Think like an Insurance Seller….to be a good Insurance Buyer!
Buying commercial insurance is not the same as buying your personal insurances (for your car, your house, etc):
|Consideration||Buying Personal Insurance||Buying Commercial Insurance|
|Data Provision||Can answer questions over phone||Specialist application/proposal forms|
|Route to Market||Use price comparison website
Can choose cheapest
All products broadly the same
|No price comparison websites
Products usually bespoke
|Insurer Failure||Covered by FSCS in event of insurer failure:
insurer security not important
|Limited FSCS coverage for companies and charities, none for public bodies|
|Brokers||Rarely need a broker||Most insurers insist on using a broker; mandatory for using Lloyd’s syndicates|
|Policy Terms||Policy terms broadly standard across insurers||Terms usually bespoke to each risk|
|Premiums and Negotiability?||Premiums perhaps £1000 max.
Sometimes negotiable, but not by much
A 1% premium reduction is usually <£10, often not worth the effort
|Premiums typically £1m+
IPT alone can be £100k extra cost.
A 1% premium saving is usually a £12,000+ cash saving, thus worth negotiating
|Additional Products||High up-sell rate of high margin add-ons eg legal expenses cover etc||Some up-selling (eg risk surveys), but far less frequent|
What if there is a better way (to buy insurance)? What are the implications of not knowing?
(1) What is it that you might not know?
- Better ways to finance risk
- Significant “hidden trends” in your existing claims data
- Significant public information on insurer asset quality
- More insurers available/Better products available (or designable)
- Cheaper prices available (or more negotiable than you are aware)
(2) What are the implications of not knowing?
- Inefficient Business Costs: Overheads too high (but you are unaware of this)/ hence uncompetitive
- Council/charity activities etc curtailed unnecessarily?
- Your job security – may be at risk if you are not up to date
- Fear of following the herd – being out of line re benchmarking XS/AGGs etc
How should you approach insurance purchase?
|Step||Your Key Information Needs|
|I. Your Past||What can you learn from your past? How much profit have insurers made from you?|
|II. Your Future||What can happen in your future? How likely are large claims really?
What’s the best way to pay for them? How material are they to your balance sheet anyway?
|III. Your Custom Made Product||Is an off-the-shelf policy right for you? What are the alternatives? Why insure in the first place?|
|IV. Your Best Providers||Is the brokers’ panel comprehensive enough? How much are they being paid?
What if you need a bespoke solution?
|V. Your Money||Where does your money go? Offshore? Tax Haven? Who is your actual insurer? How solvent are they? What is the security for your claimants?|
|VI. Your Review Process||
How do you know that you made the right decision? What information do you need?
What are you going to do at the next renewal?