Why Are My Insurance Premiums Increasing?

Premiums for home and auto insurance are increasing. The NAIC explains why this is happening and what you can do to lower your costs. 

What is a premium? 
A premium is the money that you, the consumer, pay for insurance coverage.   

What determines premiums?  
Insurance companies set premiums based on the expected cost of future claims. Personal risk factors, like those listed below, are considered when setting premiums.  

Keep in mind that the determining factors may be different based on state laws. State laws require that rates cannot be excessive, inadequate, or unfairly discriminatory. 

Auto Insurance Factors  

• Your driving record, like traffic tickets and crashes.  

• Your claims history. 

• Where you live and garage your car. 

• Your age or number of years of driving experience, gender, and marital status. 

• The type of car you drive and the cost to fix or replace your car. 

• Your selected coverage limits and deductibles. 

• Your annual mileage. 

• Your insurance score, which is a rating that determines how likely you are to file a claim. (This rating includes some credit-based factors.) 

• Driving habits collected by telematics that monitor your daily driving patterns. Telematics is a technology used by insurance companies that is installed in your car and collects data on behaviors such as speeding, hard braking, acceleration, and turning corners too quickly. 

Home Insurance Factors  

• Where you live. 

• Your claims history. 

• The cost to replace your home and contents, which is not the same as its market value. 

• Your insurance score. 

• Your deductible. A deductible is the amount of money you pay before your insurance company starts paying its share of claim costs. Choosing a higher deductible will reduce the price you pay for homeowners insurance. 

• Your home’s age. New homes may qualify for discounts, while older homes may not qualify for preferred programs. Insurers may require older homes to have updated heating, plumbing, wiring, and roofing. 

• The age and maintenance of your home’s construction materials and roof. 

• Fire protection. Your home’s distance from a fire hydrant and the quality of your local fire department determine your fire protection class. 

Additional Factors 

• Extreme weather events. Natural disasters are happening more frequently, and they are becoming more severe—even occurring in areas that haven’t been historically impacted. This can result in more damage to homes and cars and more claims being filed.  

• Construction and repairs, including the costs of labor and materials. These costs tend to be higher in more populated areas of the U.S. and higher when there is limited supply. 

• Economic factors like inflation and interest rates influence real estate values and the price of goods. 

• Increasing cost of litigation. 

• Reinsurance costs. Insurance companies buy their own form of insurance called reinsurance. Reinsurance costs have risen significantly and are also impacted by the above factors.  

How can I lower my premium?  

• Shop around. Before you buy a policy, it’s a good idea to get quotes from several companies. Make sure you understand what coverages are included and that you’re comparing like policies. 

• Ask your insurance agent or company if your deductible is a fixed dollar amount or if it is a percentage of your home’s insured value. Also, find out if your coverage is for actual cash value (ACV) or replacement cost value (RCV). Policies that pay claims based on RCV give you more protection than policies that pay based on ACV, but the premiums will likely be higher.  

• Increase your deductible, but make sure you have the money to pay out of pocket if you file a claim.  

• Decrease your coverage on older vehicles. When your vehicle has little value, consider eliminating coverage like comprehensive or collision (paying for damage to your car).  

• Bundle your auto policy with a homeowners or rental insurance policy. 

• Ask for discounts for things like taking a defensive driving course, being claims-free, driving a vehicle with advanced safety features, or having an account with an affiliated credit union. For homeowners insurance, ask your agent about discounts for installing smoke detectors, burglar alarms, monitored security systems, deadbolt locks, and sprinkler systems. 

• Ask if telematics will decrease your auto premiums. 

• Improve your credit and driving record. 

• Check with your state insurance department to find out if it has a mitigation grant program for upgrading your roof or other parts of your home and if you qualify for discounts or rebates to lower your premium. You can find state insurance department contact information here.