Are we paying too much for insurance? Part 1

In the past year or so have you received your homeowners insurance renewal and felt flabbergasted by the increase? If so you are not alone and I hope to share some information I have dug up to hopefully provide a new perspective into the situation rather than just telling you that, "the insurance companies are losing money due to recent disasters and need to increase premiums." Although this may be true, many people feel the same as this lady who says,

"I don’t care what anyone says I should not have to pay more because of someone else in Florida or elsewhere! The rate we each pay should be directly tied to the services we actually USE! If we had no claim – then there is NO increase! If we have a claim then we receive an increase with a regulated max increase amount based on a sliding scale rate. The higher the claim is the higher your increase will be. The insurance industry needs a major overhaul in their premium structure. I am from Minnesota and with American Family. I started with them in Dec. 2010 for $1500 and now I just got my premium notice and it’s $1787 with no claims! I say B.S. I will start shopping and I will do it every year if I have to."

This although sounds great to the person who does not have a recent claim, to the person who has a claim it then becomes a burden because the sliding scale of premium would need to be so drastic to cover the costs of the claim that no homeowner could pay the premium resulting from turning in a claim.

The mere definition of insurance is the transferring of risk from one party (the homeowner in this case) to another (the insurance company) in exchange for payment. The insurance company utilizes the law of large numbers in their statistical analysis by pooling premium money together to minimize premium cost as much as possible so that they can pay out possible claims and in the event that the statistics create a shortfall of premium written to expenses paid for they are required by government to maintain a reserve of funds to make good on their promise of payment.

In reality, if the government didn't regulate reserve funds, and if your insurance company is paying out large sums of money to pay for others within the "pool" and they don't raise the rates to maintain funding for future claims, at the time you do have a disaster occur to your home there very well may not be funds available to make that payment to you. So, although you may not have been the benefactor of an insurance payout recently, if the rates don't increase some, there may not be money available when it is your time of need.

Now, being an independent agency, we definitely agree it is worth taking a look at your situation and making sure you are covered well for the most reasonable premium, but it's possible that the rates need to be increased to protect you in your future insurance needs. I will expand further on my research and thoughts in future postings so please share any questions or thoughts you may have so I can address those as well.... until then, remember, at Advantage 1 Insurance, every policy comes with an agent!