A Life Guard For the Risk Pool – Why did my rates increase even though I didn’t file a claim?

Ancient Romans gave us more than just the plot for Gladiator; they also provided us with an early understanding of insurance. In Roman culture, receiving a proper burial was incredibly important, but also expensive. An individual soldier would not be able to afford the cost of the burial in the event of his death. Therefore, each soldier would regularly chip in a small amount of money to a community soldier fund. The money would then be put towards the burial ceremony after a soldier’s death. This is known as a risk pool. Millions of people pay a small amount into a risk pool so that the same risk pool can pay out millions of dollars to one person if needed.

This leads us to our next point, why did your rates increase even though you didn’t make any claims?

Inflation Happens

An insurance company is, above all, a business. It’s not a bottomless pit of money and needs to generate revenue so that it can accommodate claims and continue to insure you. If 500 million dollars worth of claims were filed one year, the company better hope that, at the very least, 500 million dollars are coming in to offset this, despite the fact that expenses don’t just stop short of claims filed.

Insurance covers many things: medical costs, property damages, lawsuits, etc. However, due to inflation, those expenses don’t stay constant from year to year. An item purchased for 2,000 dollars in 2006 will cost you close to 2,352 dollars in 2016, about a 17.6 percent rise over 10 years. In order to account for these increased prices, your money that goes into the risk pool will also need to increase so that the insurance company has enough money to cover all aspects of a claim that most likely have increased in price since your initial quote.

Risky Business

Insurance companies evaluate the risk that they will have to pay off a claim and take steps to manage that risk. Your credit score can be indicative of how prone to risk you are and predictive of your financial responsibility. If your score has taken a turn for the worse, your insurance company will factor this into your rate because they see it as something that can increase the likelihood of you filing a claim with them.

Additionally, insurance companies use statistical measurements to analyze external factors such as the frequency of collision claims in your neighborhood, probability of insurance fraud or if your car type is more likely to be stolen. These numbers can cause an increase in premiums even though the circumstances are completely out of your control. To be equipped for this increased risk, the insurance company may increase your rates to prepare for them to have to pay off a potential claim.

It’s Only Natural

It’s only natural that your insurance rates increase. Your insurance company needs to take into account ways to keep up with demand, rising prices and increased risk. And raising premiums are usually the answer, even if you didn’t file a claim specifically. Contributing more money to the risk pool helps make sure that you’re covered when you need it most.