What financial advisers are advising clients to do with higher insurance premiums

Accident investigation

If repair costs increase due to inflation, the costs for the insurer and consequently for the insured increase.

(Photo: dpa)

Cologne Insurance brokers have a lot of work to do. Because rising prices are having an impact on homeowners insurance coverage and premiums. Policies are getting more and more expensive. Even the financial regulator Bafin warns of “higher mandatory contributions”. Customers face another danger: underinsurance. This is the case, for example, if the insured value of a house or inventory is now significantly higher than the insured amount due to inflation.

Greater contributions are at stake for the future. Many current contracts contain a premium adjustment clause, which product providers are now implementing. The extent to which an insurer is adjusting prices depends on the competition, its own strategy and its financial strength. Insurers continue to keep a low profile when questioned. Meanwhile, Oliver Kieper, chief executive of Netfonds Versicherungsservice, reports that there are surcharges of “ten to 25 percent” on residential construction policies. And there is still no end in sight. He cites “explosive business costs” and damage from the 2021 flood disaster as the cause.

How will private households and businesses react? In this situation, it is important to keep a cool head and save in the right place, that is, not rashly contradict the premium increase or even cancel the policy. Insurance brokers can support their clients: Instead of paying a higher premium, a client can agree to a higher deductible. A rate change may also make sense. Showing such alternatives is the job of brokers. Above all, underinsurance should be avoided. Otherwise, there would be an unpleasant surprise in the event of a claim. The property line is all about hedging existential risks. Almost no one can pay for damage to their own home or business on the fly.

Strong increase in business

The situation is particularly precarious for commercial customers. The indices relevant to the adjustment of the totals and the calculation of the insurers, such as the producer price index for commercial products, are developing in a “particularly alarming” way, says Thomas Sepp, a member of the board of directors of the industrial insurer of Allianz AGCS. In fact, a look at the recent performance of the index reveals runaway inflation. According to the Federal Statistical Office, commercial products increased in price by 45.8 percent in September compared to the previous year. Over the past year, the rate has grown by double-digit percentages each month.

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“Materials are not only expensive, but also not readily available, or at least not readily available, due to bottlenecks,” Sepp says. The average amount of damage is increased. His advice in this situation is: “The determination and updating of insurance values ​​is an urgent concern for everyone: insurers, brokers and policyholders.”

It is important for companies to regularly review and adjust the value of assets and the impact on replacement costs or business interruption to ensure they are fully compensated after a loss, meaning they are not under-insured. . With his statements, Sepp refers in particular to the situation of large companies and corporations.

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The risk of underinsurance is also real for small and medium business enterprises. Most policies contain a value surcharge clause to automatically adjust the sum insured. “However, due to high inflation, it is no longer certain that the clauses adequately reflect the increase in insurance values,” explains Olga Losing-Malota of management consultancy Willis Towers Watson (WTW). “Therefore, we recommend checking for value surcharges as well.”

The index specifies the setting

In the private sector, the insured sum is also usually adjusted to the evolution of inflation, provided that the contract contains a corresponding clause. For example, the adjustment in residential buildings insurance is based on construction price and the standard wage index, and construction prices are included in the calculation with an 80 percent weight. According to calculations by the Federal Statistical Office, construction prices increased by 16.5 percent in August 2022 compared to the same quarter of the previous year.

“For the insured there is a risk of being underinsured,” says the insurer Volkswohl Bund. Many consumers have agreed to waive underinsured. However, the clause does not help in the event of a total loss if a new house or the replacement of all the contents of the home and the insured costs are greater than the agreed sum insured.

“The upper limit of the insurance benefit is always the agreed insured sum,” says the specialist department of the insurer Volkswohl Bund. You don’t have to explain it to a broker. It is important that you check with your clients whether the respective rate includes an exemption from underinsurance and whether it is necessary to adjust the sum insured.

High inflation rates are shaking the structure of coverage and prices in property insurance. With a one to two year lag, many insurance companies are likely to significantly increase their premiums, especially for commercial insurance. At the same time, private customers and businesses are threatened by underinsurance, despite rate adjustment mechanisms often in place. Mandated brokers are now required to approach their clients and signal the change in status. They can also use this opportunity to optimize finances and help their clients obtain liquidity if they need it.

Plus: What do I have to take into account when changing car insurance?

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