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  1. Let me offer one reason that might be obvious, but is generally is not.One  major reason rates go up. Insurers are pricing a product before they know their cost. It something like building a spec house for sale at  $300,000 with out knowing that the purchaser is going to require all hard wood floors , a finished basement and a three car garage. Had you known you would have priced your product at $ 400,000. This is some of the dilemma of insurers. Thy can look at historical outcomes and yet may not see a trend developing before it happens. 

    The reason most auto insurance is sold in Six month terms in the US, is that it often takes a minimum of one year for the carrier to realize rate level on all customers in a certain state and rate filing. Let me give an example: If company A sees it needs rate increase on its TX auto insurance business and puts that rate into effect after state approval on July 1,2014 it will take a full six months to raise the rate level to the new level for the last customer whose policy incepts on 12/31/2014.Then it takes the company another 6 months to earn the premium for each of those customers. It has to set aside some money in case you decide to move your business, as well as keep reserves for accidents that have occurred or are known to be likely to occur in the future.So in a full year at 7/1/2015 the company has realized the effects of its rate filing in the state. If it now needs more funds, it will take the same 12 months to fully earn that premium.
    So in effect you can see that the process of getting an adequate rate for an insurers losses and expected losses is at least a year on six month polices and double that to two years to achieve the rate level on annual policies.

    That said,recognize that your rates can go up annually in a 12 month policy because of a company's filings and go up as much as every six months for an insurer who uses 6 moth policies.So, all that said, you don't control the pricing that is an aggregate need of the insurer but you can better protect yourself by buying a 12 month policy.  Lock in a rate level. If you do not change the exposure ( new car or new operators and such),you will have locked in rate for one whole year. So my advice is to seek out an insurer that writes annual policies  if available. 
Posted 9:33 AM  View Comments

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