Well, to put it bluntly– yes. Yes, your rates are probably going to go up after an accident. I know — you don’t want to hear that, but it’s true. Anyone who tells you differently is either afraid to tell you the truth, or doesn’t know what they’re talking about.
To understand why rates go up after an accident or claim, you first need to have at least a general understanding of how insurance companies determine their rates to begin with. Trust me, it’s not as cut and dry as you think.
I was recently asked this question by one of my clients, and thought I would share the answer here for my readers.
As I’ve mentioned in earlier articles, there are a lot of things that go into homeowners and auto insurance rates, one of them being credit. I’ve heard a lot of complaints from people who don’t like the fact that insurance companies use credit in their underwriting. Some people have absolutely no idea that it’s used in the rate at all.
“Not cool bro! Why does my rate go up when my car is getting older??”
I literally get this question 2 or 3 times a week, so of course, I wanted to address it here for all of my readers.
First things first, even though it’s called car/auto insurance, it covers more than just your car. It should technically be called “auto-owners” insurance, similarly to how home insurance is actually called “home owners insurance”.
The insurance company is much more concerned with you crashing into someone and causing them (or yourself) bodily harm, or death, than they are about your car. A car can be replaced. A life, might not be able to.
What many people don’t realize is there are actually insurance companies that are in business solely to insure customers with bad insurance scores and loss history. These companies are known behind the scenes as “sub-standard” carriers.
Independent insurance agents have the best products and the best customer service — period.
Independent agents have access to a wide range of products and insurance carriers. This means they can find a solution that fits the needs of their clients in an unbiased fashion. You see, not every insurance professional does business this way.
If you were going to purchase a new truck, say it was a Ford in this example. You walk into the Ford dealership and are immediately approached by a salesman. You walk over to a truck you like and then start discussing the exact specifications you’re looking for in that truck. You know you want an extra cab and something that is 4×4. You also want your new truck to be dark blue, with a sprayed in bed protector and fog lamps.
When it comes down to talking about price, do you think that the Ford salesman would tell you that right down the street there was a Dodge dealer who had a truck that matched your exact specifications, but for $4,000 less? Of course not. Why? Because that salesman’s job is to sell Fords and Fords only. Of course he is going to try and position the Ford as if it was the best truck on planet earth.
The same can be said for insurance agents. When you speak to a AAA, State Farm, Allstate, Geico, etc., sure you are talking to a licensed insurance professional, but, who you’re really talking to is an employee of their respective company. An employee whose job it is to only sell it’s company’s products.
If you’re not a savvy insurance shopper, you may not even realize that you are not getting unbiased, objective advice when talking to one of these employees. That is a problem.
You see, there are three main categories of insurance professionals. Let’s take a look.
I’m pretty confident that if you asked anyone who has ever owned a rental property you would get an overwhelming response that it’s not as lucrative or easy as they thought it would be. In fact, owning a rental property can be a major pain, and end up costing you a ton of money!
I certainly don’t mean to be a “Debbie Downer”, and I know that if it’s done right it can be lucrative, but from an insurance agent’s perspective, I don’t see a lot of people doing it right.
So you’re probably thinking, “Well Chris, you are an insurance agent. What do you know about real estate or rental properties? Why should I take advice from you?”
I’m not a real estate agent, and I don’t own a rental property. However, several of my friends/family/clients/co-workers own rentals, and because I insure a bunch of their properties, I’ve had a first hand account of the process, and I’ve learned what to do, and what not to do.
Homeowners and auto insurance rates are determined in many different ways. The process is not nearly as cut and dry as many people tend to believe. In fact, it’s a rather complicated algorithm of sorts that can be effected by many different variables.
My experience in the industry is that most people are misinformed and really don’t understand why their rates are what they are, especially if they increase, so this post will hopefully set the record straight for you.