Don't fear a hike in insurance premiums

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NEW YORK (CNNMoney.com) -- With the government effectively taking over American International Group, the nation's largest insurer, there's reason to be concerned about the health of the insurance industry.

Tuesday's $85 billion rescue of AIG (AIG, Fortune 500) isn't the only problem facing the insurance industry. AIG and other insurers also have to deal with billions of dollars in damage caused by Hurricanes Gustav and Ike in the past few weeks.

But experts are quick to point out that the financial woes facing AIG shouldn't have any impact on the company's policyholders. In addition, while the hurricanes may lead some insurers to raise their premiums, or the fee you pay for insurance coverage, most industry watchers think the increases will be modest.

First, here's what you need to know if you're an AIG customer.

On Tuesday, AIG issued a statement to reassure policyholders that they remain fully covered by AIG subsidiaries.

"These companies are well capitalized and meet or exceed local regulatory capital requirements. The companies continue to operate in the normal course to meet obligations to policyholders," AIG said in a statement.

Insurance policies are fully backed by state guaranty associations up to a certain amount (determined on a state-by-state basis), which covers life insurance as well as property and casualty insurance.

That means that consumers should not worry that their auto and homeowner policies are in jeopardy. (For more about how AIG's bailout may effect you, click here.)

Experts did say, however that AIG and other insurers may have to raise their premiums in the future. But that's probably more of a byproduct of this year's hurricane season and not AIG's collapse.

"There could very well be increases because of catastrophic losses from hurricanes and things of that kind," said Joseph Belth, professor emeritus of insurance at Indiana University and editor of The Insurance Forum, an insurance industry newsletter.

Generally, increases are felt in the areas where the hurricane exposure is greatest, Belth said. But even policyholders in areas not hit by hurricanes could be asked to pay a higher premium when their policy is up for renewal, which is typically once a year.

That's because "the insurance company may try to spread it out somewhat," Belth said.

While it's still too early to estimate the total amount of damage caused by this year's hurricane season, it's unlikely that it will be enough to cause a dramatic rise in insurance premiums across the board.

"The property and casualty insurance industry has gone through record years of profits," said Robert Hunter, Director of Insurance for the Consumer Federation of America, "so the leverage ratios are the safest ever."

In addition, rates are calculated over an extended period of time, explained Ed Domansky, spokesman for the Florida Office of Insurance Regulation. "One particular season is not going to impact policyholders' premiums," he said.

Finally, insurance companies cannot just raise rates at will, according to Michael Barry, a vice president at the Insurance Information Institute.

"Insurers require the approval of their regulator in order to raise rates," he explained, adding that getting such approval is a long and complicated process overseen by state insurance commissioners.

Even though experts agree that the industry's woes are unlikely to affect the average consumer, those that do discover a rate increase in their next renewal notice should take that as an opportunity to shop around for a new insurer.

"Other companies may not be raising rates as much as yours," Hunter said.