Caleb Meriwether, Haven Insurance Partners, visits with Dan Reaves, host of ‘The Dan Reaves Show,’ today, and each Wednesday at 3:30 p.m., to discuss all things insurance.
Most people associate falling interest rates with lower mortgage payments or cheaper car loans. But one lesser-known impact of a low interest rate environment is how it affects insurance premiums. While it might not be obvious at first, interest rates play a critical role in how insurance companies price their products.
Why Interest Rates Matter to Insurers
When you pay your insurance premium, the insurance company doesn’t just hold onto that money. It invests the funds, primarily in conservative vehicles like bonds. The interest income generated from those investments helps the insurer pay future claims, cover overhead, and ideally keep premiums affordable.
When interest rates are high, insurers can earn more from their investments. This helps offset the cost of claims and reduces pressure to raise premiums. But when rates fall, the return on those investments also drops. To make up for the lost income, insurers may need to increase premiums to stay financially stable.
Insurance Products Most Affected
Life insurance and annuities are particularly sensitive to interest rate changes. These are long-term products where insurers rely heavily on investment income to fund future obligations. When rates are low, insurers either raise premiums or lower policy guarantees and benefits.
Property and casualty insurance—especially long-tail lines like workers compensation and professional liability—can also be impacted. These policies involve claims that may not be settled for years, and investment income is used to cover those future payouts. Lower returns mean less financial cushion, which can lead to higher premiums.
Short-term lines like auto or homeowners insurance are less sensitive to interest rate shifts but can still be affected over time, especially if low rates persist.
Why It Matters to You
Even if you haven’t had any claims or made changes to your policy, you may still see your premiums increase. In many cases, it’s not about your risk profile—it’s about the economic environment and how it affects your insurer’s overall financial position.
What You Can Do
Review your policies annually to ensure they still meet your needs
Work with an independent agency that can compare coverage options across multiple carriers
Stay informed about economic trends and how they affect insurance markets
Falling interest rates may seem like good news at first glance, but they can create long-term pressure on insurance companies. Understanding this relationship helps explain why premiums sometimes rise even when nothing has changed on your end.
If you’d like help reviewing your policies or want to explore alternatives, we’re here to help.
