What’s Full Coverage Auto Insurance All About?
When it comes to insurance, Texas ranks as one of the states with the most expensive premiums. In homeowner’s insurance alone, annual premiums average to $1,745 a year—and it doesn’t stop there. More and more insurance companies are releasing statements for an insurance rate increase in 2018.
In healthcare, acquirers under the Houston provider Community Health Choice can expect as much as a 16 percent average increase for eight plans. Presently, Molina Healthcare, Blue Cross and Blue Shield are still reviewing plans on whether to increase or not.
So, what’s up with the insurance rate increase?
The Philosophy Behind Insurance Rate Increase
Let’s take auto insurance as an example. You’re a great driver. You have never (or very rarely) filed a claim. When you do, you supply your claims with evidence and provide all the necessary documentation to validate your claim. So why are you suddenly being charged more for premiums?
Here’s what you probably know about insurance rates: that the quality and quantity of your claims affect your premiums. The more careless you are with claims, the likelier it is for your insurance provider to increase your premiums.
But the thing is, you aren’t the only one under that insurance policy. Hundreds and thousands of other car owners are enrolled in the same policy as you. While you may be driving safely from home to work every day, other car owners may not. This “umbrella” effect, in turn, also directly affects your own premiums.
Because Other People’s Claims Affect Yours
In 2015, auto insurance companies faced great loss ratios, meaning the amount they paid out was more than the combined amount of premiums they collected. For instance, State Farm’s combined loss ratio amounted to 112%, GEICO 98%, and Allstate 101%. Because Other People’s Claims Affect Yours
Out of dozens of insurance companies, only three providers had below 100% combined loss ratio, meaning their consumer premiums were able to cover for the total payouts.
Because of this, companies that suffered combined loss ratios of more than 100% had to compensate. There’s only one way to do that: by raising premiums for all of its policyholders in 2016 and 2017.
Because Most Insurance Companies Reinvest In The Bond Market
There are other reasons for an unprecedented insurance rate increase. Because insurance companies invest outside their field, poor performance in external markets can also affect how these companies behave and price their premiums.
Before insurance companies actually decide to apply an insurance rate increase, they try to balance out the loss with more gains through other ventures, most of which have something to do with the bond market.
The problem is, the bond market hasn’t been very impressive lately. Between 2002 – 2007, the bond market may have seen its best years with an average 4.6% return. Unfortunately, it has shrunk down to 2.6% since 2008 and 1.7% since 2016.
Cause and Effect: Knowing What To Expect Next
Now that you understand how external factors could directly affect your own premiums, you can now predict how providers are going to react according to these other factors:
- Damages brought on by natural calamities such as hurricanes and earthquakes
- Annual reports of theft, property destruction, and vandalism
- Damages brought on by civil unrest
- Scarcity of materials needed to repair properties
· Health-related acts and laws
The Effect of Hurricane Harvey on Texas Insurance
Some providers are already expecting the homeowner and auto claims to increase to as much as 500,000. There is already a likely insurance rate increase for auto insurers following the recent tragedies of Harvey.
But all hope is not lost. If companies are able to recuperate from massive payouts after three to six months, then an insurance rate increase would likely not happen.
Dealing With An Insurance Rate Increase
When you realize that you are suddenly paying more for premiums, do not hesitate to contact your insurance agent. If you cannot think of a reason for this increase, then you are most likely experiencing the umbrella phenomenon where your premiums are being dictated by other people’s claims.
In reality, there isn’t a way to stop this. You can’t talk to every single person in Texas and tell them to drive better or become better homeowners.
What you can do, at least, is ease your mind with actual information. Consult your agent regarding the reason for a sudden insurance hike. Afterwards, research on the information he or she has given you in order to understand the bigger realities of the insurance world.