In recent years, as people have become used to stable insurance premiums and are constantly barraged with adverts suggesting big savings on insurance premiums those the question Why has the cost of my insurance increased is even more heartfelt than previously. It seems that people assume that the price of their insurance will remain the same or even reduce. There is some truth in this for many clients in the current market but there are still increases in the renewal premiums of many businesses and individuals.
With the exception of motor insurance, which has seen volatile pricing over the last few years and has been subject to anti-gender discrimination legislation, general insurance has been stable or reducing in cost for a number a years. Therefore, increases have been predominantly down to a change in underwriting stance of the insurer, changes to the underwriting data or claims.
Change of underwriting stance
Insurers change their underwriting risks of from time to time. This could be down to general claims experience, a change in legislation or case law, or a change to fall in line with the general market conditions.
The change of underwriting stance could be positive or negative from the view point of the insured. The insurance market has very competitive for a number of years, and insurers have been very willing to reduce pricing and increase cover in order to attract more business. Risks that are well managed, with a good claims experiences should have benefited greatly from recent the market conditions and should not have seen an increase in underlying pricing, almost irrespective of business or trade.
There have been a few exceptions to this, where there is little or no competition and the insurers are able to push prices forward without fear of losing business.
Changes to underwriting data
Most insurances are subject to some measure of the risk which has a bearing on the premium charged. This could be type or number of vehicles, sums insured, number of staff, wageroll, turnover or some other measure relevant to the insured risk.
Where there is an increase to the measure of the risk, this can lead to increase in premium. For example, if a car is replaced with a higher rated vehicle, or if the number of employees increases for a per capita rated liability insurance, or if a household buildings sum insured is increased.
Claims can have an effect on the cost of insurance in a number of ways. Insurers tend only to penalise their insured if a claim is not recoverable against another party, ii.e. the claim actually incurs a loss to the insurer, for example an at fault motor accident.
The most common premium affecting scenario is the loss of No Claim Discount. This used to be only relevant to motor insurance, but has now extended to other types of insurance. If a premium is calculated using a reduced No Claim Discount, invariably the premium will increase.
There may be some protection against the loss of No Claim Bonus by having Protected No Claim Bonus, which is usually at an extra cost, but this may not totally isolate the insured from an increase in premium at the renewal after a claim.
Insurers can and do increase premiums for claims generally where there is not a No Claim Discount to consider. Insurers will look at the circumstances of the claim and its cost relative to the premium.
What can I do to avoid paying an increased premium?
Premium increases can be reduced by negotiation with existing suppliers or seeking alternative quotations.
The insurance market is extremely competitive, with a large number of insurance providers producing a market where there is over supply with the resultant low cost.
There is strong competition for most classes of insurance, so a certain amount of ‘shopping around’ will normally produce some competitive quotations. Furthermore, insurance can be subject to dual pricing, with providers charging a lower cost for new business than for renewal business.
The larger, more complex or unusual a risk is, the more limited the choice of insurance providers becomes and selection of routes to market needs to be more considered. A number of approaches to an insurer for the same risk may be off putting and lead to a declinature where a quotation may have been available had only one approach for a quotation been made, which may severely restrict competition, and premium payable, if there are only a small number of insurers willing or able to provide cover.
Holding insurers are usually willing to negotiate on terms, particularly if there is a good business case to do so or there is another quotation available providing the same or similar acceptable cover at a lower cost.