fully sprinklered in Southern Ontario x $1,000,000 in reported TIV = $5,000
Between year 1 and year 2 significant global hurricanes occur, wildfires cause significant losses in Western Canada and Ontario auto insurance losses increase by 10% shrinking the global, national and local pool of insurance funds causing rate increases.
Year 2: $0.6 rate per $100 of Total Insurable Value (TIV) for manufacturing buildings with steel frames, brick exteriors, that are fully sprinklered in Southern Ontario x $1,000,000 in reported TIV = $6,000
To Learn More About How Insurance Premiums Are Calculated And What You Can Do To Keep Your Insurance Costs From Going Up Call An ALIGNED Insurance Broker Today At 1-866-287-0448
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