A cursory search about the best ways to save money on insurance premiums will produce some predictable results.
And there’s no denying that those methods will lead to reductions in your premiums. But it’s really a matter of what you expect to achieve.
If you want to make a significant impact on premiums, you have to change your expectations. You can’t keep doing the same old things if you want real results.
Keep reading to find out why those methods don’t work and to discover a better, proven approach that will actually help.
The Wrong Ways to Reduce Premiums
Here are just a few common ways that you may already be using to reduce your premiums.
More choices are certainly a good thing. But what are you really comparing?
You’re not getting one insurer’s premium for you versus another one’s. What you’re really getting is one insurer’s premium for your class of buyer versus another one’s premiums for the same class of buyer. So, this doesn’t take your specific case into account. The only premium reductions you might achieve are from a different insurer’s internal risk profile and shareholder expectations.
Highlighting Your Past Claims
You’ve had no claims for the last 10 years, surely that’s a good thing. Maybe, but maybe it doesn’t matter.
An insurer doesn’t care what happened in the past unless it can help predict the future. If you haven’t made any claims on your automobile insurance, does that matter when different employees will drive the cars for the upcoming period?
Packaging Your Insurance Coverage to Get Better Premiums
Many insurers resort to buying more insurance to entice insurers with a bigger total package for a better price. There’s nothing wrong with this, on the surface.
You might get a better deal on those premiums. But ask yourself this:
Wouldn’t it be an even better deal if you didn’t insure some of those assets at all? Yes, it probably would. Claims are much more predictable than you think and by applying statistical analysis accurately, you can focus on insuring only those assets that you can’t afford to lose.
A Better Way to Do It
So, what’s the solution?
For starters, shift your focus from the past to the future. Only future claims are important and the past only matters insofar as it can help predict the future.
It’s not enough to strongly emphasize that you’re a good risk. You have to make insurers believe that you truly understand your risks.
In practice, this means outlining those risks in a Solvency II-friendly format. It also means making a realistic plan for mitigating those risks.
Institutional insurance buyers understand how important it is to present risks favourably. It’s not uncommon for a large buyer to spend tens or hundreds of thousands of pounds on an insurance presentation.
But it’s worth it. Because it can easily mean millions saved on premiums.
If you save the insurer’s money by reducing their overhead costs, they’ll pass those savings on to you in the form of reduced premiums. So, don’t be afraid to spend a little if it means reducing administrative tasks.
And perhaps most importantly, don’t ask to wipe out their shareholders.
Who’s foolish enough to do that? As it turns out, far too many insurance buyers.
Suppose you are buying EL insurance for 1,000 employees with £100m cover per occurrence. What you’re asking for is to cover the potential of every one of your employees raising a claim every day that can cost up to £100m each.
In other words, enough to bankrupt the insurer!
Be extremely careful about how you word your policy terms and keep in mind that any mistake could signal to the insurer that you really don’t trust your own risk analysis.
Reduce Premiums Significantly, Safely, and Strategically
Don’t settle for a fractional reduction of your premiums. You can achieve much more than you think with the right approach.
If you can convince insurers that you’re aware of your own risk, and you’re willing to take on some of those risks yourself, you can expect major savings.
Our InsuranceInspect Services consultancy product can help you make sure you’re putting your best foot forward and negotiate your premiums successfully.
John is an actuary and owner and Director of HJC Actuarial, which he founded in 2003 and which has advised over 100 clients since it’s’ inception. He has worked in the insurance industry for 30 years, qualifying as an actuary in 1995 and becoming a Partner in a major global consulting firm in 2000. Since 2003 he has provided independent advice to his clients on optimal insurance program design, presentation of risks, and premium negotiation with insurers, insurer solvency assessments, policy wordings, insurer selection, and insurance broker selection.