Rising premiums? Factors that influence insurance rates

Explaining increases in insurance rates and premiums is one of the most common requests from clients to insurance brokers.  There are various factors that influence insurance rates and premiums, some of which can be controlled by the insured person or business, and others that are determined by external factors.

Factors that may be controlled by the insurance policy holder:

Business Insurance – these changes may increase your insurance premiums:

  • Increased gross revenue
  • Changes in services or products provided
  • Change of address to higher risk area
  • Additional location
  • Purchase of additional equipment or stock
  • Occurrence of insurance claim
  • Decision to add insurance coverages not previously selected e.g. earthquake, boiler & machinery breakdown, valuable papers, etc.

Home or Condo Insurance – these changes may increase your insurance premiums:

  • Business operating out of home
  • Substantial renovations or addition of suite
  • Home rented out (completely or partially)
  • Vacant home
  • Acquisition of items that require “all risk” coverage i.e. jewellery, business equipment
  • Occurrence of insurance claim
  • Decision to add or increase insurance coverages not previously selected e.g. earthquake, increased liability coverage, rental income coverage

Strata Insurance – these changes may increase your insurance premiums:

  • Ageing building
  • Occurrence of insurance claim
  • Decision to add or increase insurance coverages not previously selected e.g. directors’ and officers’ liability

 Factors not controlled by the insurance policy holder:

 What can cause consternation for insurance policy holders is when no changes have taken place in their business or home and no claims have been made.  However, insurance rates and premiums may still go up.  Here are some of the factors that influence these increases:

Inflation – When insuring property, there is typically an inflationary increase added annually by the insurance company to reflect the greater cost to replace your property in the event of a loss

Capital reserve requirements  – Insurance companies are required to have enough capital reserves to pay out claims.  If an insurance company has a bad year with many claims or an extremely large claim, these claims payouts reduce the company’s assets.  Increasing insurance rates is a way to top up company assets.

Insurance premium investment – Insurance companies invest premiums received until required to pay out claims.  Due to regulatory controls, insurance companies will not invest in high risk investments and will be limited to more conservative investments such as bonds.  In the current market, low interest rates mean that insurance companies aren’t earning as much on their investments to keep apace with capital reserve requirements.  An extended low interest market can result in significant changes to your insurance premium.

Ways to manage your insurance policy premiums

Review the coverages in your current policy with your insurance broker every year, preferably 2 to 4 weeks before expiry date.

  • Make sure that your insurance policy is up-to-date and relevant to what you presently need to have insured.  Advise your brokers of any changes.
  • If you’re unhappy with an increase in rates or premium (or change in deductible), ask your broker to negotiate with the insurance company for a better price.  This doesn’t always work… but it’s worth a try, particularly if you have a good claims history and are a long-standing client.
  • If you are still dissatisfied with your premium, ask your broker to shop around for a better deal.  At best, you will find a better premium.  At worst, you will find out that your insurance policy is competitively priced.

Would you like a competitive quote for your home, condo, strata, or business?  Fill out our request form or contact us for a free quote:

Habitat Insurance Agencies Ltd

Tel 604-438-5241

info@habitatinsurance.com

 Copyright 2012 © Habitat Insurance Agencies Ltd.   All rights reserved. Disclaimer:  This article is designed to provide information for personal use only.  Please consult your professional insurance broker for further professional advice. Habitat Insurance Agencies Ltd is not responsible for any legal disputes of this matter.