by Bruce Fenton

Hurricanes aren’t the only natural disasters that haunt insurance companies. Low interest rates and an anemic stock market can be just as disastrous when it comes to insurance company finances.

Automobile, homeowner’s fire and property damage, and a variety of professional insurance coverages have made the news of late for either restrictive underwriting or skyrocketing premiums. Part of the blame lies in the low returns offered by the financial markets.

Insurance companies count on an investment return from premiums advanced on policies as part of their cash inflow. Actuaries calculate the risk of a payout for loss, taking into account investment returns. When investment returns are low, as they have been for a number of years, insurance premiums will rise. The probability of a loss in a large universe of insured’s is generally fixed, and if the amount of the loss as measured in dollars is increasing due to inflation, the insurance company has no choice but to raise premiums for everyone.

To deal with that inevitability, consumers should become wise buyers of insurance. Here are a few tips that will help.

First, be a comparison shopper. According to J. Robert Hunter, director of insurance for the Consumer Federation of America (CFA), a nonprofit public interest group, premiums vary widely and, depending on the insurer, you can easily pay twice as much as you need to.

Next, shop for discounts. Simple things like a good home security system or side airbags in a car can trigger discounts. Parents footing the insurance bill for a student may get a break if the student is on the honor roll. Try enrolling all family drivers in a defensive driving course.

There are also some benefits to age. Some companies reward older drivers who drive less with lower rates. This also works for the retired, who are likely to spend more time at home and take better care of their property.

Raising deductibles is another way to cut costs. Insurance should be used to cover the infrequent but expensive loss. If you are willing to pay more on the front end of a claim, you may reduce your homeowner’s or auto premiums, according to the CFA.

Carrying collision coverage on an older vehicle may be a waste of money. If you have a loss, by the time you pay the deductible and the insurance company calculates the depreciated value of the car, chances are the insurance will only cover a small part of the loss. You may be better off pocketing the premiums and going without collision coverage.

Our homeowner’s and auto coverage are bundled together into one policy. This not only saves us some money, but it means I am dealing with only one agent who knows my complete risk picture.

Speaking of agents, it pays to find a good one who can keep you informed of changes in coverages and things you can do to reduce your premiums. Don’t expect much in the way of insurance cost reductions until we see higher interest rates and a stronger stock market.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.