Why is my Insurance so high?
We get a lot of questions in the run of a day at our brokerage but one of the most common, by far, is “Why did my insurance go up?” Let’s be honest; most of us expect our insurance to go down every year. When it doesn’t, it is hard to understand why, and it can be frustrating. We call our broker to find out what is happening. “My car is a year older.” “My car is not worth as much.” “I didn’t have any accidents and I did not make any changes to my policy so it should go down, right?”
All valid points, but if your policy is up in spite of all this, yes, it can be upsetting and frustrating. So, why is is up?
Most people look at their policy as one individual policy. Let’s look at what would happen if that were the case.
Let’s say you buy a brand new vehicle for $30,000 and start your insurance with a brand new company. You pay $900 pears year for insurance for three years. That is $2,700. then, on our way home one day, you hit black ice and go off the road, slamming into a tree. Your car is totaled. You call your insurance broker to report the accident and they tell you your car is worth $22,000. Great! You can try to find a replacement vehicle right away, but then they continue talking. Since you only get our what you paid for your individual policy, you can only get $2,700…oh no. That is a lot less than it is worth.
Let’s take another example. You buy your home for $250,000 and get insurance. You pay $1,200 per year. You start to fill it with prized possessions and make it your home. You will stay here, raise your family, and make memories for life. Ten years later, you have a fire and everything is gone. That’s OK. You can start again with the insurance money. You call your broker to report the claim and they happily tell you they can give you what you have put into your individual policy…$12,000. How do you start over with that??
This is why auto and property insurance has to work on a pool system.
Everything you pay goes into a big pool that pays out all the claims for everyone in Canada. This is basically how it works. “The losses of the few are spread among the many.” Whether you pay in for a year or for 30 years, everyone an have their damages repaired or property repaired or replaced. When your policy increases, it may not necessarily be because you have had claims, but because the claims that happen all over Canada have increased.
Auto Insurance policies are even more specific. They can actually break down what it costs to repair your specific year, make and model of vehicle if it is damaged or if it has to be replaced. They track how often the particular model of vehicle are involved in accidents, the various types of damage that occur, how often they are involved in accidents that involved in accidents that involve fatalities, or the types of injuries incurred and the cost of rehabilitation. The companies take all of these statistics and apply them to each individual model of vehicle and this makes up part of your rating. This is why you can’t compare your insurance to your neighbor or friend. Each vehicle has their own rating. Just because someone drives a more expensive vehicle does not always mean they pay more for insurance. This is one of the questions or comments we get very often about auto insurance. The value of the vehicle is not the only consideration now when rates are set for vehicles.
Property insurance works on the same principals. the losses of the few are spread among the many. When natural disasters happen in our country, you can expect the cost of such disasters will eventually affect all people with property insurance. The cost and effect of the disaster usually takes about 3-5 years before you will see it reflected in the amount of money you pay for your home insurance. Insurance companies need time to settle, make payments and close all of the many claims and this takes time. Many people believe that their policies are going up this year, in 2017, because of the Fort McMurray fires in 2016, but this probably will not be seen for a few years yet.
So, as you can see, this is why our insurance needs to be in a pool system. Even though you may still not be happy that your policy goes up, just imagine the consequences if you lost your home and everything in it, but the insurance company only considered you as an individual and paid back only the money you paid in. That amount of money would never be enough to put you back to where you were before the loss, which is what insurance is meant to do for you.