Why your insurance premium increases and what you can do

Insurance premiums usually increase from time to time – usually every year or at specific intervals as economic, market and risk factors change. Understanding why your insurance premium increased and possibly when to anticipate an increase can help you to plan ahead for the financial implications.

“In most cases, insurance premiums increase on an annual basis. However, certain insurers revised their policy wording to allow for additional increases determined by market-related changes. Insurance premiums can also be revised after claims. Therefore, you must familiarise yourself with the conditions in your policy and factor potential increases into your budget accordingly,” says Karen Rimmer, head of distribution at PSG Insure.

“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, depending on a range of factors.”

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Changes in risk on a national level

As the cost of living rises, so do the expenses associated with repairing, replacing, or rebuilding damaged property. Whether it is home insurance or commercial property insurance, insurers must adjust their premium rates to account for these rising costs.

Other realities such as load shedding 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, such as power cuts that affect 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 can increase premiums or implement additional limitations on cover. They may also issue recommendations to policyholders on how to safeguard their assets against the new risks. You must work closely with your insurance adviser, who can offer helpful guidance on how to budget for premium increases or how to adjust the level of cover to ensure affordability,” Rimmer says.

Your 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 your risk profile that are taken into account, such as the occupation of property, its age, construction materials used and geographical location when it comes to property insurance premiums.

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How to manage rising premium costs

If your insurance premium increases so much that you cannot afford it anymore, 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.

Understanding the factors that led to the increase, such as changes in risk assessment or coverage, will help you make informed decisions.

“The next step is to reach out to your insurance adviser to discuss the premium increase. 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 reduced coverage for certain areas that are less critical to your needs. However, you must still be careful 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.

“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.”