Do you know how insurance premiums are calculated for your organisation?
Most people think they’re based on your past claims; however, those plays a much smaller role than you might imagine.
The reality is that insurers don’t really care about your past claims very much – they have already been paid for out of the past premiums paid by you and their other policyholders; if that was not the case they would be technically insolvent! And so, there’s not much that your broker can do for you in terms of substantially helping you reduce your premiums by just looking at your past claims.
Keep reading to find out what insurers really care about and how insurance advisory services can help.
The Real Source of Your Premiums
Think about what insurance providers can learn about your business from your claims history. Unless it’s directly tied to an inherent risk singular to your business, then not very much.
The only reason that an insurer would be interested in your past claims experience is if it can help them predict future claims. Otherwise, there’s no reason to factor it into your premium.
What insurance companies really care about is your future. Specifically, how many claims you’re likely to make over an insured period.
Of course, you haven’t made any claims in the future, yet. So, what insurers do is look at similar policyholders and try to figure out your risk of future claims from that data.
Only there’s a serious problem with that approach. It doesn’t take into account your specific business. And it’s the reason why traditional methods of trying to negotiate/reduce premiums don’t work. Most are focused on presenting your past claims history in different ways – and/or with different messages – to influence the insurer’s view of your future risk.
What You Really Need
Instead of chasing after something that doesn’t make that much difference anyway, focus on real ways to affect your premiums.
If you can convince insurance providers about why you’re a good future risk, you’re on the right track.
But wait, that can’t be right. You know, for a fact, that if you make repeated claims it will increase your premium.
Yes, that’s true. Making repeated claims – with no evidence to suggest that they will cease in the future – will put you in a higher-risk group. Being in that higher-risk group will increase your premiums.
However, that leaves out a crucial point. If you don’t make any claims, that doesn’t necessarily put you in a lower risk group for future claims.
So, if you make no past claims whatsoever you still might end up paying more than another identical organisation who did make past claims but was able to risk-manage their way into a lower-risk group for future claims.
Therefore, don’t waste too much of your time on past claims. Look for ways to get an insurance provider to reassess your risk group for future claims.
Start with the assumption that you’re buying your very first insurance policy. Don’t think about anything that happened previously in your organisation.
Then, work with an insurance advisory service to start outlining your risks in a Solvency II-friendly format. You can’t predict every possible claim scenario but the more you show that you understand your future risks, the better you’ll be positioned to negotiate over premiums.
Once you understand the simple fact that insurance premiums aren’t generally related to your own claims data, you’ll have a completely different view of risk and how to market and negotiate your own unique risks more effectively.
Additionally, there are many other reasons why your premiums might go up, and none of them has to do with historic claims data.
For a start, if you present your renewal information later than other businesses in your category, that can affect your premium adversely.
Your insurer’s solvency position might also be a reason. Even how much time/money you spent (or appear to have spent) presenting your risks could be a deal-breaker.
To understand why all these things matter, and how to design a comprehensive approach to lowering your premiums, your best bet is to contact a comprehensive insurance advisory service.
Don’t Look Back
If you’re interested in lowering your premiums, first you have to know where they come from.
Contrary to popular belief, your past claims experience plays a very small role. It’s all about demonstrating why you’re a good risk for the future.
To present your risk in the best possible way, you need to know what insurance companies are looking for, and how that translates in your specific premiums. Contact an insurance advisory service with a reliable track record to help you assess your situation and recommend an unbiased course of action.