The bad news about Insurance costs & what you can do about it!

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  6. The bad news about Insurance costs & what you can do about it!

Insurers are increasing prices!?!? The insurance market is cyclical, 5-10 years ago rates all came down in certain industries as the insurers competed with each other for market share. As claims increase the true cost is known to the insurer and now we are consistently seeing increases to business premiums.

Chances are they will push the price to high & then they’ll start discounting again to win market share but no-one can predict when that might be…

In the industry the cycles are known as a ‘softening market’ and a ‘hardening market’. A soft market is generally characterised by low rates, high limits and readily available cover. Whereas a hard market premiums increase and capacity will generally decrease.

We are around 9-10 o’clock on the insurance cycle clock above

(according to Marsh Global Insurance Market index)

Other factors that cause premiums to increase

Global disasters have a large impact on insurers: insurers have reserves for the unpredicatable events such as we have experienced so far in 2020: Victorian bushfires, NSW floods and WA Cyclone but some years their reserves are simply not enough eg COVID-19 Australian disaster register

Increases in frequency or severity of losses substantial increases in upredicted claims or underestimated value of loss. Insurers are always reevaluating the claims potential like the estimated change in price as a result of a change in temperature (see below).

Estimated percentage change in prices of natural perils insurance given an increase in average temperature

Societal trend towards increased litigation, a claim that previously could have been settled quickly now frequently has lawyers engaged, once again increasing costs to insurers who pass it on in higher premiums

False claims this is the false believe by dishonest people that they can “get something” from an insurer and no one is impacted, I have heard people say “well the insurer can afford to pay”. This behaviour is further supported when insurers make a business decision to settle a claim rather than complete a costly investigation which may take years to prosecute, even when it is clearly fraudulent. Most people do have insurance for the genuine claims and in our experience insurers do pay claims albeit they want to pay the least.

Cost of reinsurance which is a method for insurers to spread their risk by ceding some of their insurance policies to others

Regulatory intervention which has lead to increased costs

The Marsh Global Insurance Market Index found that commercial insurance pricing increased 11% in the fourth quarter of 2019, while financial and professional lines rose nearly 18% (Marsh Global Insurance Quarterly Report Q4 2019).

What can I do to reduce my insurance costs?

Overinsured/Underinsured – amounts of insurance you need can change annually eg updating profit forecasts can result in a business interruption insurance amendments Tip: annually review sums insured

Competitive quotes – insurers will have more competitive premiums if they are trying to gain market share, sometimes there are also new insurers that come into the Australian market Tip: compare your insurer to others in the market

Volatile rates of insurance which means that different insurers prefer to do business with different types of businesses, sometimes your business is out of favour with your insurer so they increase rates greater than others in the market Tip: compare your insurer to others in the market

Education – what are the major risks in your business, are you insured for them? Are there other risks that you are happy to self-insure against? Are you aware that a current high risk area for small businesses are cyber attacks? Cyber insurance is a relatively new insurance & was created to protect you from the costs of being hacked. Tip: know the major risks in your business & the small business market and only pay for what you need

Self insurance – you can elect to self insure for risks that you believe are too expensive or not required. Tip: talk to your broker to understand the potential risks

Broker – A good broker can never be underestimated! They understand that currently premiums are increasing market is hardening and won’t blankly accept a price increase, annually they will review your current insurances & look for ways to ensure you are fully protected while paying the cheapest premiums. Most importantly they are there to ensure you get the maximum amount paid as a result of a claim.Tip: will your broker be there if you have a claim? Even on Christmas day? If not…we know someone who will

Just as Dr Google can only help you so far with your medical conditions it is the same for insurance, we always recommend using a good broker!

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