Every year, you think you’re ready to lower your insurance premiums based on your great claims record. But for some reason, every year your premiums keep going up.
What’s gone wrong?
Unfortunately, you’re probably going about the insurance process the wrong way. You’re not presenting your risk in a way the insurer wants to see.
Fortunately, we have some top tips which we regularly use successfully for our clients.
Are You Really a Good Risk?
Here’s the reality:
Being a good risk in the eyes of an insurer probably isn’t what you think. You, like most other insurance buyers, assign outsized importance to your past claims.
That’s a mistake. Insurers aren’t (overly) interested in what happened in the past. Their primary focus is what will (or could) happen in the future.
Insurance is about the future, not the past.
That means insurance premiums are, in the main, not tied to your past claims data. Once you understand this simple fact, it will be easy to grasp how insurers are calculating your premiums.
Here’s What They Tell You
Insurers want to generate value for their stakeholders. No doubt about that.
They won’t be dishonest about your premiums. But that doesn’t mean they won’t give you weak reasons for raising those premiums.
- “Your historic loss ratio is too high”. Irrelevant! Your risk of future claims is the dimension that really matters for setting premiums.
- “You had the only large claim in your industry last year”. This holds no bearing on what your claims will be like in the following period. In fact, bizarrely, it could make you a better risk for the future than your competitors – you will now focus on preventing re-occurrence!
- “No-one else wants to insure you”. Whether an insurer wants your business is as much a factor of their own finances as it is about your risk. If an insurer won’t give you a quote, it doesn’t necessarily make you a bad risk.
These are not valid reasons to increase your premiums. By knowing how to counter these and other similar arguments, you can start to talk in terms your insurer will understand.
Here’s What Is Really Going On
Now, let’s take a look at some valid reasons for raising your premiums. In particular, note how many of them tie back to your past claims experience.
- “The rate of IPT has gone up”. The general Insurance Premium Tax is 12% and this gets passed on to policy buyers. If it goes up, you can expect premiums to increase.
- “Your risk presentation was weak”. If you spend less money than competing insurance buyers, insurers will take this as a sign that you’re not seriously estimating your risks. It seems absurd but spending more on your presentation can be an effective way to ultimately spend less on your premiums.
- “Our (the insurer’s) solvency position has weakened”. Why should you be punished with increased premiums if you had nothing to do with this? Because your premiums are based (in part) on how well your insurer is doing, which you can see in their Solvency & Financial Condition Report.
Did you notice the common thread?
Not a single one of these has anything to do with YOU and how your organisation is being run.
And yet, they’re all real, valid reasons for why your premiums are going up.
What to Do About It?
So now you know why your premiums are really going up. At least, you know part of the story.
But that doesn’t really show you how to make them go down.
Or, does it?
Yes, it very much does. Knowing all these reasons gives you a blueprint for how to approach a premium negotiation.
Based on just the three reasons listed above, here are ways you can optimise your insurance-buying process.
- Some types of insurance, such as travel insurance, carry a higher IPT of 20%. Avoiding these kinds of insurance, where possible, will have a direct impact on premiums. Our clients use advanced (non-insurance) risk-financing solutions to avoid such penal IPT rates.
- Figure out how much you need to invest in a presentation to impress your insurer. Big insurance buyers regularly spend in excess of £100,000 in design & print costs. creating insurance presentations. But it makes perfect sense if it will save them millions in premiums. Their broad rule of thumb is “spending 1% of premiums on design will save far more than 1% of premiums overall”
- Look for a new insurer. Under Solvency II, you have access to insurers’ Solvency & Financial Condition Report. Use this document to see if an insurer’s position is impacting your premiums and whether it makes sense to seek insurance elsewhere.
Start Right Now
Our InsuranceInspect Services consultancy product can help you to present your risks in the right ways.
Additionally, we’ll show you how to increase insurer interest by creating attractive renewal presentations. We will tell you honestly if you are a good risk or not, and if you are, whether your renewal presentation to insurers makes this obvious to them or not!
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.