Karen Rimmer, Head: Distribution at PSG Insure

As policyholders are aware, insurance premiums increase from time to time. This may occur on an annual basis or at specific intervals as economic, market and risk factors change. Understanding why your insurance premium has gone up and possibly when to anticipate an increase can be helpful in planning ahead for the financial implications.

Sharing her insight on this topic is Karen Rimmer, Head of Distribution at PSG Insure, who explains that in most cases, insurance premiums increase on an annual basis. However, certain insurers have revised their policy wording to allow for additional increases that are determined by market-related changes. Insurance premiums can also be revised after claims. For this reason, she advises policyholders to familiarise themselves with the conditions of their policies and to factor potential increases into their budgets accordingly.

As she further advises: “Understanding how insurance premiums fluctuate in relation to the broader market begins with understanding the concept of risk. Insurance premiums are dictated by the level of risk associated with a specific asset or scenario – the higher the risk, the higher the premium. Underwriters use actuarial calculations and statistical data to estimate the likelihood and potential cost of future claims, in light of a range of factors.”

Changes in the landscape of risk on a national level

Inflation is one of the economic factors that affects all sectors of the economy, including the insurance industry. As the cost of living rises, so do the expenses associated with repairing, replacing, or rebuilding damaged property. Whether it’s home insurance or commercial property insurance, insurers must adjust their premium rates to account for these rising costs.

Other realities such as loadshedding may also have an impact on insurance premiums. The ongoing power crisis has increased the cost of providing financial protection against loss in a number of ways. For example, power cuts can impact property insurance, particularly for businesses or homeowners who rely heavily on security systems, surveillance cameras, and fire prevention systems. If these systems are compromised during power outages, it might lead to an increased risk of theft, vandalism, or fire damage.

“In high-risk scenarios such as these, insurers may raise premiums or implement additional limitations on cover. They may also issue recommendations to policyholders on how to safeguard their assets in light of the new risks. For this reason, Rimmer encourages policyholders to work closely with their advisers, who can offer helpful guidance on how to budget for premiums increases or how to adjust the level of cover to ensure affordability,” explains Rimmer.

Factors relating to the client’s risk profile

While the interplay of external factors may have a significant impact on insurance premiums, there are also a number of internal aspects related to the insured’s risk profile, that are taken into account. For example, in relation to property insurance, factors such as the occupation of property, its age, construction materials used, and geographical location affect premiums.

How to manage rising premium costs while staying protected

If you’re facing an insurance premium increase that you can’t afford, there are several steps you can take to address the situation and potentially find ways to manage the cost. The first step is to take a closer look at your insurance policy to understand what the premium increase entails. Understand the factors that have led to the increase, such as changes in risk assessment or coverage. This will help you make informed decisions.

“The next step is to reach out to your insurance adviser to discuss the premium increase,” says Rimmer. “Ask them to explain the reasons behind the increase and see if there are any options available to mitigate the impact. You could then consider adjusting your coverage options by opting for higher excess amounts or reduce coverage for certain areas that are less critical to your needs. You do, however, need to be cautious when reducing cover, to avoid becoming underinsured.”

Another way to manage the cost is to discuss ways to improve the factors that contribute to your risk profile. For example, maintaining a clean driving record or installing safety features in your home could potentially lead to lower premiums over time.

As Rimmer concludes: “Defaulting on your premium could result in your policy being cancelled, so if affordability becomes an issue, the first port of call is to contact your adviser – they will be able to offer advice on how to make sure your insurance needs are catered for and that the new premium rate fits into your monthly budget.”

ENDS