Cost of Insurance

How are Premiums Calculated?

No one enjoys having to pay more for goods and services, however, prices do occasionally go up or just stay static even when we expect them to be reduced. You might think that those that are selling those goods and services enjoy raising their prices it must mean they are getting more profits, right? Sometimes that is the case but most often it's not, I don't know too many business owners who enjoy raising their prices just so they can make ends meet, but we all have to do it at some point.

Insurance is no different, after all, it's a business too. Sometimes, things out of anyone's control occur that can cause insurance companies to have to raise their premiums and that can often have a knock-on effect for many businesses who in turn have to raise their prices in order to stay in business. So what is the best way for business owners to manage their insurance premiums?

The good, the bad and the ugly of premium cost management

The Good

The best way to manage your premiums is obviously by talking to your broker or insurance agent and discussing ways you can reduce your risks without compromising on your cover. Such things as regular training, health and safety assessments, putting new practices into the workplace even changing the materials you use or the methods you employ in the day to day running of your business can all have significant benefits in reducing your premiums.

Yes, it may sound like you're not saving by doing this, however, it can work out much more beneficial for businesses in the long run. Once you have these things in place and they become routine your business is not only likely to save money but quite possibly become more profitable. Fewer accidents will mean fewer claims, less time off work due to injuries or accidents, your company starts receiving more business because your reputation becomes stronger and you are considered now to be a trustworthy go-to firm. All this can happen and more just by implementing recommendations made by your broker.

The Bad

Now, no one likes talking about it and very few people would ever admit it but, lying to obtain cheaper insurance isn't just a bad idea it's considered fraud. Whether it be a fraudulent claim or lying about your turnover, fraud is a serious crime which can result in a criminal conviction and even imprisonment. The ABI estimates that fraud on average adds about £50 to the annual insurance premium paid by every UK policyholder. In 2014 alone, insurers uncovered over 130,000 fraudulent claims worth £1.32 billion pounds across all insurance products.

The Ugly

This is the big one and the most likely cause of some businesses failing after an incident. I am going to put this all in capitals for emphasis as we all need to get this into our heads and that is "UNDERINSURANCE". An insurance brokers job is to make sure you are properly insured not just to get your business. Business owners facing rising costs and unscrupulous brokers may very well compromise the cover a business needs just to get within budget or to make the sale, luckily today it's less likely to be a broker but it doesn't stop a business owner from not taking extra cover in the hopes he will never need it.

If your business is underinsured it may as well not be insured at all. Here's an example a business takes out public liability, employers liability and covers its premises but drops cover for business interruption, there's some serious localised flooding, the business premises and stock are covered, but the business isn't able to trade for weeks, staff need paying, suppliers etc. etc. where will you find the money to keep going? What will happen to your staff? What will happen to your livelihood?

It's never a good idea to compromise on your cover to save money. Always speak to your broker and together find a better way to save money.

Well, I hope you found this article helpful and should you be in a position whereby you need insurance for your business, please give our brokers a call.

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