Posted on | February 20, 2013 | Comments Off
There are many factors that influence insurance rates. Insurance is primarily influenced by risk factors. When an insurance company is creating policies, they look at the likelihood that you will be filing a claim and thus receive a payout. If the likelihood is very rare that you will have to use your policy, then your rates will generally be very low. Alternatively, if you are likely to use your insurance, then your rates will be higher due to a more probably future claim. This is why policy rates fluctuate from place to place and even from time to time. But another often overlooked influence on insurance rates is the stock market. This is even true if the insurance company is not publically traded.
Generally speaking, when the stockmarket falls, not only are most people’s financial portfolios declining in value but their insurance premiums rise. Most insurance companies are invested one way or the other in the market so if their profits fall they need to increase their income via raising premiums. Even if an insurance company does not offer shares on the open market, they usually are invested in one way or the other in them. Insurance rates also seem to follow a standard and rates are usually pretty close to other company rates. If a company knows people will pay more for insurance, they may even raise their rates slightly, however they still want to remain competitive. This is one reason why when the stockmarket is falling, it affects people even if they are in directly invested in it. This is not to mention how other factors of a falling market affect society.
When the market is raising rates usually fall, provided all other external factors remain the same. A hurricane for example hitting your area will have much more to do with flooding premiums than the stockmarket. Rates can fall during good times because the companies are generating revenue at rates well above what premiums could ever generate alone. This allows companies to offer lower rates. This is often a great time for insurance companies to advertise their rates, because they look lower than they may have been just months ago. People may not realize their current policy rates will most likely drop too and seeing a company advertising what appears to be lower rates than their competition may lure some in.
Other results of a falling stockmarket on insurance rates are that people may be less inclined to purchase as much insurance as they once did. When people’s net worth decreases it often causes people to feel more worried and a result it to close up their wallets. This may prevent them from investing back in the market, and even try to save what they have by spending less. If people are feeling a financial pinch, they may reduce their insurance rates especially since rates tend to go up during these times. This combined with an increase in insurance fraud can make the recovery a little longer than anticipated. To keep up on the latest news and insights on the market and how they may be affecting insurance rates I like to visit http://www.lloyds.com/news-and-insight and http://www.ft.com/personal-finance/insurance.