You’re probably already aware that buying commercial (corporate) insurance policies is a much more involved process than insuring your own personal car, house etc. Everything from the application process to the consequences of insurer failure is subject to different rules and best practices.
So it shouldn’t come as a surprise that it takes a comprehensive approach to make sure you’re getting the best premiums while protecting your balance sheet. And that’s only really possible with a holistic method to analyse your situation.
What does holistic mean in this context? Read on to find out.
The Typical Insurance Buying Process
For many organisations, corporate insurance buying goes something like this:
About four months before the renewal period, they’ll start filling out forms, creating an application and running tenders. They’ll do a minor examination of possible insurance partners before typically choosing the same insurer they’ve worked with so far. The insurer will look over the application and, at best, agree to similar premiums as last year.
This process is then repeated year after year. It’s ineffective and it leads to ever-increasing premiums. And it’s only because businesses fail to understand a few simple principles about how insurers view your risks.
The “Holistic” Insurance Buying Process
In contrast, our insurance buying process doesn’t begin and end with filling out forms. Instead, it involves a full examination of your situation.
Look at Your Past
It’s important to understand your past and how it affects your premiums. However, in most cases, we find clients overestimate how much their past impacts insurer’s decisions.
Some of the oft-overlooked points include:
- Excessive reserving for past risks and consequent over-estimation of future risks.
- A misunderstanding of core risk metrics, such as frequency and severity, and how these metrics look to insurers.
- A poor grasp of how reliable and predictable claims data is and why it can inform the release of funds for future risk-management and less insurance purchase.
Back to Your Future
With a solid understanding of your organisational past, you can start making grounded decisions about the future. The truth is that most insurance buyers make emotional decisions about insurance because no-one wants to be responsible for failing to insure a catastrophic claim (as the old maritime saying goes: “not on my watch”)
However, the key concept most buyers gloss over is that large claims are not only rare, but also highly predictable. A low excess for every financial period is a waste of money for a scenario that’s so unlikely that it can be financed without a low excess, typically from accumulated premium and IPT savings.
Therefore, a holistic approach to insurance educates buyers about how they can make better buying insurance decisions Safely. By re-evaluating your risk appetite and risk-financing time-frame, you can reduce premiums Substantially, Safely and Strategically.
A Custom-Made Product
With the dials adjusted correctly on your excess, aggregates, and cover limits, you then have to find a provider who’s willing to work with you in creating a custom product.
It’s highly unlikely that you’ll find an off-the-shelf product that suits your risks. Luckily, there are hundreds of specialist brokers who can cater to a bespoke approach. Attracting these brokers takes a convincing proposal, but it’s well worth it since it can make a massive impact on your premiums.
Thinking Like Insurers
To be a good insurance buyer, you have to think like an insurance seller. And you can gain a huge amount of insight into an insurance seller’s thought process from their Solvency and Financial Condition Reports (SFCRs).
Under Solvency II, insurers must make their SFCRs publicly available, and those documents are a treasure trove if you know what to look for. As a buyer, it gives you access to an insurer’s full financial structure. Consequently, you gain insight into what an insurer’s motivations are and how to cater to them individually.
For instance, you may discover an insurer’s solvency coverage ratio is extraordinarily low. In that case, you can expect higher premiums (to help them become financially stronger) through no fault of your own, and it won’t matter how much you adjust your proposal.
A Holistic Solution to a Holistic Problem
This brief overview of the holistic insurance buying journey should give you an idea of why it’s such a struggle to reliably lower your premiums. Most buyers skip over a majority of what really matters to insurers and it dooms their case from the start.
At InsuranceInspect Services, we’ve developed a custom insurance buying product to meticulously address each of your specific strengths and weaknesses. We will help you reduce your premiums Substantially, Safely, and Strategically.
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.