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Insurance PremiumsWhat can we expect to happen to our insurance premiums in the coming year?
Factors influencing the cost of insurance premiums are cyclical in nature. Periods of increasing premiums are known as “hard” markets, and periods of decreasing premiums are known as “soft” markets. Since about 2000 we have been experiencing a hard market characterized by a poorly performing stock market, low interest rates, and high claims activity. The World Trade Center disaster in 2001 was a compounding factor.
To insure the solvency of insurance companies state laws require the insurance companies to establish reserves, or monies that have been identified as liabilities of the insurance company. Insurance companies customarily take your premiums at the time you purchase a policy and do not pay claims with that money until sometime in the future.