Our trip to Spain went well although it was  a 4am start and we were home by 2pm the next day and there was a lot to cram in.  As ever the marketing firm we visited were superb hosts and we learnt more about the internet industry.  If you are reading this Joao and Jackie, thanks a million.

A number of insurers were the most recent to suffer large decreases in their value as investors have started to worry that they will be the next to run into financial difficulties.  The news from the insurers themselves is that they are stable and have not needed to ask for any change in the amount of capital that they are required to hold so all is well.  We shall see.  The problem is that insurers with a large amount of invested capital will no doubt have suffered and I am certain that this will cause them to increase their insurance rates sooner rather than later.

To put insurance simply, it is based upon the premiums of many paying for the claims of a few.  These premiums are invested in all sorts of places including deposit accounts and the interest or investment income earned helps to keep the individual premium low as it adds to the insurers premium pot which is used to pay claims.  The news that interest rates may reach as low as 1% will doubtless mean that insurers will be forced to put up costs as they will need to ‘top up’ the premium pot to counter this loss of investment income.

The other worrying sign for insurance consumers is that during recession the number of claims increases dramatically both due to fraudulent claims (usually big claims such as fires) and people claiming for events that they would normally just pay themselves (small claims).  In addition, as less money is spent within an economy there is less for insurers to cover so they need to maximise their funds.  These factors will combine to give an upwards pressure on insurance rates.

I cannot see into the future but I would not be surprised to see that in 2009 premiums increase by as much as 15 to 20%.  Lets hope not.

Enough of the doom mongering, I am going to do my bit for the credit crunch and wash the cars with my kids.  Fourteen pounds saved!

Have a good week.

Nick Blunden

Director