A typical case
Take a typical large client (before our involvement):
- Advised by previous advisors to increase Motor XS to £1m (from £100k), saving c£350k (incl IPT)
- Prudently put aside 50% of this saving, annually, to fund claims up to the new XS
- Prudently spent the 50% balance on risk management
But very disappointed when motor renewal premium increased substantially, despite no claims at/near the XS.
What was the point of all that risk management?
So, what went wrong?
- The client did everything right (increased XS modestly, retained some of the savings, spent balance on risk management)
- But they did the wrong risk management!
- They had not been advised that:
If you want further premium savings with high XS policies, your risk management needs to change In any case, premiums for high XS covers are not driven by your own claims experience
Premium Reductions for High XS Policies
You must think like an insurer. For a £1m XS policy, they have no financial interest in any claim below £1m.
For the motor example above, this rules out perhaps 999 out of every 1000 claims you have (as being below £1m)
It does not matter to them if you increase the efficiency of your own damage repairs, add departmental/co-pay excesses to drivers and their departments/Directorates or change age limits for drivers etc. – these all reduce the frequency/cost of small claims, not very large ones (at/near your XS).
Whilst all of the above are indicative of a better risk management culture in your company, they are only qualitative, not quantitative, and would have minimal, if any, impact on premiums for a £1m XS.
What an insurer needs to see is that you understand how a £1m claim might happen (eg very serious injury, usually at high speed) and what risk management is being directed at that specific scenario.
Premium Factors for High XS Policies
Even with directed risk management, premiums for high XS policies can (and usually do) vary due to a myriad of factors outside of your control.
Did you know that the following is just a sample of the components used in your premium calculation:
- Frequency (how many claims over £1m per 1000 claims) and severity of claims over £1m across the insurer’s entire motor fleet
- Corporation tax rates (current, and forecasts for next 5-10 years)
- Investment return (current, and forecasts for next 5-10 years)
- Salary and Retail Price inflation (current, and forecasts for next 5-10 years)
- Reinsurance Rates
And that the following scenarios will drastically impact your (and everyone else’s) premium, irrespective of your own claims experience:
- Another 9/11 event
- A substantial stock market crash, with slow recovery
- Interest rates becoming negative for long periods
In other words, at high XS levels, don’t expect risk management to automatically translate into premium reductions!
If you are doing Risk Management, be clear who it is aimed at.
Most risk management that we see will benefit you, through reduced (small) claims.
But it will not necessarily translate into reduced premiums, because your claims experience is a very minor part of high XS premiums
We can help you target your risk management appropriately, with realistic expectations.