Do you know how your insurance company makes money?
I had been in this business for over 7 years before I ever really paid attention to that. After my million question over, "Why did my rates go up?" and there wasn't any clear evidence that something drastic had happened in our area did I begin to get curious my self. So without getting into the extreme technical details (especially since I don't posses the advanced economic or financial degrees) I'll give you my layman's perspective. For every $1.00 you pay in premiums a good insurance company will set aside $0.40 for operating costs (employee salaraies, underwriting expenses, etc.) and the other $0.60 for claims expense. Only they aren't going to have to pay out a claim on you (hopefully) for a few years if they are lucky, so in the meantime they are actually going to take your $0.60 multiplied by the hundreds or thousands a year you pay and the multipliy that by the thousands or millions of customers they have and before you know it that have....MILLIONS to "play" with. I use that term tounge in check because the latest company's we know have abused their fiduciary responsibilities and invested poorly but I won't call out any one company, but if you thought long and hard about it I'm sure you'll remember from the bailouts who they were. But that does bring me to my next point. A long time ago my father told me you can always count on your insurance premiums to be low when the stock market is doing good, why? Because the insurance company is likely making a good profit, turning that $0.60 (millions) into many more millions. This is a good thing because this means they'll have the money to pay your claim and be less likely to try and haggle with you, or get out of paying your claim when the oppossite is happening. The oppossite being that the stock market is tanking and the insurance company is losing lots of money! You can expect them to recover some of their losses through raising premiums, and of course make other changes like layoffs, tightening up on claims, etc. Now the next time your premium goes up and you didn't have an accident, get a new car, add a new driver, or do anything that would cause your premium to be rated differently consider the financial health of your insurance company. If it isn't that then it may be your CREDIT!!! We'll save that for another time.
