PRIVATE CLIENT
Optimizing Your Premiums in a Disrupted Insurance Market
When is it in your best interest to cover losses out of pocket rather than file a claim?
Increasing insurance premiums are becoming a hidden cost squeezing Americans in today’s economy, with rates surging 20% over the past two years. Home and auto insurance hikes are now among the top inflationary drivers. These rising premiums are prompting many to reconsider how they structure and depend on their insurance policies.
Now, more than ever, it’s crucial to understand how to navigate these industrywide changes—and when it’s in your best interest to cover losses out of pocket rather than file a claim.
Understanding the Current Market Dynamics
At a high level, you can blame inflation. On a granular level, though, the issue runs deeper, lying at the intersection of the financial markets and the insurance landscape. In states with high catastrophic risk, such as California, Florida, and Colorado, the impacts are even more pronounced. Homeowners in wildfire-prone areas of California, for example, have seen premiums increase by as much as 500%.
State Farm’s non-renewal of 30,000 homeowners in California is leaving many families without replacement options, forcing them to turn to excess and surplus policies. These policies come with significantly higher premiums, large deductibles, and limited coverage.
Immediate Steps to Optimize Your Premiums
Immediate Steps to Manage Premium Increases
Review Your Deductible
The quickest way to reduce your premium is by increasing your deductible. By opting for a higher deductible, you can significantly lower your premium costs. Many of our clients carry a minimum home deductible of $5,000 to $10,000, with some going as high as $250,000. For auto insurance, a $1,000 or $2,500 deductible is common, though for vehicles valued over $100,000, we recommend a deductible of $5,000 or $10,000. Small claims should be handled out of pocket, and insurance should be reserved for losses you can’t afford to pay yourself.
Implement Smart Preventative Measures
Water damage accounts for nearly 40% of homeowner claims, most of which are avoidable. Many insurers offer discounts to proactive homeowners who invest in loss prevention measures, especially for water-related claims. Installing an automatic water shut-off device, for example, can offer significant savings. More importantly, it helps you avoid major water damage.
At CCIG, we recommend these devices to all of our clients—not just for the premium reduction, but because preventing a catastrophic loss is the real value.
PURE Insurance, for instance, has partnered with Ting to provide fire prevention devices to their members. Ting is a small, plug-in device that monitors electrical currents throughout your home to help detect and prevent electrical fires. While carriers aren’t yet offering a premium discount for this $99 device, it is a highly effective tool for avoiding major fire damage.
To Claim or Not to Claim: A Strategic Decision
Traditionally, many people file claims at the first sign of damage. But now, it’s time to rethink that strategy. Instead of viewing your insurance as a maintenance policy, it’s better to consider it a catastrophic backup plan.
Philosophically, insurance should be used for incidents you cannot afford to cover out of pocket. Unless you’re dealing with a major accident or significant damage, it’s often best to handle minor repairs yourself. Start by getting estimates from contractors and remediation experts. Take photos, keep receipts, and gather repair quotes. Afterward, consult with your agent to decide whether it makes sense to file a claim.
Frequent small claims can hurt your insurance profile more than one large claim. Insurers meticulously track all claims, and this information is public and highly regulated. Even minor claims, like windshield repairs or towing, can stay on your record for up to seven years. Being mindful of how you use your insurance is key to maintaining a good insurance profile.
The Bottom Line: Think Before You Claim
In today’s disrupted market, it’s more important than ever to be strategic about filing claims. While having insurance is crucial, using it wisely will help you protect your financial future and maintain your insurability. By exploring proactive loss-prevention measures, increasing your deductibles, and being selective about filing claims for minor damages, you’ll ensure you’re prepared for the unexpected while keeping premiums manageable.
By taking these steps, you’ll be better equipped to navigate the current market challenges and make long-term decisions that are in your best interest.
If you have questions about your insurance strategy, feel free to reach out to me at Andy.Orlando@thinkccig.com – I'm always available to discuss your risk management and insurance approach.