What influences insurance premiums?

  • Insurance premiums can often change in the short-term to provide long-term stability for customers
  • Changes to premiums are influenced by a wide range of factors – many of which are outside insurers’ and customers’ control
  • Our latest guide offers insight into what influences insurance premium levels, alongside tips on how to manage yours

Insurance premiums are constantly changing in response to a wide range of factors. Some of these relate to the risks you face, while others can stem from factors outside of your control.

If you’ve ever wondered “why has my insurance premium increased?”, our latest guide offers detailed insights into what affects insurance premium levels, alongside helpful guidance on how to manage them.

Varying risks, varying contributions

Everyone’s insurance premium differs depending on the level of assistance they might need.

Insurance premiums are therefore predominantly calculated by looking at customers’ specific risks and claims experiences.

When customers’ risk profiles change, their insurance premiums may also need to change.

Changes to risk profiles can be due to internal factors you can control – for example, undertaking new activities that are more susceptible to claims.

Changes can equally stem from external factors outside of your control, such as claims trends. A good example of this is the current rise in weather-related claims, such as flooding, as a result of climate change.

Risk is just one of many factors

The changing risk landscape, and its impact on future claims, is the main driver behind premium calculations. However, risk is only one of many factors that influence premium levels.

Even if your risks remain static, other changes can significantly impact insurance premiums.

Legal and regulatory changes

Numerous laws and regulations affect the overall cost of claims to customers and their insurers.

For example, recent changes to the Personal Injury Discount Rate – a calculation applied by the courts on long-term injury claims settlements – is certain to significantly increase the cost of personal injury claims settlements going forward. This means that insurers will need higher premium reserves in order to meet future claims.

Taxes on insurance premiums

A major factor that is continuing to impact customers’ premium levels is the government’s progressive increases to the rate of Insurance Premium Tax (IPT), which will have doubled between 2011 and 2017.

  • 4 January 2011 – 6%
  • 1 November 2015 – 9.5%
  • 1 October 2016 – 10%
  • 1 June 2017 – 12%

IPT is collected by insurers on behalf of the government, resulting in increases to total premiums that is payable each time this tax is raised.

Claims inflation

The cost of settling claims has been steadily increasing for many years across all types of insurance. This is referred to as ‘claims inflation’.

In property insurance, for example, continued rises to material and labour costs increase the cost of a settling buildings claims.

Other economic factors, such as currency valuations, can also have a significant impact. For example, following last year’s Brexit vote, the weakening of the pound made it more expensive to import goods. This increased the cost of sourcing items such as car parts and therefore the cost of settling motor claims.

Your guide to insurance premiums

To ensure our pricing remains transparent and any changes are fully explained, we have created a detailed guide to the various factors influencing insurance premiums, which you can access here.

This includes valuable insight for specific types of cover (such as Property, Motor and Liability), as well as practical guidance to help you achieve more stable premium levels.