Personal Finance Tips

There are times when you get an overview and then it hits you, “Somethings just don’t add up.” Well, you remember Wellpoint, don’t you? This is the friendly company that, around January or February, announced it was going to increase premium rates by up to 39% in a number of states around the Union. President Obama got himself all worked up, citing them as the real reason why all the Democrats in Washington should band together and take a stand against the insurance industry. Then, sure as eggs is eggs, there was a stampede to get the healthcare reform bill to the President for him to sign it into law. Those Democrats sure did have fun beating on Wellpoint. So the big question is what happened next? Here’s one of the largest corporations in the insurance market demanding premium increases. Did it get its way?

The answer starts off in California where the maximum rate of 39% was due to take effect. The state referred the proposed increase to independent auditors for an opinion. The answer came back negative. It seemed Wellpoint couldn’t add up. Well, that’s oversimplifying things a little. But the reality is that the numbers Wellpoint offered to support their premium increases were based on some very shaky mathematical assumptions. When news of the report became public, Wellpoint withdrew the proposed increase. Acting on this, Kathleen Sebelius who is Secretary of the Department of Health and Human Services sent out a letter to all state insurance commissioners encouraging them to review every proposed premium increase. This is the first sign that the balance of power is shifting against the insurance industry and in favor of the consumer. For too long, insurance companies have hidden behind complicated mathematical explanations and gamed the system. With the Affordable Care Act now law, Sebelius is encouraging every state to give itself the power to approve rate increases. The first sign of continuing good news for consumers comes out of Connecticut where Attorney General Blumental forced an audit of Blue Shield and Anthem Blue Cross, both Wellpoint subsidiaries. Connecticut’s Insurance Commissioner Sullivan rejected these companies requests for increases last year. It seems likely the same thing will happen this year.

By moving so quickly to encourage states to review all proposed rate increases, Secretary Sebelius is demonstrating one of the key advantages now available to the Federal Government under the new laws. That the interests of the consumer will be put before the interests of the health insurance industry. This means every state should be going through a routine of analysis every time premium rate increases are proposed. The assumptions, evidence, claims histories and trends asserted should all be rigorously tested. If there are any problems, the increases should be denied. The aim should always be to ensure affordable individual health insurance plans are available to the majority of people living in the US. For too long, the insurers have been allowed to bamboozle regulators with math and complicated explanations. With independent audits now coming into play, the kind of success enjoyed by the citizens of California should be felt around the US.

As with every group of businesses, there’s an association for the insurance industry. It’s called the Insurance Information Institute. When individual insurers fear adverse publicity, the III usually gets the job of making general announcements. That way, the news comes out with less damage to the member companies. So, for example, when there was flooding because of the melting snow and then the torrential rains, it was left to the III to warn people that the majority of policies do not cover damage caused when sewers back up. That’s not the most reassuring of news. Making equally bad reading was a report that premium rates for property insurance were likely to rise by an average of 3% this year. This reflects both the aforementioned bad weather and the rise in the costs of repairs. You might not have noticed it yet, but builders have been steadily increasing their charges. The price of gas has been rising, labor costs are up, replacement materials are more expensive – it’s all bad news even though there’s supposed to be a recession.

So why might you have a heart attack when your renewal notice hits the mailbox? Although the politicians may not have accepted the reality of climate change, the insurance industry is watching the statistics and reassessing weather risks state-by-state. There’s been tornadoes and major storms across the southern states. Their premiums will be rising faster. The other common reason flows from the insistence that you all shop around for your next policy. In the days of habit, you picked an insurer and bundled your auto and home policies. This earned you a discount and everyone was happy. As more people use internet search engines to find the cheapest auto insurance, they are breaking the bundle and the rate for the remaining home policy goes up sharply. You should always look at all your policies together and not deal with separate policies.

How to keep premium rate increases to a minimum? First remember CLUE. The Comprehensive Loss Underwriting Exchange is another insurance industry body that stores information about every claim you make. If you propose changing insurers, the first thing new companies check before giving you a quote is whether you have recently made a claim. If so, you will be quoted a higher premium. The moral of this story is not to claim unless you are looking at a really big loss. Then there’s the recession and its effect on your credit score. Most insurers include the score in their formula to decide whether you are a responsible person. The assumption is that people with good credit records will also take care of their homes. Before you start shopping around, do whatever you can to improve your score. For useful advice, try www.myfico.com and www.whatsmyscore.org.

In other words, no matter how great the temptation to track down cheap home insurance using the internet, think carefully about bundles, the claims you have made, and your credit score. These are factors under your control and, unlike blindly increasing your deductible which is you deciding to insure yourself, will produce long-term savings on your homeowners insurance quotes. Remember, it’s better to get quality home insurance at an affordable price than cut-price insurance that fails to cover you when your sewers dump their contents in your kitchen.