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Confused about why your insurance keeps going up even though you don’t make a claim? Here’s a handy guide on how insurance works…

We can’t change your home or car insurance policy costs, (and sorry we don’t offer any insurance policies of our own!) but we can help you understand why your family budget is impacted by incidents that seem completely unrelated to you or your insurance company!

Of course insurance premiums are rated on many individual factors, however one factor affects all insurance policies globally.


It’s all about buckets really…

  • When you pay your insurance premium, it goes into your insurance company’s “bucket” of money.
  • Your insurance company uses this bucket of money to pay out on claims.
  • So in essence your money will go towards someone else’s claim (or contribute to your own, if you make a claim.)
  • If your insurance company has a year where they pay out more on claims than they budgeted, then it’s likely that all insurance premiums will increase the next year.
  • Of course there are many more factors that inform what each individual’s premium will be, and these are all different dependent on the insurance company and the product being insured.


Here’s where it gets global:

  • If your insurance company receives a claim which is above their threshold, they will claim on their own insurance – this is called reinsurance.
  • Claims that would typically fall into this large category include legal liability claims, or a series of claims that originate from the one event (i.e. natural disaster).
  • The reinsurance company will then cover the cost of paying out on these large claim(s).
  • If the reinsurance company receives many of these types of reinsurance claims, they will increase their premiums, and this cost is eventually passed on to you, through your insurance company.
  • SO – a hurricane in the US, floods in Thailand, or a volcano in Iceland, can all affect insurance premiums in your household budget.


A few more interesting facts about recent natural disasters:

In the 10 years after Hurricane Katrina disastrously affected North America in 2005, there have been an annual average of 260 major natural disasters worldwide. The impact of these disasters is increasing each decade, and the first half of the 2010s produced more economic loss from weather disasters than the whole of the 2000s. This doesn’t include small scale incidents such as smaller floods, storms or bushfires.

When huge weather events around the globe cause thousands (millions!) of individuals to claim on their insurance, this has a global effect on insurance policies through reinsurance costs.


(Note: this blog is an informative piece about one factor that affects insurance. The LLL does not provide any insurance products).

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