My Insurance Rates Go Up Every Year…

by Derek Kartchner, Gila Insurance

“My insurance rates go up every year” is a common comment I hear as I meet with people at our monthly meetings. While this might sound like music to the ears of an insurance agent trying to get your business, it’s a bit more complex than you might think. Because, while at times, insurance rates seem to rise as reliably as property taxes and tenant complaints—and it might feel like your carrier is simply testing your patience—there’sactually some logic, albeit layered in actuarial mystery, behind those annual increases.

In other words, yes, with an economy designed for 2% annual inflation (the Fed’s target inflation rate), your insurance rates should increase at the very least to keep up with inflation. There’s more to it, but that’s a major part. Each year, insurers review the world’s collective misfortunes: weather disasters, construction costs, inflation, and yes, the occasional mishap involving a tenant and a kitchen fire. These factors all raise the cost of claims. And because insurance is essentially a shared pot of risk, when the pot boils over, everyone pays a little more to refill it.

“But I haven’t had any claims.” Probably not, but again, claims are a shared expense. The carrier determines how much you should pay based on your exposure, how many claims the entire group will have, and what your share of that is. So even if you haven’t had a claim, if your neighbor has, your rate can still go up. It’s a “risk pool,” meaning everyone shares the costs. “That’s not fair,” maybe—but should your rate go up by the amount of the claim you just incurred? No, not that either. There’s logic to the model. If inflation drives up the cost of a claim, then the cost to make you whole goes up too, even if you haven’t had a claim yet. That’s what we’ve seen over the last several years.

Understanding inflation’s impact on insurance rates is key—building materials, labor, and repair costs don’t exactly trend downward. Add in new regulations, rising reinsurance expenses (insurance that insurance companies buy to keep from going bankrupt), and updates to risk modeling (which is just a fancy way of saying “you might be more flammable than we thought”), and your annual premium starts to make more sense—even if it still stings.

You might say, “But inflation is coming down.” Not exactly. The rate of inflation is coming down, but inflation itself hasn’t yet reversed—which actually, and I may be hanged for this take, is a good thing. Deflation is worse than inflation. If you don’t believe me, look at the Japanese economy over the last 30 years.

That said, rate increases don’t always mean your carrier is in sync with the market. A good rule of thumb is to shop your policy every three years—or sooner if something material changes. Acquired new properties? Changed tenancy types? Made major improvements? These factors can shift your risk profile and open the door to better rates elsewhere.

If your carrier’s pricing suddenly appears miles above comparable quotes, it’s likely they’ve drifted out of market alignment—or their underwriters have become overly cautious. Either way, that’s your cue to explore alternatives.

Insurance may never be truly fun, but a smart review schedule ensures you’re not overpaying for peace of mind—or funding your insurer’s next office remodel. Not sure if you need to get a quote? Call Gila Insurance Group LLC, at 928-428-6440 or visit www.GilaInsurance.com/AZREIA and let’s see if a change makes sense