An increase in interest rates by central banks can have a significant impact on insurance companies, their business model, and customers. Here are a few ways this could happen:

1. Investment Income: Insurance companies typically invest the premiums they collect from customers in bonds and other fixed-income securities. An increase in interest rates can lead to higher returns on these investments, which can improve the profitability of insurance companies¹.

2. Liability Reserves: Insurance companies are required to set aside funds to cover future claims, known as “liability reserves.” These reserves are invested to generate income that can be used to pay claims. An increase in interest rates generally reduces the present value of these future liabilities, which is positive for insurers as it reduces the amount they need to set aside now for future claims².

3. Policy Pricing: Insurance companies may adjust their premiums in response to changes in interest rates. The relationship between interest rates and insurance pricing is complex and can vary by insurance type and market conditions. In some cases, higher investment returns might allow insurance companies to offer more competitive pricing³.

4. Customer Behavior: Changes in interest rates can affect customer behavior, which can in turn impact insurance companies. For example, higher interest rates may encourage customers to save more and spend less, which could lead to fewer claims for insurance companies. Interest rates can also impact policyholder behavior, including lapse rates and the likelihood of filing claims⁴.

In a nutshell, an increase in interest rates can have both positive and negative effects on insurance companies, depending on the specific circumstances. Customers may see changes in policy pricing and availability as insurance companies adjust to changing market conditions.