Thu, Dec

Cut insurance costs not your cover

Rising insurance costs might tempt you to reduce your premiums by cutting cover, but then you risk being under-insured. Phil Cowell of IFM Select explains the options open to you.

Insurance Premium Tax (IPT) hit 12% at the start of this month, up 2% from its previous level. The tax was levied at just 2.5% when introduced in 1994, but in recent years increases have arrived with alarming speed and many expect it to reach parity with VAT in the near future. So, how do you mitigate its impact? Phil Cowel - a chartered insurance broker and director of IFM Select that specialises in SME business insurance -  gives you some food for thought.

1. Challenge your insurer

Loyalty is a good thing, but it can come at a price, as any mobile phone customer will testify when new customers appear to get better deals. Regardless of how long your relationship is with your current provider and the premium you are paying, you should challenge your insurer to do better.

2. Take your time

Do you know your insurance renewal date? Few businesses do, giving very little thought to the issue until the renewal notice arrives and by then there is too much to do in such a short space of time.

Some insurers, and even brokers, count on their customers being too busy to spend a long time considering whether the premium they are paying is as low as it could be. And many businesses will be surprised at how long it will take to obtain a satisfactory number of alternative quotes each year. You might even find some insurers will choose not to quote if they feel you want quotes to drive down the premium of the current insurer, with little chance of securing your business.

To ensure you get the best price, approach the task with an open mind and give each insurer a chance to win your business.

3. Market every year

The most professional insurance brokers will typically market a client’s business every few years as a matter of course to ensure the premiums being paid offer the best value for money. If you do not use a broker, find one and at least ask the question - it costs nothing to ask!

4. Earn a rebate

The potentially large pay-outs for damages, negligence, injury, theft or loss means high insurance premiums are normal for many businesses and yet most will never make a claim, or only make occasional low value claims. 

When you come to renew your policy, you or your broker can find insurers prepared to agree to a rebate off your annual premium, when you make no claims, or if the value of the claims in the year is less than an agreed level.

Rebates are usually only available for businesses paying premiums of £10,000 or more, but again, it’s worth asking the question. Rebates will usually vary from as little as 5% to as high as 15% of the annual premium - more than enough to cover this month’s 2% rise in IPT.

5. Detail improvements

Improvements you make to your business, its operation or the activities you undertake and how you do things should be considered if they are likely to lower your risk of a claim - which could have a direct impact on your premium.

Many of the changes made - like introducing new security features, hi-def CCTV, new flammable liquid storage procedures or new staff vetting procedures - will often reduce risk without you thinking in terms of insurance premiums.

The reason these changes often do not lead to lower premiums is because businesses rarely discuss the changes with their broker or insurer and explain what they have done. It pays to detail your changes and ask if they will reduce your premium.

6. Consider a larger excess

Unsurprisingly, the excess you agree with your insurer will also affect your premium. If you currently have a low excess but rarely, if ever make claims then it’s perhaps time to consider accepting a larger policy excess. If you’re lucky, you might just cover some or all of the IPT rise.

7. No more extras

Depending how long you have been in business, the way you work and the products or services you have introduced or discontinued will have changed - which is why it’s a good idea to review your business insurance cover carefully. It is likely you or a broker will find ‘extras’ being paid for that you no longer needed.

Premiums might include cover for cash on the premises or in transit, when other methods of payment are now more common. You may no longer use certain chemicals etc.

Now is the time to assess every aspect of your business with an experienced broker, not a call centre, to ensure you get the right level of cover and pay only for what you need.

8. Think long term

If your insurance is arranged on a bespoke basis, it may take considerable time each year just to negotiate your renewal terms. If you are paying high premiums, some insurers will offer discounts for policies renewed for an agreed period of years. (Further IPT increases would still have to apply on an annual basis.)

Other insurers might agree lower premiums for policies that run for longer than 12 months - perhaps two or three years - where they will add incentives to secure your business, knowing they will save money not having to prepare renewal terms on an annual basis.

This gives you some degree of certainty with budgeting, and you can often negotiate benefits such as interest free instalments, or perhaps a contribution to risk improvements that you would like to undertake.

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