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? |