Discounts - TOO Much Ain't Enough!

When I was shopping for home insurance I noticed that every company has different discounts and that the amount of the discounts vary.  What's up with that?

Discounts are getting to be very confusing for many consumers.  There as so many of them now.   Discounts can be as high as 60%, and in some situations I have seen them at 70%.  This is fine if you are one of the chosen ones.  It is kind of like a lottery for some people. 

The truth about discounts
The more discounts, and the larger the discounts, the more unpredictable and unstable premiums become.  Surveys clearly indicate that most consumers want stability and consistency over price alone.  Big discounts have the opposite affect.

Low Premiums can vanish quickly
Insurance companies have to collect enough money to make things work out in the end.   If they give a discount to one person they have to get the premium from another.  If you are getting all these big discounts and your situation changes (such as making a claim) you get a big increase.  I have seen premiums double for some people without them even making a claim.  The reason is usually something simple like your home is now too old to qualify for some discounts, the neighborhood is now classified as higher risk, the company started using credit ratings and yours is not good, etc. 

You are not alone.
Premiums seem to be increasing for most people.  I hear it all the time.  "I haven't had a claim, I've never been late with a payment, I've been insured with them for a number of years, but they put my premium up ???.   That's why I'm shopping".    This is clear evidence that premium stability is a thing of the past with many companies.

Making a claim means much higher premiums.
The other thing I hear a lot of now is;  "If I make a claim my insurance is going to go up so much I might as well not make a claim.  I don't know why I bother buying it".   Discounts often discourage consumers from making a claim.  Not only do their premiums increase when they make a claim, the fear of what will happen if they have a second claim prevents many from making a claim.

Losing one discount could have a compounding affect. 
Many discounts are linked today.  If you don't qualify for claims free your special discount may disappear as well resulting in a 50% increase instead of 15%.   Another example - In order to qualify for loyalty discount you may have to be claims free.  You may lose the 15% claims discount and the 10% loyalty discount at the same time.  Have a second claim and you may lose the 20% discount you had for having a $1000 deductible.

Many discounts are designed to chase the undesirables away.
There is no doubt why some companies have the discount format they have.  It doesn't take a rocket scientist to figure out that if you insure only those people over 50, who live in a new house, have no mortgage, have a good credit rating they are less likely to make a claim.  They don't move often, they don't miss their payments, they tend to ask fewer questions and just pay their bill.  They are the ideal client and everyone wants to insure them.  The discounts get bigger and bigger to get these special people while premiums are going up for everyone else.

Claims still happen
We don't really think about this, but a fairly large percentage of claims occur when there is a  large number of people affected at the same time, such as a large storm.  Large storms accompanied by hail or heavy rain can easily cause $100 Million in damages.  The way our discounts are structured today those who pay the least amount of premium are having the largest claims.  The people getting the big discounts are in the new subdivisions with finished basements that have theatre rooms, and expensive flooring.  When they have a sewer backup its a big bill.  Yet they are getting all of the discounts. 

This obsession of attracting the best customers with biggest discounts is disrupting what was once a stable, consistent and predictable industry with fair and balanced premium distribution.   I certainly don't blame the people who are benefiting from these huge discounts, but I do feel sorry for those that have been adversely affected.  The number of people being affected is growing every year.

Consumer attitudes are changing
People are quickly starting to view insurance as a commodity.  It is less about, "Am I covered properly? and more about shopping for the best price.  Not because they want to but because they have to.

Insurance advisers are finding the focus is rapidly changing to price as the primary consideration.   They are doing far less advising and doing far more quoting.  Their job description has changed. 

Consumers should look for ways to support fair pricing

Every insurance company has a base rate.  From there discounts are applied.  The higher the base rate the more the company is using discounts to screen you as a desirable insured.  If your actual premium you pay is the same you are better off to go with the company with a lower base rate simply because your premium will be much more stable and predictable in the future.

Here a list of discounts that exist out there.

Claims Free - Three Years                                                        10%
Claims Free - Five Years                                                          15%
New Home - Less Than 5 Years Old                                         15 to 25%
New Home - Less Than 10 Years Old                                        5 to 15%
New Home - Less  Than 15 Years Old                                       o to 10%
Mortgage Free                                                                             5 to 10%
Deductible - Increased to $1000                                                10 to 20%
Deductible - Increased to $2500                                                 13 to 25%
Alarm Discount - Local                                                                   5%
Alarm Discount - Central Monitored Entry                                  10 - 20%
Alarm Discount - Central Monitored Entry and Fire                    15 to 25%
Credit Rating - Excellent                                                              0 to 20%
Credit Rating - Exceptional                                                          0 to 30%
Age  45                                                                                            5%
Age  50                                                                                           10%
Seniors - Age 65                                                                             15%
Multi Policy - Auto and Home                                                         5 to 15%
Occupational - Professional (Doctor, Lawyer, etc)                         0 - 20%
Loyalty -  Insured with same company for 1 year.                             2%
Loyalty - Insured with same company for 3 years.                             5%
Loyalty - Insured with same company for 5 years.                            10%
First Time Home Buyer                                                                  5 to 10%
Metal or Storm Resistant Roof Covering                                         5%
Abstainers - Non Smoking / Drinking                                              5%
Block Watch/Crime Free Programs Discounts                                5%
Gated Community                                                                            5% 
Household Inventory Submitted                                                       5%
New Business Discount                                                                  10% 

So the next time you go shopping for insurance you will know how the pricing system works.   Review the discounts that are being applied.   If two policies have the same premium but one has 30% discounts applied while the other has 60% you will know what to do. 

The No Hassle Insurance Guy 306-821-1620