Why premiums increase

I hear it all the time, and have even partaken in the act of shaking my fist at the sky and silently cursing; “Why are my insurance premiums increasing again?”

Premium increases can feel frustrating, especially if you haven’t made a claim, and it seems to hit harder while we tighten our wallets as the cost of living continues to bite. But there are good reasons behind why insurance premiums rise over time.

Probably the most obvious is age. Your age matters… a lot.. and once you hit your 40s you’ll typically see premiums increase across all products as our bodies start falling apart. It’s not exactly controversial to say that the older we get, the higher the risk of a claim. And premiums are based on risk. The one exception is that males around 20 years old are often more expensive than males in their 30’s. I won’t go into the why on that one today though…

So, generally as you age, your premiums will increase to reflect the higher likelihood of a claim (we’re talking cancer’s, knee or hip replacements, heart issues and the one thing guaranteed for us all (for now…) death.  It’s not personal, it’s statistical.

Medical insurance premiums tend to rise more frequently and more noticeably, and they have been a hot topic in NZ recently. What used to be around 10% - 12% a year has recently been over 20% and even 30% in some extreme cases...owe. One of the main reasons is that medical costs are rising faster than inflation. Hospital fees, specialist care, diagnostics, and advanced treatments all cost more each year and insurers pay those bills. Modern healthcare is incredible, but it comes at an increased cost. When the cost of treatment rises, premiums have to follow to enable the insurers to remain afloat. People are also using their medical cover more. Recent stats suggest 1.5 to 2 claims per policy per year. That’s great right! Clients are using their medical insurance and improving their health! But that and a combination of other factors have created a perfect storm. Since COVID, there’s been a surge in delayed treatments finally happening and long public waitlists are pushing more people into private healthcare.

For those people not claiming, premium increases can be hard to accept. But the fundamental basis of Insurance is that it works on shared risk. Premiums aren’t based only on your own claims, but on the total claims of everyone insured. Even if you’ve never claimed, rising costs across the group still affect your premium. It’s not about punishing customers, it’s about keeping insurance financially sustainable so claims can still be paid when it matter most, today and into the future.

There are some levers you can pull to lessen the blow of premium increases, such as increasing excess or removing optional benefits. All come at a cost to your overall insurance coverage though. If you need a review and someone to take you through the options you have, and the pros and cons of each, please feel free to get in touch