How to save thousands on your business insurance coverage
Did you know you have the potential to lose hundreds of thousands of dollars (or more) in your insurance claims?
Patrick Langan. Dip.Fin. Serv.(Broking), QPIB, Oracle Group AFS 363610, Authorised Rep. No.1240016
Hang-on I hear you are saying ‘I wanted to know how to save on my business insurance premiums’ and yes we will tackle that shortly so just stick with me for a little longer.
To obtain true premium savings you need to know how not to be fooled by the glossy brochure, plus there is a free service on offer to help you.
Horrifying reality
The horrifying reality with business insurance is that when you need it most, insurers may fight you for every dollar to reduce their claims liability, by using their considerable internal and financial resources to go to war against you and your claim.
Why is this happening?
In the past insurers were members of co-operatives or structured in such a way that profitability was used to help manage policy holder risk, lower premiums and their attitude to claims more customer friendly.
Today, the majority of insurers are stock exchange listed. Their main objective is to make money for their investors and CEO’s who run them.
Profit maximisation means cutting costs and an easy cost cutting option is reducing claims payouts.
Principle weapon of destruction
The data you provided in your proposal to the insurer is the chief weapon to be used against you. Insurance policies are complex legal instruments designed to ‘price the premium’ and minimise claim payouts where, in the eyes of the insurer, you have not been truthful or provided the detailed information required to understand the full extent of the risk (Duty of Disclosure).
The insurer’s interpretation is what matters, whether right or wrong. It provides the justification for declining or reducing claims. For using strategies such as dragging disputes through years of legal challenges, wear down the other party until a lack of will or funds forces them to give up the fight.
Even if not a protracted legal dispute, slowing payouts or creating numerous and often onerous requests for information is financially beneficial to them, yet can be devastating to you. You could go bankrupt waiting, then any payout may benefit your creditors and not benefit you in the same way as initially perceived.
Technology and Insurance Brokers
With the advent of technology, most coverage data for pricing and risk assessment is punched into insurance company systems by broker support staff.
They are usually not trained brokers and not highly paid. Their focus is administrative data entry, including non-intentional mistakes whether theirs or carried over from broker notes.
Being human means mistakes happen, however brokers have also been forced to trim people and time costs to survive. Therefore, it is common for issued policies not to be thoroughly checked in arrears. Yes, the headline rate and main points may get a quick once over, however it is uncommon to go back and test the underlying data because time is at a premium.
Most policies also state that the policy holder (you) need to notify any errors. Of course, you happily spend hours verifying there are ‘no omissions and errors’, before filing away never to be seen again until next renewal of a claim arises, in which case it will be too late.
Getting Cheaper Premiums
Like most industries, competition means there is little price difference between insurers for the exact same cover.
Sometimes insurers are trying to buy, grow or leave a market sector, or specialise in sectors which can provide savings opportunities.
At times, you may still be paying old rates because your insurance may not have been reviewed for some time and a review is all that is needed for a quick win.
However generally speaking, large savings on insurance premiums between insurers usually means a reduction in the risk coverage or increase in your exposure, accounting for a premium reduction.
It is extremely difficult for the average business owner to determine whether a competing insurance quotation is a real premium saving and would require an insurance specialist to guide them.
Also it would be unlikely that you are purchasing your total business insurance directly from an insurer. If this were the case then I would believe you have even a greater payout risk.
If coverage for certain risks can be reduced or no longer required, a lower premium should be expected, however what happens if the competing broker never included a comparable risk coverage in their quotation?
Alternatively, a competing broker may have more insight into your industry and provided coverage pricing for industry common risks, that your existing broker has not considered.
Brave new world
We all dislike paying for business insurance however when there is an incident we expect to be covered and have our claims paid.
The trend seems to indicate an increasing willingness from insurers to fight to reduce your claims.
In turn the lure of cheaper premiums could inadvertently be reducing your own cover.
Business owners need to place more emphases on comparing Broker’s willingness to act in your best interests, rather than win the business on false price savings.
The days of ‘my broker is good because we have always dealt with them’ are over.
In the event of a claim you would need your broker to be pressuring the insurer to get the claim approved quickly. Furthermore, if the claim needs to go legal you would want the broker to be able to demonstrate to the courts, that all the correct processes and premium pricing information was provided.
Minimising business risk with insurance has changed and you need to change.
You also need to get covered for the new wave of business risks already making themselves known, such as cyber risk , privacy infringements and theft of customer data bases and credit card details, a risk to every business regardless how big or small.
I can well understand how obtaining competing quotes every year produces a headache in never ending phone calls in trying to win your business, plus the hours in trying to make sense of what is being presented.
Another Way
An alternative is to use a service to assess your cover premiums and work with you to get a better deal (a true saving with correct cover) from your existing broker or insurer.
For a relatively small fee and depending on the type of cover, this can easily gain a much bigger savings in premiums without having to change brokers. It may also uncover some big holes and you will be very pleased you took the initiative to better secure your future.
Patrick Langan offers a review service that even provides small business with an initial free assessment.
In short to save on premiums requires a willingness for business owners to accept the business insurance playing field has changed. That the odds are lesser in your favour unless you are willing to change tactics.
So now that you know what to do to save on business insurance premiums, then get to it, or if you don’t have time, pass this article onto somebody else and delegate getting a no charge review for your small business (small fee for Larger organisations)
Links to short case study summaries where claims have been lost through broker indifference, business owner’s lack of understanding, and willingness of insurers to test every claim to reduce payout liability, are at the bottom of this page.