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How Inflation Affects Insurance Premiums
As the cost of living in Australia continues to rise, so do insurance premiums. Inflation, which refers to the increase in prices of goods and services over time, can significantly determine the cost of insurance for businesses. In this post, we explore how inflation affects insurance premiums and how you can manage the impact on your business.
Inflation can impact insurance premiums in a few different ways. Firstly, as the cost of goods and services increases due to inflation, insurance companies may face higher costs to repair or replace damaged property or pay for car parts or labour. This has recently resulted in higher insurance claim costs, leading to higher premiums.
Secondly, inflation can impact the investment income of insurance companies. Insurance companies invest the premiums they collect to generate income and pay claims. When inflation is high, the returns on those investments may not keep pace with the rising costs of goods and services. This can lead to decreased investment income, which can result in higher premiums for policyholders.
One of the big 4 accounting firms has recently estimated that insurance premiums will likely increase 10% over the coming year.
Strategies to Manage the Impact of Inflation on Insurance Premiums
While it’s difficult to avoid the impact of inflation on insurance premiums completely, there are some strategies that business owners can use to manage the impact. One is to review your insurance covers and ensure you have the optimal cover. It’s no use paying for something you no longer need or have too much cover.
As your business evolves and changes, your insurance needs may also change. By reviewing your policies regularly, you can adjust coverage levels, type of cover, and excesses to help manage the impact of inflation on premiums.
Finally, ask your insurance adviser to suggest risk management strategies that reduce your insurance costs and shop around to compare prices from different insurers.