Factors influencing your insurance Premimums
An individual’s claims won’t push up their premiums unless there are many people making similar claims as may be the case after a natural disaster or another calamity.
Another factor driving premiums up is policy holders rinsing their add-ons and extras for all they’re worth. Take, for example, getting an allowance to spend per year on optical with your health insurance.
Every year, regardless of whether you need a new pair of glasses, it’s quite common that you’ll get correspondence from your optometrist: ‘We’re nearing the end of the year, so make sure you come in and receive the glasses you’re entitled to.’
If you don’t need it, avoid claiming it. If your glasses are perfectly fine, you shouldn’t be claiming it. This is a simple case of there being ‘no such thing as a free lunch. You are actually paying for it by way of your insurance premiums going up.
Prices: The only way is up
In fact, according to the Australian Tax Office – based on stats obtained from the Australian Bureau of Statistics – consumer price index (CPI) rates have been higher on the 31st of December every year since 1985, bar a single blip in 1997.
So part of the reason premiums continue to go up is that so does everything else.
The cost of living goes up, the cost of wages goes up, the cost of repair goes up, and most things we insure are becoming more complex and harder to repair. Take for example the difference between the price you paid for having a fender bender a few years ago compared to one today. If you ran into the back of somebody 15 to 20 years ago, you replaced the bumper and that was it. Now you’ve got all the electronics that go with the windscreen wipers on the headlights, all the sensors – there’s so much more to what is required to bring your car back to its pre-accident state.
So you’ve learnt to accept that pretty well everything gradually becomes a bit more expensive, and you haven’t taken out any policies that played up the extras as a means of roping in new customers.
But if that’s the case, why do premiums increase faster than CPI?
Insurers get insurance too
If you live in a part of the country where the weather is mild, it may seem odd that an event such as the recent floods in North Queensland would cost you anything.
Why would your premiums – bought in a quiet suburb potentially thousands of kilometres away – have anything to do with a natural disaster?
Simple: because insurance companies diversify their portfolio by insuring risks in many different geographic locations across Australia and, in addition, purchase their own cover, called reinsurance. For example, you may pay a $10,000 premium, and a proportion of that will go to the reinsurers as protection.
It’s your insurer who takes on the risk, but not the whole risk. It’s quite common in bigger policies, where different insurance companies will share the exposures so that in the event of a major claim, they’re not having such a big hit on their purse.
What’s more, reinsurance is a global market, meaning your premiums could actually be going towards rebuilding after a major environmental disaster that took place in another part of the world.
Ultimately, though, that’s the whole point of insurance – a company collects premiums from the many to pay the claims of the few.
Don’t let price be your determining factor
As a final piece of advice, while you should always keep an eye on the market to ensure you’re getting a good deal, we say that price shouldn’t be the only aspect you’re looking at. It’s better to have cover that’s aligned to your specific needs, even if it costs a little more than a cheaper policy that won’t protect you when you need it most.
Cheaper is very rarely better, if there’s more than a discount variance of 10 per cent, there’s something missing in the cover.
It’s a guarantee – you do not get like-for-like for thousands of dollars cheaper.
Finally, one practical way you can help control increases in your premium, especially following a claim, is to focus upon managing the risk within your business through loss control and loss prevention strategies. Your broker can provide you with guidance you need.
There really is no such thing as a free lunch. So we recommend you come and have a chat with us and make sure you’ve got policies that provide the cover, and the peace of mind, you need.