I have to admit that we Americans tend to view our shores as the boundary of the world, and most of our concern about the current economic downturn focuses on the US. But this recession has worldwide consequences. One consequence is that international insurance companies predict rates hikes as the economy gets worse. Of course those rate increases will be reflected in the prices that American consumers pay for insurance.

Why does an economic downturn cause insurance rates to rise? Doesn’t that seem counter-intuitive since a soft market should push prices down? That may, indeed, happen sometimes. But insurers claim they need to raise rates during a slow economy in order to remain profitable.

Some Speculation About Insurance Rate Increases During a Recession

Insurers invest the money they receive in premiums. If they cannot get good returns on their investments, they need to charge more.

A softer demand for products may force insurers to increase premiums because less covered people and businesses are sharing the risk for an area.

Insurers can find less capital to invest in the business of risk management, so the demand for that capital increases. This causes the price to rise, and that increase gets passed on to customers.

If you have been keeping up with the economic news lately, some (but not all) insurers may have made some grave mistakes in the way they handled their capital and investments while the stock market soured. Unfortunately, consumers will probably bear the consequences of those errors. Unless you have insurance with a guaranteed premium, like some life insurance policies, you may see rate increases. And if you own cash value insurance, unless the return is guaranteed, be prepared to have a soft year.

On the other hand, you should probably not be concerned about your actual coverage. State insurance regulators keep a close eye on licensed insurance companies, and they have plans in place in case an insurer has financial difficulties.

I do not claim to be an expert on the way insurance companies manage their finances. But then again, I have never lost as much money as some of the major insurers have either. Everybody’s situation, and every company’s situation, is unique. Due your own due diligence, but be prepared to ride it out.

Find Lower Priced Insurance

If you do get notice of a rate hike in the mail, it may be time for you to do some insurance shopping. Our fast and free insurance quote forms can make it simple for you to compare insurance quotes in your local area. Your current insurer may not have the capital to keep their rates low, but another insurer may be stepping up to compete for your business!