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What pushes premiums up and down?

  • Adroit Insurance and Risk
  • April 6, 2015

The insurance industry can be confusing to the layman. When other industries are doing it hard, it can make big profits; but at the same time, it raises and drops premiums for reasons that sometimes don’t seem to make a lot of sense.

But that’s not necessarily always the case. It’s an industry governed by risk, capital and competition, and all three can affect each other in a number of ways.

For instance, downward pressure on premiums in household and private motor insurance – often referred to as domestic insurance – will continue through the year.

In terms of property insurance, the major natural catastrophes in 2011 and the subsequent premium rate rises were followed by several years of fairly benign activity. This led to a period of high profitability for insurers.

When profits are high, insurers will (albeit cautiously) begin to drop their rates to attract new customers. This results in a more competitive market, with the customers benefitting from lower rates.

That doesn’t mean rises across the board, though. Insurance companies will still assess a business on an individual basis, which is where the risk adviser comes in. It’s our job to represent your risk to the insurers and get the best possible deal for you. That comes from getting to know you and your business, inside and out.

Some insurers are still taking a cautious approach, sacrificing premium growth for a higher quality portfolio of customers with manageable and measurable risks.

There have been few major natural catastrophes, and the abundant levels of capital in the market are dampening any drive for premium rises. The recent Brisbane hailstorm, for example, was not enough to push up premiums despite what is expected to be a $1 billion loss.

Locally, commercial lines of business have remained steady for the past few years. Over the next year, insurance companies will face greater pressure to either hold premiums or drop them (where the risk allows).

But don’t expect the huge premium dips and rises of the last decade to be experienced now. Things are different these days. Following the GFC, insurance companies focused on cutting expenses and increasing their understanding of risk. They built leaner and more sophisticated operations.

Adjustments after the catastrophes of a few years ago have also resulted in smarter underwriting processes and more calculated exposure to risks, which is expected to smooth out the peaks and troughs of premium rates.

As you can see, there are challenges ahead but the insurance companies we work with are supported by strong capital positions, conservative investments and robust earnings.

It’s our job to help you take advantage of any changes in premiums over the next couple of years. Even as new risks emerge and threats to commerce become more acute, risk advisers work with you to keep you and your business safe and secure.

Contact us today for an in depth chat with a risk adviser about cover for your business.

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