The insurance industry is the only consumer product I can think of that has to price its product based on data from the past without having any idea what their costs will be in the current year!
Let’s compare the insurance product to a car. The automaker can accurately predict his cost of goods, labor, overhead, taxes etc. They build in a profit based on what they anticipate they can sell that car for. Easy right?
Now let’s just talk about insurance on property- not auto, liability, cyber risks or the myriad of other products available. Traditionally, insurers could rely on statistics developed over time to forecast future trends. Based on that, they determined the premiums they would charge for that business. Those premiums would have to allow for the costs of all claims, adjusting expenses, distribution costs, overhead costs, taxes and hopefully some profit. Seems simple. Right? NOT!
Add in a factor for competition, changing government regulations and weather patterns that are no longer patterns at all. Also consider rapidly-advancing technologies combined with aging infrastructure and aging buildings and you have a recipe for disaster.
What we see now, in some classes of business in the insurance industry, is the result. Many domestic insurers are pulling out of classes that they normally wrote at very competitive pricing – probably too competitive as they are now realizing. Many Lloyd’s of London Syndicates are no longer operating. Brokers entire contracts are being cancelled across Canada in order to get rid of unprofitable business.
So why should the average consumer care? Because your brokers’ contract to write business was one of those cancelled by one or maybe several insurance companies. They are currently trying to find replacement coverage for hundreds of clients. It could also be because your insurer is no longer writing insurance for high-rise buildings or restaurants, etc. Maybe you had a claim last year. Maybe you haven’t had a claim, but the data indicates you probably will!
That’s where your broker comes in. Their job is not just to find you insurance but also at the best price possible. Not easy! There are hundreds of consumers shopping right now. Yet the number of insurance companies willing to sell certain products has declined. And it’s not just those clients whose policies aren’t being renewed. It’s also those that have seen increases in premium of anywhere from 20% to 120%. They are shopping too.
So, what’s the answer? There is no simple answer. But here are some things you can do.
1. Review your limits of insurance. Don’t reduce them just for the sake of saving money but are you over-insured? Consider an appraisal on your buildings? Some insurers will then provide Guaranteed Replacement Cost. It’s well worth it in the event of a claim!
2. Increase your deductibles. How much can you afford to pay? It’s not uncommon to see $5,000 to $50,000 deductibles on certain types of risks now.
3. Inspect your properties. Are there places where you can work to eliminate the potential for loss? Have you checked the underground sewer lines for blockages? How’s your roof? Does it need repair? Water losses are now more prevalent than fire claims.
4. Before you go shopping ask your broker if they have checked other insurers they represent. A broker who is staying on top of current trends will have a pretty good idea of whether or not your premiums are still competitive.
5. If you do go shopping, find a broker who is willing to really work with you and take the time to do it right. You would never hire an employee without a resume and a reference, so check the brokers’ qualifications, experience and reputation.
6. And finally, be patient. Brokers and Underwriters at insurance companies are experiencing additional workloads as a result of renewal re-underwriting. New business departments are being flooded with new quotes. In some cases, they are getting three times the normal number of submissions.
Some of the above suggestions for saving money may also apply to your other lines of insurance such as auto or commercial liability. We’ll talk about liability insurance in our next blog!
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