Like most of your other subscriptions, what you pay for your insurance changes every now and then. Unlike your other subscriptions, changes to your insurance premium are usually explained using jargon and it can feel like you need a financial degree to understand what’s going on. This doesn’t have to be the case – this article will help you understand all of the relevant concepts to make sure that you are paying the best price for the cover you need.
Why would my insurance premium go up in the first place?
When you first buy cover, your insurer gives you a price based on their expectation of how likely you are to claim and the cost of that claim. Over time, this expectation changes as they get to know you better and as things around us change. From things like the increasing cost of repairing your stuff, to exchange rates that directly affect the price of imported replacement parts, to the crime rates in your area. Insurers need to change your premium to make sure that they still charge you the right amount.
Let’s unpack what influences your premium change:
Things cost more
One of the biggest causes of your insurance premiums going up is usually inflation. Year-on-year, things just cost more to repair and replace. Something else that can grow the cost of your claims are exchange rates, especially if certain replacement parts need to be imported for a repair.
My car is worth less – why does my premium not come down? Cars depreciate in value. This makes them less expensive to replace, and so it makes sense to expect to pay less for cover from write offs and thefts. However, most car claims are repair jobs, and with inflation (parts and labour), the cost of those repairs go up. That’s why it usually means that your overall premium also needs to go up.
Changes that are specific to you
Your premium is also influenced by your personal info and history. For example, if you were 18 with a brand new licence when you bought your car insurance and you are now 19 and have made no claims, your premium could go down – as long as the drop isn’t offset by all the other things we’ve been talking about. On the other hand, if you have made a number of claims from your insurer in the last couple of months, your premium is likely to go up.
More potholes, load shedding and bad behaviour
Changes in the world around you can affect how likely you are to claim from your insurer. The growing number of potholes in our roads can lead to more accidents in certain areas. More load shedding can mean more power surges. These can damage insured appliances and can even lead to more car accidents due to robots being out. Crime rates of things like hijacking and drunk driving may also change significantly year-on-year.
Mother Nature being temperamental
How Mother Nature behaves directly affects how likely you are to claim from your insurer. Hail storms, floods and wildfires are seen more regularly year-on-year and can lead to extensive damage to cars and homes.
Many of the things that determine the change in your premium are outside of your control. That said, there are a number of things you can look at to make sure you are paying the lowest premium possible while still having the cover you need.
What can I do after my insurer tells me about my new premium?
Check if you can afford a higher excess to reduce your premiums
Your excess is the amount that you need to pay out of your pocket when you make a claim. Think about it as the amount you contribute towards a claim. If you choose a higher excess, your premium will come down. However, remember to ask yourself whether you would struggle to pay the excess if you were to have to make a claim tomorrow. If the answer is yes, it’s probably too high.
Double check whether you still need all the cover you have in place
When your insurer notifies you that your premium is changing it’s the perfect time for you to check if your cover is still right for you. Things might have changed over the last 12 months and you now have more cover than you need. For example:
- You could have paid off the loan on your car meaning you no longer need shortfall cover.
- You might have removed the custom towbar that you originally added as an extra on your car policy.
- You might no longer own the camera or piece of jewellery that you originally specified on your policy.
- You may have gone ahead and sold your piano because you never play it anymore.
- You might have gotten around to clearing out a bunch of stuff in your closets and sold that extra chest of drawers that you don’t use.
If you currently have more cover than you need, make sure to let your insurer know. Reducing your cover will save you money.
TIP: Remember that while being overinsured should be avoided, being underinsured has its own issues. You might have recently bought a new couch or had your jewellery reappraised and forgot to tell your insurer to increase your cover. This can mean you won’t receive the insurance payout you were expecting and will have to cover the balance yourself.
For more about the dangers of underinsurance see our article Underinsurance: Why it’s important to insure your home contents for the right value.
See if you can make changes that will reduce the chance of a claim
Insurers will sometimes give you a lower premium if you can prove that you’re taking good care of your stuff. For example, you might get burglar bars and an alarm installed in your home. Or you might go on an advanced driving course. You could install geyser leak detectors into your ceiling, or a tracker into your car. Note that not all insurers take the above into account – it is best to contact them directly.
See whether your insurance company is offering you their best price
When you receive your premium update you can also get a couple of quotes from other insurers. But make sure that you’re comparing apples with apples. For example, check the policy wordings to make sure the excesses are the same and that there are no additional or hidden fees.
At Naked, we’re proud to say that when we give you a price, it is the absolute best we can do. A big part of the reason is the smart use of AI and tech to cut overhead costs and lower fraud, allowing us to give you lower premiums. How can you be sure? If you want to cancel your cover with us, all you have to do is hop on the app and click “Cancel my cover”. We don’t get the chance to give you a counteroffer before you leave, meaning we have to always be charging you the best price we possibly can.