What’s driving insurance premium increases?
Insurance premiums are going up across the board, including property, car, liability and health insurance. But what is driving the increases? Here, we look at some of the factors behind the rising insurance premium and explain the overall picture.
A hard market
Insurance premiums have been rising because we are in a hard market. The characteristics of a hard market include higher insurance premiums, more stringent underwriting criteria, underwriters producing less insurance policies and less competition between insurers.
High inflation, the cost of materials, labour shortages, changing methods of construction and design and the impact of the pandemic have all contributed towards rising premiums, along with the cost of unpredictable and severe weather events. When insurers are unable to predict future risks, reinsurance terms are harder to negotiate, with the costs passed on to policyholders.
Construction
Building costs have risen dramatically in recent years in part due to global shortages of materials. The war in Ukraine, where 13% of the UK’s steel imports were sourced, has led to price increases, and there have also been steep rises in the cost of fuel and transportation, along with logistics problems leading to shortages, delays and increases in the cost of materials.
As a result of soaring rebuild costs, many properties in the UK are now underinsured and vulnerable. For the insurance to be effective, properties need to be insured for the amount it costs to rebuild them. If buildings are covered for less, owners could be seriously out of pocket in the event they need to make a claim.
Car insurance
The Association for British Insurers (ABI) reported that the average premium for comprehensive motor insurance has increased by a third in the past year. This rise is attributed to higher costs of raw materials, repairs, and paint. Insurance providers consider these rising costs when setting their premiums.
Furthermore, adverse weather conditions have led to an increase in claims, as well as a rise in theft of high-end performance and luxury cars. The higher number of claims results in increased payouts, prompting insurers to adjust their premiums to account for this risk. Additionally, the cost of writing off damaged cars has gone up due to higher prices in the second-hand market, which insurers must take into consideration.
Healthcare insurance
Medical inflation isn’t linked to general inflation – the increased healthcare premiums are more to do with rising medical care costs. Such factors as new technology and treatments, which cost more; an increased demand for private medical care; more people living longer with an increased risk of ill-health; and an increase in lifestyle-related health issues, due to obesity and smoking, are resulting in more claims and driving premiums up.
As a result, treatment costs per head have increased and insurers are passing these costs on to customers via premium increases. In addition, insurers will always adjust premiums to reflect your claims history – the more claims on your policy, the greater the risk you present, and insurers will always calculate premiums based on risk.
Liability insurance
A number of factors have been driving liability premiums up, including rising inflation, global events and the increase in cyberattacks, along with the location and type of business you run and your insurance claim history. As medical expenses continue to soar, so does the cost associated with compensating injured parties. Insurers must account for these rising costs when calculating premiums, leading to higher prices for policyholders.
What you can do
It’s best to review your cover and make sure it is appropriate, especially if you’ve made any alterations or extended your property, added equipment to your business or incurred any changes. Don’t run the risk of being underinsured, it could prove very expensive in the event you need to make a claim.
Also, budget for insurance premium increases, factoring in the additional costs; demonstrate good risk management, especially if you have poor claims record, it’s essential you can demonstrate new risk mitigation measures; and consider taking out additional covers, such as cyber insurance or Directors and Officers Liability cover.
In the case of car insurance, look for a quote two to three weeks ahead of renewal, increase your voluntary excess, reduce your annual mileage and consider installing ‘black box’ telematics that reward you with lower premiums if the data shows you are a relatively safe driver. Ways to reduce your healthcare premium include: stay healthy, use preventative health services, review your coverage, increase your policy excess, consider guided consultant choice.
Our business is your protection, which means we want to ensure you have appropriate insurance cover in place for your needs. Talk to us if you wish to review your property, car, liability or healthcare insurance, or take out new insurance. Call us on 01992 703 200 or email insurance@nlig.co.uk