One big reason that premiums for traditional “high-exposure/low-frequency” insurance (life insurance and homeowners insurance, for example) have risen dramatically in recent years is that insurance companies simply can’t find sufficient low-risk investments to build large reserves to cover potential losses. With interest rates remaining at historic lows for several years, these companies have to lower the investment return projections that are used to compute the growth of their reserves over time.
Good call: “insurance companies simply can’t find sufficient low-risk investments to build large reserves to cover potential losses.” So Bernanke’s plan to keep interest rates down is hurting more than just money market savers, it’s driving up insurance premiums, destroying pension plans, and probably having a myriad of other ill effects.
What are the chances insurance companies will lower premiums once interest rates return to normal? My guess is nil.