Increase in Insurance Rates - Essay Example

Insurance is a risk management strategy that has for long been used in the history of civilization. Insurance has a rich long history that dates back to the ancient Chinese merchant traders (Lynch, 2003). It basically entails the transfer of risk from one party to another so that the party to whom the risk is transferred indemnifies-upon the payment of a consideration- a chosen risk. Premium, in the context of law, is the consideration paid for the insurance cover. The premium charged will normally vary for the same or different types of risks depending on an aggregate of factors.

Insurance rate is a determinant of the premium charged on a particular risk. As result the rate directly relates to the premium paid. One factor that causes insurance rates to the increase is the occurrences of particular risks. For instance, an increase ion the occurrences of auto accidents in a particular region ill normally lead to the increase of the premium charged for motor cover. Several instances have been evidenced where the prevalence of a particular risk has led to insurance firms charging higher interest rates for such risks.

Other insurers have been noticed to shun covering such risks. Another factor that has seen insurance rates go up is the moral hazard among the insured. This is the situation where the insured party takes no responsibility to prevent the occurrence of risks (G, 1960). This normally arises from the gratification that “after all I am insured.” The person therefore takes no duty to prevent certain risks from occurring. This will in the long run, lead to an increase in the prevalence of some risks.

As a result, insurance firms will progressively increase the rates so that the insured chuck out more in form of premiums. The increase in the uncertainties realized in some dimensions in life has made insurance firms take radical measures to ensure they can cope with such situations. For instance, in health, many diseases and issues come up day by day. Insurers are therefore under the constant need to review their terms to be in tandem with the flow of situations. This translates to the increase in insurance rates.

Ignorance and aversion towards insurance as a risk management tool has meant that few people subscribe to policies like health insurance. Considering that insurance companies operate on the principle of pooling of risks, it implies that the companies will have a little pool from which to operate. This leads to an increase in the insurance rates so as to increase the premiums charged. The above factors have, in several ways, impacted on the manner in which policy holders and other parties operate.

For instance people have tended to be a little more careful in their dealings to avoid high interests charged. The increase in the cost of some covers like health insurance has caused a lot of tensions among policy holders. This is because such covers are normally compulsory for all workers in many countries. The rise in insurance rates has also greatly discouraged low income earners from taking many covers thereby increasing chances of loss. In the same vein, many policy holders have dropped some policies and resorted to other forms of risk management.

REFERENCES G, D. P. (1960). The Sun Insurance Office 1710-1960: The History of Two and a half Centuries of British Insurance. . London: Oxford University Press. Lynch, M. (2003). Insurance:Mitigating Disaster. Paragon Books: New York.