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Why do Insurance Premiums increase?
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Insurance premiums can increase for a variety of reasons, including:
Increased claims costs: Insurance companies may raise their premiums if the cost of paying claims has increased, such as, if the overall cost of rebuilding homes and commercial buildings has increased, or if the frequency of the amount of claims has increased. We’ve seen with the recent floods affecting many Australian states.
Changes in risk: If an insurance company determines that a particular group of policyholders has become riskier, they may raise premiums for that specific group. For example, if there has been an increase in car accidents involving young drivers (under 25 years of age), car insurance premiums for young drivers may increase.
Inflation: Over time, the cost of goods and services tends to rise due to inflation, and insurance companies may raise premiums to keep pace with these increased costs. Australia is currently experiencing this as the cost of living continues to rise.
Changes in laws or regulations: Changes in laws or regulations can also have an affect on your insurance premiums. For example, if the government were to mandate that all vehicle owners obtain a certain type of insurance coverage, insurance companies may raise their premiums to cover the cost of providing this particular insurance coverage.
Insurance Company Profitability: Insurance companies may raise their premiums to improve their overall profitability. If an insurance company has been paying for more claims than they're receiving in premiums, they may need to raise premiums to remain financially secure for the longer term. Afterall, they're a business as well.
It's important to note that insurance premiums can also at times, decrease, for example, if the overall cost of claims is reduced or if the risk of specific losses has decreased.
Insurance companies regularly review their policies and adjust premiums as needed to ensure that they remain financially viable and able to pay claims when they are made.
Overall, insurance premiums can increase for many reasons, and it's important for all policyholders to understand why their premiums may be going up so that they can make a more informed decision about their insurance coverage prior to purchase.
It is recommended to reach out to a qualified insurance broker to obtain tailored advice and policy solutions.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
All information above has been provided by the author.
All information above has been provided by the author.
Abbie Wilson, National Insurance Brokers, ABN 22165146789, AFSL 233750
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