Whether you are taking out a new insurance policy or renewing an existing one, it pays to shop around in a time of rocketing premiums, writes Caroline Madden

AFTER ENJOYING years of falling premiums, consumers need to start budgeting for higher insurance costs over the year ahead.

Insurers are being squeezed by rising claims and falling premium and investment income, and it's only a matter of time before this feeds through to their customers in the form of higher insurance premiums. The only thing holding insurers back from introducing rate hikes at the moment is competition.

Premium income in the Irish general insurance market fell by almost 7 per cent in the year to June 2008.

And according to the Irish Industry Federation's (IIF) latest Factfile survey, much of the non-life insurance business in 2007 was written at a loss, and this trend has accelerated in 2008.

Last week insurance firm FBD revised its earnings forecast for the year downwards by 10 per cent because of a higher than expected claims charge for the second half of the year.

This was attributed to continuing poor weather and increasing costs of property-related claims.

FBD is not the only one feeling the pinch. Claims arising from the severe flooding in August cost the non-life insurance industry close to €100 million.

"On the basis that premiums are dictated by the cost of claims, you'd expect it to put pressure on premiums," says Michael Horan, non-life insurance manager with the IIF.

The magnitude of house insurance rate hikes in 2009 will also be influenced by the weather experienced this winter: if major losses are incurred as a result of bad storms over the next couple of months, this will put an immediate pressure on property insurance rates.

Another worry for the industry - and, indeed, for consumers - is that incidents of theft, burglary and vandalism tend to rise during times of economic hardship, and there is evidence that this is already happening. Crime statistics recently published by the Central Statistics Office (CSO) showed general burglaries rose 9.6 per cent to 25,199 cases, and general thefts increased by 3.7 per cent to 77,040, between October 2007 and October 2008.

This trend obviously has a knock-on effect on the number of claims received by insurers.

During more difficult economic times, the number of fraudulent insurance claims also tends to rise.

"If you were trying to plot the pressure points on rates and insurance, certainly the downward cycle, from an economic perspective, has a double whammy in that you do have periods where burglary losses increase, and there is also the issue that people will engage in processing fraudulent claims," says a spokesman for Allianz.

Insurance fraud is an unnecessary expense that ordinary, honest insurance customers end up paying for, he says.

"So therefore it behoves everybody if they spot it or are suspicious of it, to report it."

The IIF has been running an anti-fraud campaign for several years now, and when it relaunched the campaign last month it experienced a huge surge in calls from members of the public reporting suspicious claims.

"People are more aware than ever that insurance fraud means their wallet gets hit, and reporting suspect claims is one way of preventing that," IIF chief executive Mike Kemp commented at the time.

There is also another factor at play that may contribute to higher general insurance prices next year.

"Insurance companies would typically earn their revenue through two sources - one would be through their underwriting account and premiums that they charge customers, but another source of revenue for insurance companies over the years has been returns from their asset portfolios," explains the Allianz spokesman.

Any insurance company that relies on an equity portfolio as a revenue generator will almost certainly have taken a hit on its investment returns of late. "The only other place that that can be made up on is through rating," he explains.

"So the broader economic circumstance will have a bearing, and it's quite likely it will have an immediate bearing for 2009 pricing."

Car owners have seen their insurance premiums shrink over the last number of years (in fact average premiums fell by about 40 per cent between 2003 and 2008), but it seems that the days of falling motor insurance rates are over - for the time being at least. There are signs that the downward cycle has hit the bottom and premiums are beginning to creep back up again. In fact, double-digit premium increases are predicted for 2009 as insurers feel the squeeze of falling profitability.

Research recently published by Deloitte showed that 90 per cent of motor insurance companies expect to increase premiums next year, with 42 per cent indicating that the rate hikes would probably be as high as 10 per cent.

However, according to Deloitte, insurers may not find it easy to implement the desired premium increases. There are still a number of factors causing a downward pressure on rates, it says, not least the fact that the market remains very competitive, and the continued fall in the level of road deaths and injuries.

"Motor insurance companies are facing a push/pull situation," commented Dick Tulloch, director of actuarial services at Deloitte. "On one hand, as competition in the market remains intense, companies are coming under pressure to reduce costs. On the other, reduced margins in current premiums are creating pressure to increase premium rates."

What, if anything, can consumers do to insulate themselves from any premium increases that materialise next year? The best advice is to shop around, whether you're taking out a new insurance policy or renewing an existing one, as the market is expected to remain competitive.

"Shop around on the basis of price, and cover as well," advises Horan. "People forget to shop around on cover, but insurance is not one monolithic product - there are differences in cover between the companies."