We all do it - that sharp intake of breath when we re"ceive the renewal premium for the coming year; followed quickly by "How Much?!! – I’ve not had any claim. In fact, I’ve not claimed for years, so why am I having to pay more?

The problem is, we all think as individuals whilst insurers price globally. The price they offer you as an individual reflects many different variables, such as:

  • Political uncertainty - we are all were aware of Brexit – affecting the value of the pound, impacting amongst many things the cost of motor parts not manufactured in the UK
  • Taxation – recent rises in insurance tax with another rise due in June
  • Costs of doing business – like all businesses insurers face increasing costs to transact business
  • Exchange rates
  • Reduced investment returns
  • Increased energy costs
  • Increased IT costs
  • Legislation and compliance costs
  • Salary increases
  • Costs for business insurance
  • Solvency – insurers must reserve against future claims as part of their legal solvency requirements so they have sufficient funds to pay future claims – including large catastrophe claims
  • Future Trends – if injury claims become more prevalent in say the workplace, then insurers must adjust premiums over time to account for this.
  • Personal injury compensation – the largest single event to affect insurance premiums has been the decision by the Lord Chancellor to reduce the Ogden discount rate. This is a tool designed to adjust compensation payments to take into account future investment returns the recipient might expect on any lump sum compensation. On 27 February 2017 this was changed from +2.5% down to -.75% meaning that injury awards must be increased to take into account a negative return on a lump sum investment which will have a significant impact current injury claims reserves and will be reflected in future insurance pricing.
  • Investment Income – historically, many lines of business have run at an underwriting loss and relied on investment income to generate an overall profit. Global interest rates have fallen significantly over recent years increasing the pressure on insurers to make an underwriting profit and consequently applying upward pressure on premium pricing.
  • Global weather changes – we’ve all witnessed the increased flood risks in several areas of the country in the last few years which all come with significant insurance claims costs.
  • Motor insurance - with an ever increasing number of vehicles on the road the exposure for insurers increases both to injury compensation from valid claims but perhaps more worryingly, the risk of fraudulent claims – some 70,000 in 2015 alone.


Allan Colquhoun

Park Place Insurance

T: 01592 640011

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