Renewal season hits. And once again, your client gets slapped with a premium increase. No major claims. No red flags. Just another hike.
It’s frustrating for them. It’s exhausting for you. And they’re cooking to you for answers.
At Captive Coalition, we help independent agents explain what’s really going on behind those increases and give them tools to help their clients push back against a system that often feels rigged against them.
This article breaks down:
- Where your client’s premium actually goes
- How it’s calculated
- Why increases happen—even when they’ve done nothing wrong
- And how to start exploring strategies to reduce those costs
Because “that’s just how it is” isn’t a good enough answer anymore.
Where Does Your Client’s Premium Actually Go?
When your client sees a renewal increase, their first question is fair: Where is all this money going?
Here’s the reality:
Carriers use the law of large numbers to pool businesses with similar risk profiles. From that giant pot of premium dollars, they pay for:
- Claims
- Salaries
- Rent and admin costs (Selling, General, & Administrative expenses)
- Profit
- Investments (yes, they’re using your client’s money to invest)
Your client’s premium is their revenue. And carriers are laser-focused on profitability.
Actuaries use advanced modeling to estimate expected losses and create what's called a loss fund. That’s the portion of your client’s premium set aside to pay for claims, whether they have any or not.
The rest? It’s split between overhead and profit. But the exact ratio? Completely up to the carrier. And totally opaque to your client.
So when your client asks, “Why am I paying more when I didn’t file any claims?”—they’re really asking why they’re funding a system that doesn’t reflect their performance.
What Actually Makes Up an Insurance Premium?
Your client’s premium isn’t random. It’s built from a basic formula:
Expected Losses + Carrier Expenses + Carrier Profit = Total Premium
Each carrier tweaks that formula based on its risk appetite, overhead, and margin targets. Some carriers run a 70:30 model (70% for losses, 30% for expenses/profit), others 60:40. But your client never sees that breakdown.
Instead, they get a number.
Factors like industry, zip code, years in business, payroll, property values, and loss history feed into actuarial models to estimate risk. For personal lines, that might look like charging an 18-year-old more than a 40-year-old. In commercial lines, it’s about projecting how likely your client is to generate losses. And charging accordingly for their bottom line.
The problem? Even if your client’s risk is better than average, the system still prices them like the rest of the pool.
Why Are Your Clients Seeing Premium Increases?
Even when your client hasn’t had claims, their premiums can still rise. And the reasons are rarely personal. They are mostly systemic:
- More Lawsuits: Personal injury lawyers are targeting businesses hard, especially those with vehicles or property. Verdicts are bigger, more frequent, and more expensive to defend.
- Distracted Driving: Cell phones have made commercial auto one of the worst-performing lines. Even if your client’s drivers are safe, they're still paying for the ones who aren’t.
- Inflation and Repair Costs: Materials, labor, and repair timelines are all more expensive now. Carriers raise premiums to stay ahead of rising claim costs.
- Market Conditioning: The industry has done a great job “training” clients to expect annual increases. Because “that’s how it is.” Even a flat renewal is sold as a win, not a warning.
These factors hit every business, even those doing everything right. That’s why your client’s clean loss history doesn’t always translate into savings.
Will Your Client's Premiums Always Go Up?
Not necessarily. The odds aren’t in your client’s favor.
Most clients are pre-conditioned to accept yearly increases as a given. Even if they avoid claims, they’re told to be grateful for a “flat” renewal. And if they question it? They’re met with vague justifications tied to market conditions or reinsurance costs.
But let’s be honest: if your clients’ risk is better than average, they shouldn’t be footing the bill for others' bad behavior.
Unfortunately, they often are because they’re in a pooled risk model where one company’s losses raise everyone’s rates.
The question isn’t “Will premiums always go up?”
It’s “Why aren’t good businesses rewarded in this system?”
If your client is managing risk well, it’s time to talk about a model that actually recognizes that.
How Can Your Client Lower Their Insurance Premiums?
If your client wants to get off the renewal rollercoaster, it starts with taking on more risk, which allows them to take more control.
Here are three traditional strategies that can help:
- High Deductible Plans
Lower premiums in exchange for absorbing more small-to-mid-sized claims. Great for clients with strong loss control and cash reserves. - Self-Insured Retention (SIR)
Similar to high deductibles, but the client pays claims directly up to a threshold. More responsibility, but more flexibility and pricing power. - Retrospective Rating Plans
Premiums are based on actual claims. Low losses mean lower premiums. Higher losses? The client pays more. It's a fairer structure for well-run businesses.
If your client is open to these ideas, they’re ready for the next conversation: captives.
Captives let your client fully own their risk and potentially profit from it. It’s the only insurance model where strong risk management leads to direct financial reward.
Read our article on five conversations to have about captive insurance to see how to bring the subject up with your best clients. And if you’re new to captives
Help Your Client Control Their Costs
The traditional market isn’t built to reward your client for doing the right things. If they’re tired of unexplained increases and vague justifications, it’s time to show them another way.
Start by walking them through smarter strategies inside the market. If they’re not satisfied with those options, help them explore options outside it.
Read our Captive Insurance 101 Guide for Independent Agents to have a better understanding of captive insurers.
Want to learn even more about captives? Become a member of Captive Coalition for FREE to access additional resources, tools, webinars, and training to better help your clients and maintain your book of business.
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