587-597-5478 heather@thinkinsure.ca
Inflation & Insurance – How to Save Money on your Insurance

Inflation & Insurance – How to Save Money on your Insurance

Insurance companies are starting to see profits after several years of disastrous results.  Maybe now we consumers will start to save money on our insurance.

“The 2021 industry combined ratio was 85.2%,” PACICC chief economist Grant Kelly and research assistant Zhe (Judy) Peng write in the latest Solvency Matters quarterly report, released Wednesday. “This is the lowest combined ratio ever recorded by Canada’s insurance industry, beating the previous best of 87.5% recorded in 2006.” 

Not so fast!

Inflation – that ugly word we all hate.  You ask, how on earth could inflation affect insurance rates?

Here’s a few reasons why we won’t be seeing much rate relief.

The CPI (Consumer Price Index) is at 5.7% which is close to a 30-year high.  That means costs to us are increasing.

  • Labour costs are on the rise due to one of the lowest unemployment rates Canada has seen in many years.
  • The supply chain disruptions have led to limits in production which means higher costs.
  • Consumer demand has also driven prices up – the standard supply and demand curve.
  • Prices for new and used vehicles has increased and repair costs are also on the rise.

What can you do?

There are several ways you can save money on your insurance.  Here are three of them!

Review the values on your property

With costs rising, you must increase the amount of insurance to reflect those costs.  Most policies provide replacement cost coverage which means if you replace the property or your contents that have been destroyed you will be compensated accordingly.  If you don’t review your values, you may find yourself under-insured.  Coinsurance Penalties  Yes, you may pay a bit more in premium but you could save thousands of dollars in the event of a claim.

Practice loss prevention.

Having a loss is not fun.  It creates stress, loss of income, impacts the time you have to spend on your business.  Many of those costs are recovered because of your insurance however you will not be covered for your stress or your time.   For more information check out some of the recommendations at the Insurance Bureau of Canada  Risk Management and Loss Prevention            For more information, please reach out to heather@thinkinsure.ca

Save money on your insurance premiums

You will notice that I put this last.  Many consumers say they want to save money on their insurance and that becomes their first priority.   However, if you haven’t completed steps one and two, you are putting yourself at risk.  Speak to me about how implementing loss control measures, increasing deductibles and self-insuring might help you save money on your premiums.    Reducing Premiums not Protection

Your insurance protection needs to keep pace with the changes – economic, political, competitive and insurance company results.  An annual review with a qualified insurance professional should be part of your business plan.

For more information and a no-obligation, no-pressure review, please reach out.  I’m always happy to provide information to help you and your business survive in the event of a loss.

 

 

 

The Moral of the “Twix” Story

The Moral of the “Twix” Story

We have all seen the commercial about the Twix candy bar and the competition between Right Twix and Left Twix.

Both factories are identical and produce the right and left halves of a single product. Yet, there is a sinister difference between the two. In order to save money on Insurance, Right Twix only insures for one half the value that Left Twix does. That’s right, Left Twix insures for 100% of Replacement Cost Value and pays twice the premium that Right Twix does.

Right Twix has determined that with all of the safeguards in place it is very unlikely the whole factory will burn down. Maybe half of it at the most.

It turns out their estimate was correct because when the fire started in one facility and eventually spread to the other, the fire was brought under control with only partial damage to both Right and Left Twix.

Right Twix called their Insurance company to file a claim fully expecting they would pay for all of the damage. Left Twix did the same.

Since Right Twix only insured for half their value and paid half the premium that Left Twix did, does it seem fair to you that Right Twix should receive the same benefit as Left Twix, who paid twice the premium for twice the amount of insurance?

It isn’t fair at all, not to all the business owners who pay their full share of premium or to the insurance companies who collect the premiums of the many to pay the losses of the few.

For this reason, Fire Insurance policies usually contains a premium levelling mechanism referred to as the Co-Insurance Clause. The Insurance Broker for Left Twix took the time to explain this important condition. For a Replacement Cost Policy, Coinsurance is usually set at 90% of the Replacement Value. Failure to do so will result in a penalty if there is a claim, and the following is an example of how it works;

The Twix factories both had Replacement values of $1,000,000.00. The minimum amount required by the Coinsurance Clause is therefore $900,000.00. It is of course best to insure for 100% of Replacement Value, but that is another story.

The formula is best explained as Did, divided by Should, multiplied by the amount of the damage to the factory. In this case each factory had $250,000 in damage.

That means that Right Twix was paid;

DID. SHOULD. DAMAGE. SETTLEMENT

$500,000 \ $900,000 X $250,000 = $138,000 and became a Co-Insurer for the difference of $112,000.00

Left Twix promptly received the full settlement of their claim and was soon back in operation.

Right Twix needed to obtain additional financing to rebuild causing delays in resuming operations and went eventually went out of business leaving Left Twix making both halves of the chocolate bar.

The moral of this story is that the right Insurance Broker will tell you what you need to know, not just what you want to hear, or;

You can’t expect to get both halves of the Twix if you only pay for one.