Why are insurance premiums increasing?

From home to car, to holiday insurance, yes, prices are set to rise. After COVID, political instability and the cost-of-living all hitting our income, it’s likely to feel like ‘yet another thing’ that has risen in price. Most of us are feeling the squeeze.

We decided to investigate it further, to really examine why costs are on the rise. Is it due to circumstance or profiteering? The answers may surprise you. 

The impact of climate change on insurance

Let’s start with the unexpected first. You may not think it possible, but even climate change is playing a part in increased premiums. 

Extreme weather has blighted our shores from Storms Arwyn and Barra in 2021 to Storms Malik and Corrie, followed by Dudley, Eunice and Franklin in 2022. Did you know that, according to ABI, storms Dudley, Eunice and Franklin in February 2021 saw 177,000 claims with insurers paying out nearly £500 million?

This is in addition to other storms and flooding events, wildfires during the UK’s hottest summer, and freezing weather in December.

While the link to climate change may be a surprise, our changing weather has induced more claims activity than before.

The increase of theft, fraud and accidental damage claims

It’s a difficult time, which can lead to an increase in claims. Most are legitimate claims, perhaps by those who wouldn’t normally use their insurance to claim for accidental damage, with higher claims being reported.

However, there is also a more sinister side to the increase in claims.

Even ‘cash for crash’ claims have risen by 60%* with fraudsters driving to Scotland to exploit Scottish rules following reform in England and Wales. Bloomberg has also confirmed that shoplifting is up by 18%, while even the countryside is seeing an increase in vehicle, fuel and even livestock theft. Add to that, employee theft is up by 19% in just one year, according to Zurich.

The same 2022 report by Zurich also confirmed a 25% rise in insurance fraud. The most common claims involved high value jewellery mobile phones and TVs – with the average claim equating to £8,800 a day. As households and businesses come under financial strain, there is a natural increase in bogus claims, which has led to new systems being implemented and a strain on resources.

Additionally, as we’ve reported before, catalytic converter theft is an increasing problem in the UK. The rise in theft directly links to the rise in the value of metals, including platinum, making catalytic converter theft a lucrative business for gangs to sell on the black market. Additionally, there are issues with supply-and-demand in the car parts business, resulting in theft of catalytic converters plus additional parts, all resulting in an insurance claim.

Consider the victim in this situation, who now has to hold onto a hire car, courtesy of their insurer, for a longer period of time while awaiting legitimate parts.  And consider how much more this now costs.

How does this affect your premiums? Claims across the board are up, as are the costs to replace or repair, which unfortunately means that premiums rise to accommodate these increased claims. 

Yes, inflation has impacted on the cost of insurance premiums.

Rising inflation has translated to rising costs of repairs and replacements. The costs of materials have risen at an astonishing rate. For example, the cost of rebuilding or repairing a home has increased significantly with building materials costing 25% more in 2022 than they did in 2021!

Even Brexit has played a part in the UKs labour shortage, which has added to the increased in recruitment/employment costs, while energy costs have not only added to the bottom line, but also impacted on some struggling business’s ability to afford the supply to meet the demand.

From October – December 2022, drivers paid 19% more than in the previous year. This was the fourth annual price rise in 18 months. Prices were, on average, £43 higher in December 2022 than they were three months before.**

What can you do to keep your insurance premiums as low as possible?

Much like the energy crisis, we embarked on a campaign to help our clients make small changes to save money on their energy usage, and other household costs, from food shopping to mobile phone contracts. In effect, the ‘small changes’ premise could also help you to prevent price shock when your policy is up for renewal.

While the outlook remains uncertain, there are some ways you could minimise the price shock:

Speak to a broker. Brokers will help you find the right balance of making sure you are only covered for what you need, while avoiding costly underinsurance.Don’t simply renew with your existing provider – shop around! Your broker is here to help!Consider paying your premium up front to avoid the interest added to monthly payments.Build up and protect your No Claims to get the best discounts.Combine policies to save, for example A-Plan allows clients to combine their car and home insurance to save £303, or £486 if you include van.*

Car insurance savings tips

You may consider raising your voluntary excess to reduce your premiums, however it’s also important to weigh this up with whether you could afford to pay the excess in the event of a claim.Check car insurance groups prior to buying – Group 1 is the cheapest to insurance, while Group 50 is the most expensive.‘Modding’ your car could increase your insurance premiums so check with your insurer before you start – or speak to A-Plan as we have specialist teams who can help find you the correct cover without hurting your pocket. Whatever you do, don’t avoid telling your insurer, as you could find a claim is cancelled.  Can you lower your mileage? The less you drive, the lower the risk of an accident, which can help keep premiums lower.Consider switching from Comprehensive to Third party – but be aware that this is not always a cheaper option.Be mindful that, although some insurers may sell what appears to be a cheaper policy, it could come without essential cover for windscreens and more.

Home insurance savings tips:

Like car insurance, you can also raise your voluntary excess on your home insurance to reduce your premiums.Up your home security: burglar alarms, security lighting, CCTV, a safe and improving your locks can all help keep your insurance lower.Avoid overinsuring your home – while underinsurance remains an issue in the UK (LINK), overinsurance should also be avoided. This is something our experts can advise you on.Check your rebuild value – some underestimate it, while other overestimate it!If you live in a flood-risk area, protect your home from the outset, prior to any flood damage, to get a better deal.

Talk to an insurance broker!

The important point to note is that it is now more important than ever to make sure that, when it comes to renewing or obtaining new insurance, you don’t cut corners and opt for the cheapest deal which could leave you in more difficulty. You need to be 100% that you are getting what you are paying for, with no surprises.

That’s where our A-Plan branch colleagues can really help – so if you are concerned, or facing difficulties, your local branch team is on hand and available to help you. Give them a call or simply pop into your local branch for a chat.

Sources: *LV, **Confused.com

Also read: