Controlling your insurance costs whilst remaining protected

Controlling your insurance costs whilst remaining protected

During a period of economic uncertainty, it’s imperative that you control your business costs.

All of the textbooks and mentors tell you to cut costs and help maintain that gap between a potentially declining turnover and your businesses costs. Insurance is something that businesses should safeguard and ringfence in their budget, in an economic downturn driving for better value rather than less spend is important for businesses.

During a time of economic uncertainty, insurance premiums tend to rise.

Capacity with insurers tends to fall quite quickly and so does return from insurance companies investment returns whether that be interest on long term investments or the short-term impact of reductions in the stock exchanges.

As one of the main ways insurers maintain the difference between profitability and loss is the return on the investment of the vast premium pools it collects, understandably there is a rush for insurers to replace this lost income with short term grabs for premium increases, this is what we call a hardening insurance market.

It’s not all bad news for purchasers … ensuring you get the best value for money from your insurance spend is important. It’s also important to understand how the market works in order for you to get the best return from it.

Here are my top tips for SMEs in a hardening insurance market:-

1. Use a broker

Check that the broker is working for you (Agent of the insured) check that they are able to provide quotes based on a fair analysis of the market and that they are providing you with a recommendation and that they are able to provide you with advice. Check that the provider is independent, look out for the chartered logo, A great starting point for looking for a broker is the CII – Chartered Insurance Institutes register of chartered firms or the British Insurance Brokers Association.

2. Start early

In a hard market, your broker should be getting in touch 6-8 weeks before renewal to start the process with you, checking for updates, understanding what has changed within the business during the last year and seeing how this impacts not only on the needs of the business but also how this impacts on the key metrics that drive insurance premiums such as capital additions, turnover, wages, diversification of products and services to name a few.

3. Know your numbers

Making sure you are not underinsured is critical, but just as important is making sure you are not over-insured. Understand your sums insured and what they need to represent, making sure your turnover and wages estimates are correct and up to date will all help make sure that you are properly protected but not overspending.

4. Don’t flood the market

If you are dealing with advised, fair analysis brokers, there is no need for you to waste time getting 5 or 6 advisors involved in your renewal process, it’s worth coming up with a strategy with your incumbent or at a maximum 2 additional brokers (any more than this can cause the market to be turned off and have a negative impact on insurer appetite) to ensure you are getting the best value.

Most good quality brokers will set a strategy with clients before renewal – don’t be afraid to ask who else they have got quotes for you from – make sure that if they are saying they have searched the market that you see what those results are. Most good quality brokers will be happy to explain the extent of their work for you.

5. Beware of unrated insurers

Some insurers are not rated by any of the financial rating agencies such as AM Best or Standard and Poors. Make sure your insurer is rated, it is fundamentally one of the only ways which you can tell if your insurer is financially secure.

In the past, offshore insurers have always had a question mark over them, but due to Brexit, many insurers are domiciled within the EU to protect their ability to deal with both the UK and the EU past the deadline. The only and main way to understand financial security is to understand the rating. Avoid unrated insurers there have been many circumstances of failed unrated insurers in recent years, leaving customers out of pocket.

6. Avoid cutting cover

In a financial downturn, it’s a fact that claims increase. Whether this be because crime increases, the propensity for people to turn to no-win, no-fee solicitors in times of hardship, increased redundancy or high unemployment … or a combination of factors, claim frequencies increase in an economic downturn. As such cutting cover can be a false economy. A good broker will help guide a business through these times with advice and support and ensure that the economic impact of a hardening insurance market doesn’t increase the risks faced by businesses.

In summary, make sure you get advice with your insurance costs, premiums and products. Insurance professionals are best placed to ensure that you get consistency in your insurance spend, and help guide you to minimise the impact of market fluctuations on your business. As with many things in life, the cheapest is not always the best, but getting the right advice and support to get the best value is imperative in a market downturn.

Getting the advice of a chartered independent insurance broker is critical to getting the right advice for your business insurance needs – find an expert broker you can work with to protect your business from risk.

Business insurance thinking from Yorkshire Powerhouse

Have you any questions?

Here at Yorkshire Powerhouse, we’re happy to help as much as possible – is there anything else we can do to help you, do you have any further questions or can we help introduce you to an expert – please let us know:

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