Rate Increase! True or False? Common Myths and Facts About Rate Increases.

There are many misconceptions about premium increases. As a homeowner, you should be sure to get the facts and learn what you can do about them.

1. “I didn’t report any claims, so my rate should stay the same.”  MYTH!

Rate increases or decreases are based on how well the company is able to manage losses and expenses.  A company with higher losses or expenses than in prior periods may be required to increase rates, while a company with lower losses or expenses may be required to lower them.  So, while your lack of claims may contribute to the company’s bottom line, it is the entire line of business that will determine whether rates go up or down.

2. “My property value has gone down, so my rates should go down as well.” MYTH!

Rates are based on the current cost to rebuild your home, not the market value or purchase price of your home.  Your “Coverage A” is the cost to rebuild the structure (the sticks and bricks) you call home.  Coverage A is determined by using a Replacement Estimator that factors costs for labor, building materials, and equipment for your specific region.  In the event of a loss, damages to your home will be based on the cost to replace or repair whatever is damaged.

3. “Companies can charge whatever they want.” MYTH!

Most states require rates to be approved by a state insurance regulator.  Regulatory approval consists of providing data and, in most occasions, actuarial analysis.  While this varies by state, companies are not permitted to charge rates that generate “excessive profits.”  Your state insurance regulator determines what a company is allowed to make as profit, and will adjust their rates accordingly.

4. “Inspections are another way companies can increase rates.” MYTH!

Companies use inspections to ensure customers are properly insured and charged the correct premium. Inspections can uncover valuable credits, incorrect coverage values, or liability exposures that you may be unaware of.  You have the right to question any change to your policy as the result of an inspection and have your company explain it to you fully.

5. “I can do something about my rate increase.” FACT!

You should shop around every few years, or whenever you get a significant rate increase, to make sure that your rate is competitive.  Keep in mind that the best insurance is valued by the customer service you will receive, especially when you have a claim, and not who has the cheapest rate.  In the unfortunate event you have a claim, you want the company with a great reputation for customer service and fairness.  Additionally, meet with your agent to be sure you are getting all the discounts you are entitled to, that you understand what your coverages are, and to make sure you are adequately insured.  You can take on more risk by increasing your deductibles, but be fully aware of the future financial risk you are taking on compared to the money you may be saving today.

Your insurance company is a service provider, so make sure they are in the business of providing you the service you deserve. At Frontline, you are our business.  Find out more at frontlineinsurance.com.

Please remember that the comments contained in this blog are general in nature and that coverage under any specific policy of insurance will depend upon the terms and conditions of such policy.