Are you being strong armed into paying for insurance that you don’t need?
When you’re buying insurance, your main goal is to transfer risk. But why would you pay for risks you don’t incur or those that don’t apply to you?
If you’re buying ready-made insurance policies, it’s likely that you’re paying for coverage you don’t need.
Incentives, such as bundling and attractive low deductibles, may seem like a good idea. However, they’re usually not enough to justify spending on a policy that’s not right for you.
A custom insurance product can do much more to reduce your premiums. Keep reading to find out how.
Ideal Versus Reality
In an ideal world, you’d be able to purchase a single insurance policy that guards your entire balance sheet. Moreover, it would be in your best interest if it always came from the same insurer, year after year. And, you’d want that insurer to be immune to collapse.
Unfortunately, we live in a less-than-ideal world. What you most often end up with is multiple policies that each covers a separate part of your business.
Each policy has its own terms, conditions, and sometimes different insurer. Moreover, each policy needs to be renewed regularly which adds to the resources you have to invest in purchasing insurance.
If your assets are covered by different insurers, you also have to take into account that each asset’s counter party risk is different.
What You Need To Know
So, what’s the solution?
For most organisations, it’s to purchase insurance that is tailored to their needs. And to do that you have to understand a few things.
- How premiums are calculated. If you don’t know where your premiums come from, you can’t create a strategy to optimise for the best possible premiums. Figuring out what insurance companies care about is the key to understanding where the biggest savings can come from on your insurance policies.
- Which risks you need to transfer. Some people are tempted to insure everything they possibly can, leading to completely wasted premiums. You don’t need to transfer risk for things that aren’t AT risk. And you don’t need to transfer risks that you can afford to manage yourself.
- Have an in-depth understanding of Solvency II. The Solvency II directive covers a lot of ground, and holds a lot of clues about what is important to insurers. Knowing these important areas is another critical tool for taking the right approach to your insurance purchasing.
- An insurer’s own financial situation. There’s only so much risk that insurers can take on. Having a clear picture of insurers’ finances gives you a reliable indicator about what they can and can’t offer you.
What You Need to Do
With that information in hand, you can go about crafting an insurance product that works for you. Here are the things you need to keep in mind when approaching an insurance company.
- You only want to insure what you cannot afford to lose. Don’t accept a policy that covers assets that you can risk-manage yourself.
- If the insurer can’t provide better risk management than you can for your own assets, there’s no point to insuring with them. Transferring risk to an even greater risk makes no sense.
- If you know your own risks, and you know how the insurer will set premiums, you can make a convincing case for how you’ll manage those risks. Put risk mitigation into practice and prove that it makes you a better risk to the insurer.
Don’t Accept Insurance Made for Others
You can buy a suit anywhere but it will never fit as well as a tailored suit. In much the same way, an insurance category made for a category of client won’t fit your business correctly.
It may transfer some risk that you find important but you’ll often end up paying to transfer risk where you don’t need to.
Reducing Your Premiums, Substantially, Safely and Strategically
Understanding which of your risks can be safely retained is an essential requirement to be able to purchase insurance holistically.
Holistic Insurance Purchasing is Insurance Purchasing in which you understand:
- Where premiums come from and hence how to optimise (minimise) them
- Which risks on your own balance sheet can be retained versus being transferred
(ie which risks are already hedged and which are not)
- How Solvency II gives extensive public information on insurer solvency and helps you understand which product designs are attractive to insurers
Holistic Insurance purchasing is the key to Reducing Your Premiums, Substantially, Safely and Strategically.
InsuranceInspect Services can help you understand your own risks and how to line them up with the best possible approach when negotiating with insurers.