Did your insurance rates go up for no reason?


If your insurance rates seem to have gone up for no reason, your insurance provider may be applying a practice called “Price Optimization”. Price optimization is a method that uses non-risk-related information to systematically adjust insurance premiums away from their cost-based level. This is a practice where insurance providers identify the clients that are most unlikely to switch insurance providers because they are “Loyal”. While some insurance providers say they reward loyalty, others identify your loyalty as a means of optimizing their revenue by raising your premium.

One of the software vendors that insurance companies use for “Price Optimization” is a company called “Earnix”. It specializes in applying advanced customer data analytics to improve profit margins.

Almost 50% percent of insurance companies in the US are using price optimization strategies. This practice is frowned upon in some states, but is 100% legal in Texas.

Does this mean you need to have your agent shop your insurance every year? No.  It means that you should review your coverage’s every year and ask your agent why your rates have gone up if they have risen an exorbitant percentage. Rates go up for many reasons other than claims.

Increased Replacement Cost

The cost to replace your house from the ground up has a major impact on the price of homeowner’s insurance. Replacement cost coverage means that the insurance company will pay what it costs to repair or replace your damaged possessions at today’s prices without deducting for depreciation. It is normal for this coverage to increase every year because the cost of replacing possessions and labor typically goes up. As a matter fact if your replacement cost remains the same, there is a good possibility that you are under-insured. Go to http://www.building-cost.net/Valuation/Start to get a free estimate on the replacement cost of your home.

Natural Disasters

An insurance company that has paid out millions of dollars in disaster claims may need to raise premiums across the board to stay solvent. A company can also raise rates in certain geographic areas that have been recently prone to disaster.

New Risks

If you add something to your house that poses an increased risk, you will likely see your rates go up. For example, if you have a pool built in your backyard or added a teenage driver. Other perceived risks may include an aging roof, trampolines, tree houses, or not keeping up with house repairs or maintenance.

Decrease in Credit Score

Your credit score plays a major role in determining your insurance premium. When an insurer determines that your credit score is trending downward, you will likely be paying a higher premium.

Loss of a Discount

One example is the “good driver discount”. If you have a had a traffic ticket, you are very likely to lose this discount.

Fire Rating

The quality of the local fire department can have a major impact on your insurance rates. The rating system numerically ranks each fire department on range from 1 (best) to 10 (worst). Class 1 represents an excellent fire protection system, and class 10 indicates virtually no protection. If the rating of your local fire protection goes up, so will your insurance rates.

Crime Rating

Crime risk data is used precisely identify a property’s overall crime risk. If an insured property is in a neighborhood where the crime statistics are trending upward, this can impact your insurance rates (even if your property has not been burglarized).

One of the great things about Andrews Insurance is that you are able to establish a long-lasting relationship and we will be able to help you obtain the right coverage at a competitive price through our relationship with over 300 insurance providers.


Insurance Blog

Business Risk Management 101

Risk Management can be described as a continuous process of identifying, measuring, controlling and monitoring risk. Some risks occur during the ordinary course of business operations, while others are due to extraordinary circumstances. Regardless of an organizations’ business model, industry or size, identifying risks should be is a strategic aspect of business planning.

Once risks are identified, companies need to assess the likelihood and potential impact of a loss. This will enable them to develop a strategy to control losses and protect business operations, employees and assets.

The most common loss control strategies include:

  • Risk Avoidance – Avoiding an identified risk is the easiest means to manage or eliminate a risk, but it also can be the most expensive means of risk management.  Although avoiding risk is a simple method to manage potential threats to a business, the strategy also results in lost revenue potential.
  • Risk Mitigation – Mitigating business risk is meant to lessen any negative consequence or impact of specific, known risks, and is most often used when business risks are unavoidable. One example of this is the implementation of virus detection software to mitigate cyber security risks.
  • Risk Transfer – In some instances, businesses choose to transfer risk away from the organization. Risk transfer typically takes place by paying an insurance premium to in exchange for protection against substantial financial loss.
  • Risk Acceptance – Companies retain a certain level of risk whenever they purchase insurance. The higher the deductible, the more risk you retain.

Monitoring risks is essential because risks change over time.

When properly applied, risk management is integrated into all business decisions, processes and activities. Businesses who successfully incorporate risk management within their decision making processes are making more informed decisions.