Online car insurance news
21/10/2008
Warning issued over soaring insurance premiums
A popular financial advice website is forecasting that car insurance rates, as well as other cover premiums, are set to increase dramatically over the next year.
The Motley Fool has warned soaring premiums are inevitable for three reasons:
- Economic downturn
- Plunging investment returns
- Underwriting cycle
Economic downturn
Insurers will raise prices to combat various issues as a result of poor economic conditions. As insurance customers cut back household costs, many will cancel policies to reduce outgoings.
Others may take out more insurance to protect them in these challenging monetary times e.g. redundancy cover. In addition, the worsening economy is likely to lead to more claims on protection policies.
Plunging investment returns
As well as insurance premiums, insurers make money investing these premiums. Each year for the past 15 years, insurers have made a profit - in six of them, profits are said to have been 12 to 18 per cent.
However, investment returns this year are set to be very poor, eating away profits or possibly worsening losses. To cover this problem, insurance premiums are likely to rise, along with a reduction in policy benefits.
Underwriting cycle
Premiums tend to increase during 'low points' in the underwriting cycle, which the insurance market is facing at present. This happens because competition drops as insurers merge and fail during this time. Less competition means higher premiums.
The Motley Fool recommends taking stock of all policies, including checking car insurance rates. The website indicates 'self-insurance' might be appropriate where people could use savings as an insurance pot instead of paying out additional premiums for less essential benefits.
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