Why Insurance Prices are Rising 

As the cost of living continues to climb, many of us are feeling the pinch of rising prices. From energy to the weekly food shop, it seems like everything is becoming more expensive. Unfortunately, the world of insurance is no exception to this trend. In recent years, we have seen a significant uptick in insurance prices across the board, leaving many of us wondering what is behind this alarming trend. 

In this blog, we’ll explore the reasons why insurance prices are on the rise, what it means for business owners, and what you can do to protect yourself in these uncertain times. Whether you’re a property owner, driver, contractor, or business owner, understanding why insurance costs are going up is an important first step in managing your financial well-being. So let’s dive in and explore the complex world of insurance pricing together.

Generally speaking, the cost of insurance premiums has been rising for various reasons, such as the increasing cost of healthcare and legal services. However, one overarching factor contributing to this trend in the UK is the rise of the Insurance Premium Tax (IPT). The IPT is a tax on general insurance premiums, including those for home, car, professional indemnity, and public liability insurance. Unfortunately, the IPT has been steadily increasing over the past few years, currently standing at 12% – double the rate of just 6% in 2015. As a result, this tax hike has led to higher insurance prices across the board.

In addition to these factors, we have seen rising premiums across specific sectors and insurance products such as, Home and Commercial Property, Cyber, Professional Indemnity & Liability, and Motor Insurance. 

Property

Over the last 12 months, property owners insurance costs have become a significant challenge, with premium rates typically rising between 10-20% due to inflationary increases and the UK economy. Unfortunately, labour shortages and rising material costs, driven by energy costs, Brexit, and the war in Ukraine, are directly impacting the cost of claims and the time it takes for a property to be reinstated following a loss. These factors also impact the loss of rent or alternative accommodation payments.

These increased costs need to be reflected in the rebuild sum insured and the rate applied at the underwriting stage. As a result, insurers are raising rates for property owners policies and applying higher indexation rates to building sum insured values to keep up with inflation and prevent underinsurance in the event of a claim.

Cyber

Over the last two years, Cyber insurance claims have multiplied with hackers becoming increasingly sophisticated in their tactics, especially when it comes to ransomware attacks and social engineering. This has resulted in a sharp increase in insurer losses. 

Market data indicates that hackers are increasingly targeting the supply chain as a way to access multiple victims and improve their efficiency. In response, the cyber insurance market has taken measures to address rising loss ratios. Premiums for cyber insurance policies are increasing across all industry sectors and organization sizes, with even low risk business with good risk management still experiencing rate increases of 30-50% or more. However, businesses without strong data security controls may see rates as high as 100% to 300%, or they may not receive a quote at all.

As a result, cyber underwriters are exercising greater caution or avoiding certain industries or areas altogether, such as local government, higher education, technology, and manufacturing. To mitigate their risk, many insurers have imposed sub-limits and coinsurance provisions specific to ransomware claims, limiting coverage to 50% of the policy limit or less.

Indemnity and Liability

The cost of professional indemnity and liability insurance has become a major challenge for many businesses over the last two years. This, in turn, has led to further increases in insurance costs as the market has hardened, resulting in fewer providers, narrower coverage, higher premiums, and increased policy excesses. The root cause of this issue can be traced back to Lloyd’s insurers, who have either withdrawn from the professional indemnity (PI) sector or reduced their capacity due to the Decile 10 review.

As a result, several Lloyd’s syndicates have taken remedial action by limiting their line size or completely withdrawing from the market. Additionally, some insurers reached their underwriting capacity and were no longer able to transact new business. This has resulted in higher rates, particularly for higher-risk trades that have less appetite in the market.

The worst appears to over for professional indemnity premiums now as rates appear to have stabilised but don’t expect any reduction in the rates anytime soon!

Motor Insurance

The increase in fraudulent claims is a significant factor driving the rise in insurance prices, particularly in the motor insurance sector. Unfortunately, the UK has one of the highest rates of motor insurance fraud globally, with staged accidents, bogus injury claims, and exaggerated damage claims all contributing to this problem.

In addition, there has been a sudden surge in auto theft, as evidenced by DVLA data released in 2022. According to the data, an average of 159 vehicles (or 58,082 vehicles in total) were stolen per day, with 1,117 vehicles stolen each week. This represents an 18% increase from 2021, with 9,590 more cars stolen in 2022 than the previous year’s total of 48,492 vehicles stolen.

How can you combat these rising insurance prices?

With the cost of coverage becoming increasingly unaffordable for many, we are often asked people can do to combat the issue. Unfortunately, the short answer here is not an awful lot. Premiums are on the rise, as is much else. However, we do have some tips that can help you to manage these increases. 

As an insurance broker, one of the most significant concerns related to rising insurance costs is that some people are choosing to go without coverage altogether. This is an incredibly risky decision for two reasons. The first being that many insurances in the UK are a legal requirement. The second is that, without insurance, you are completely exposed to the financial consequences of accidents, illnesses, and other unexpected events. So, before we take you through those all important money saving tips. Please speak to an expert, who can advise you on exactly which insurances you need. 

Despite the rising cost of insurance, there are ways to keep your premiums down. For example, you can opt for a higher excess, which will lower your overall premium payments. Additionally, you can adjust your coverage to only include the essential components that you need, rather than choosing a comprehensive package

Shop Around 

One of the best ways to manage insurance costs is to shop around and compare rates. Different insurance providers have different pricing structures, and by comparing rates, you may be able to find a more affordable option. Additionally, you can work with a broker who can help you navigate the various options and find the best policy for your needs.

Bundle Your Policies

Another way to save on insurance costs is to bundle your policies. Many insurance providers offer discounts when you combine multiple policies, such as property, motor or liability. By bundling, you can save money on each policy and simplify your insurance management.

We know that rising insurance costs can be a challenge, but there are steps you can take to manage your expenses. While some people may be tempted to forgo coverage altogether, this is not a recommended course of action. Instead, consider adjusting your coverage, shopping around for the best rates, and taking advantage of discounts and bundling options. By being proactive and strategic in your insurance management, you can keep your costs under control and protect yourself financially in the event of unexpected events.