Dear Deeter: your finance questions answered

Dear Deeter,

I haven’t done anything wrong, in fact, I’ve done something right (just this once!)… I didn’t crash my car or have any claim against my insurance and yet the price this year has gone up? What have I done wrong? Why is my insurance getting more expensive?

Sincerely,

Curious in Tipperary,

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Dear CinT

(that acronym is for ‘Curious in Tipperary’, not the other word it may look like)

The simple fact is nothing ‘wrong’ has occurred from a personal point of view, you didn’t ‘do’ anything, rather (no joke) it was actually the rest of the world who made the error…. O.k. it’s not that simple, but it ain’t far off either.

The way insurance companies make money is by taking premiums from you, a certain amount goes for ‘re-insurance’ where they pass on some risk to another company, in essence the insurance company takes out insurance – in the last year there have been more claims as burglaries increase with the recession, there has been some freakishly bad weather with floods, freezes and snowfall all wreaking havoc. So one the liability side the insurance companies have been paying out a lot in claims, thus they will charge more.

But it doesn’t stop there, often an insurance company will also invest your premiums, in the past if you paid €100 and they invested it and made €106 from it (€6 investment gain), they could then offer you cheaper insurance in following years by using the profit to offset the cost. This is a basic breakdown but it makes the point sufficiently. Insurers work on what is called a COR (note: not as in ‘Jim Corr’), it stands for ‘combined operating revenue’ and is the combination of profits from taking in premiums and the investment income resulting from those premiums going into the market.

The markets (as we are all aware) have had a pretty rough time of it, and while 09′ saw a spectacular bull run, it also was the year that saw some heavy losses, when you add that together with the uplift in claims you see that insurance companies didn’t make as much as they normally do, they also had to claim from their own insurances (re-insurers), the re-insurers then jacked up the price to the insurance company, their losses and the increased premiums are now being passed on to you.

So in a nutshell, you did nothing wrong, you are just going to have to pay for the privilege of being right in the wrong year.

hope this helps!

Deeter.

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Dear Deeter,

I wanted to let you know that I think you suck, fine, your advice is good, but you always talk in analogies, the last person who made a career on that basis died 2,000 years ago. Don’t forget, they chose Barabus over him, which by modern standards means people prefer bankers to you.

Whatever,

Joe in Tallaght

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Dear Joe,

Two things. Firstly, I commend you on your spectacular judgement of my character, I won’t deny a word of it. Secondly, I am reminded of a mustard seed that was cast at the side of the road and another that was placed into fertile lands, I’d finish the story but I need to go get crucified or something.

Thanks for your mail, I hope for an absence of correspondence in the future.

Sincerely,

Deeter

Comments

  1. Really like this style of post Karl. And good info. I’d advise CinT to shop around – I switched car insurance and saved 200 yoyos – it’s worth the hassle of getting a quote.

  2. Hi Stewart,

    Thanks for dropping by! Glad to hear ya saved some € on the car insurance too!
    karl

  3. sandy

    Hi Karl don’t know if you have checked your email yet (at mortgagebroker.ie)
    I had a quick query re islamic finance that I want to attribute a reference from you best regards…sandy hazel

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