Insurance costs go up during a recession

haggle_2

Some people are saying that during a recession car insurance, home insurance and the like could become more expensive.

Sounds wrong (not saying it is) as deflation is a hot topic in the media. What do you think?

Anyway please keep an eye on your car insurance and home insurance costs.

tinkerbell84

I think you don't understand how insurance works.

cars:
during a recession people are more stressed about money and may have more accidents (genuine or deliberate) so insurers end up paying out more. insurers' costs rise, premiums rise

houses:
crime generally increases as recession takes hold - people may also fake claims to get cash. more claims, insurers pay out more. insurers' costs rise, premiums rise

dacouch

The other thing a recession does is it reduces the value of the Insurers capital (They have to have set levels of "Liquid Funds" to cover possible claims. As their investment portfolios will decrease in value they are allowed to take on a lower amount of premiums. To make up for this they increase they become picky on what customers they take on and increase the premiums.

http://www.cirmagazine.com/pages/stories/january09/underwriters-survey-hard-market-aon.htm

Sorry for being the bearer of bad news

JonBoy_SCFC

a recession can also have effects that reduce the costs for insurers too

e.g. cost of cars reduces therefore payments insurers need to make in claims total losses reduces

dacouch

Lol you have never seen a hard market, car crime will go up, fraudulent claims will go up. The main reason will be their investments will go down which reduces their capital this reduces their "Capacity". Say they have £1billion of liquid capital they may be allowed by the fsa to underwrite 1million policies at £1000 if the value of their capital or Capacity goes down to say £900m they will not underwrite 900000 policies at 1000 they would reduce the amount of customers they take on and increase the premiums. It supply and demand.

When premiums go up its called a hard market, it normally happens in a recession or when claims costs go through the roof.

Who owns directline, churchill...RBS....who has just announced losses of £28 billion...RBS

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5544524.ece

During the last proper hard market I had nightclubs who insurance premium was £13000 go upto £60000 a year. During the soft market there were lots of companies all competing for nightclub business. The hard market came along and insurance companies with drew from high risk parts of the market. They all withdrew apart from QBE. So QBE hard to charge higher premiums as their capacity was reduced plus they could charge what they wanted as it was a seller market.

Ask your underwriters at work to explain a hard market to you and what they expect to happen over the next 24 months and ask them what the last hard market was like

geri1965_2

In addition to the rise in fraudulent claims during a recession, genuine claims also go up as people can't afford to meet them themselves, which they might have done when they had more money.

JonBoy_SCFC

all of the above is true. but what's wrong with the point i made too? it's a valid point that works in the other direction, admittedly it will have less of an effect than the factors you mention

that's why i worded it "a recession can also have effects that reduce insurers costs".

there's other factors that work in this direction too - for example in a recession people have less money to spend on petrol so they drive less and therefore have less accidents

i didn't comment on what way prices would go, and i stand by what i said. They will obviously go up this year, but that would probably have happened anyway regardless of the recession

dacouch

It is possible their costs could go down as the bodyshops are already on really keen rates so unless they reduce their staff wages they cannot reduce costs. They have no real reason to reduce their costs as they will get the same amount or probably more work during a recession as peole still have claims. The Insurers are unlikely to ask for reductions in the garages costs as they have already squeezed good deals out of them. In fact some of the garages are owned by the Insurers think NU and Direct Line so they can't / won't reduce their own garages costs.

There are just as many accidents in a recession and strangely enough you tend to get a lot more stolen cars and car fires.

In addition the amount of people driving without insurance goes up as they "cannot afford to insure their cars" so the insurers levy to the Motor Insurers Bureau goes up (Fortunately the motor insurance database will help minimise this).

They will have to budget for more bad debts from clients bouncing direct debits.

I would not be surprised if the FSA brings in some more regulations after the banking crisis so this could also have an impact on their costs.

Unfortunately for customers car insurance is a compulsory purchase so at some stage the market will not be able to afford to carry on at current rates (If they are losing money) and will have to increase the rates. I bet the companies are all keeping an eye on their competitors at the moment waiting for someone else to make the first move.

Its hard for customers in a hard market as their prices go up and there is often little you can do about it and its hard for the frontline staff as they have to deal with upset customers.

Insurance has always gone in cycles of hard market (Prices go up) and soft market (Prices go down). We will not have the hard market forever and when the economy sorts itsself out the capacity will return to the market and market forces of over supply will bring the premiums down just like we have been experiencing for the last 15 or so years.

Its not something to lose sleep over as the prices will go up may be 5% to 15% but the UK market will no doubt still be the most competitive market in the world so the customers will be getting better value than if we did not have all the competition due to the direct companies etc

shell1000

its true...

helpupay who i have my mortgage protection policy with wrote to me on friday to say my policy was going up from £17 a month to £22, how can they do this? I bet it never comes down again either.. not impressed.

lisyloo

how can they do this?

Many people are losing their jobs at the moment so claims are rising........so I'm afraid spekaing generally it's jsutified ........unfortunately.

Having contingency for bad times is going to cost us more both personally and for insurance companies.
It's jsut the way things are right now.

dacouch

shell1000 wrote: »

its true...

helpupay who i have my mortgage protection policy with wrote to me on friday to say my policy was going up from £17 a month to £22, how can they do this? I bet it never comes down again either.. not impressed.

The price you have been paying has been "Down" for many years as peoples employment has been relatively safe so the premiums have been low. This field of Insurance is highly competitive and there were lots of companies offering this cover as the chances of having to pay out were fairly low so the amount of competition forced the prices down. We are in a recession now and people are more likely to become unemployed so the premiums are going up to reflect the chances of you becoming unemployed. Lots of the new Insurance Company entrants into the market are now no longer offering cover or renewal due to the expected costs of claims so in some ways you are lucky that you are with a company offering cover.

If your Insurer did not charge a premium that reflected the chances of a claim then in times like now when there are a lot of claims they could go bankrupt which would not help anyone. So like any business they have to charge a fair price for their services

There are threads about this type of cover on MSE, do a search you may find them helpful.

Hopefully you will never need to claim on it.