Encountering risk is an inevitable reality of running a business. Some risks are beyond anyone’s control and just have to be accepted, some can be managed by instilling best practice, and putting policies and procedures in place, and others can be transferred to an insurance company.
These top 10 tips are designed to alert you to some of the options you may have available to generate more value from your investment in risk management and insurance spend. They are also designed to offer some practical advice and best practice and common pitfalls.
1. Get the right advice – if your business has any degree of complexity, it is advisable to enlist the services of a reputable broker who holds the correct qualifications rather than going ‘direct’. Your insurance programme could be protecting millions of pounds of your assets and the livelihoods of all your staff, why would you entrust that responsibility to an ’unknown’ person in a call centre who has never stepped foot on a factory floor, a building site, or a courtroom?
2. Pick the right insurer – “buy cheap, buy twice!” The cheapest insurer is not always the best. The trouble is, you only find that out when you come to claim and the damage is already done. A good broker can connect you with a number of insurers who specialise in your business sector and have designed their products to give you cover appropriate for your industry, and a competitive price. More importantly, they will have built up expertise in handling the types of loss you are likely to face so that any claims you may make are resolved more quickly. This could make the difference between your business surviving an extreme event or not….
3. Stand out from the crowd – an insurer will use literally hundreds of rating factors when calculating how much premium they would require to accept your risk. If you have spent time and invested money in controlling risk, then it’s important that this hard work is conveyed to the insurers. Collaborate with your broker to produce a document that will be sent to insurers (known as a “submission”) and ensure that all your positive work is recognised and the insurers can factor that into their premium. Exploiting your Risk Management measures could mean that you pay less for your insurance than a business competitor, and so achieve competitive advantage over them.
4. Risk v Reward – Attitudes vary amongst the senior teams at any business about the amount of risk they want to take. Most insurance policies are designed on a “ground up” basis. That means that, apart from a small amount you would need to pay towards a claim of £100 or £250 (called the Policy Excess), the rest of the risk sits with the insurer and they will charge on that basis. If, in practice, you are unlikely to submit a claim for less than £1,000, £2,500 or even more, then ask for prices with a bigger excess. You could be saving yourself as much as 10% on the price of certain covers within the policy.
5. Rewarding loyalty – If you shop around every year then insurers will become less interested in quoting for your business – why put all the effort into winning business that you will lose next year? Unless there are fundamental changes to your business I would recommend only “going to market” once every three years. To reward loyalty, many insurers will be prepared to enter into a longer term agreement where rates can be frozen for 3 years – as Fixed Rate mortgages do. Some may even offer a small discount (5% is typical) to your rates if you commit to them for 3 years. Ask your broker about these options.
6. Sharing the profit you make – Some insurers offer a Low Claims Rebate (LCR) or Profit Share clause within their policies. This basically means that if the claims you make in the policy year are below a certain percentage of your premium then the insurer will return a pre-agreed portion of your premium to you as an incentive. This type of deal is typically available if you are paying more than £15,000 in premium per year.
7. Risk Improvement Funds – Another option to consider is that some insurers are prepared to share the cost of helping you improve your risk. In exchange for a three year commitment on your part, an insurer may consider refunding a portion of your premium to help you fund jointly agreed improvements. I have seen these funds used for everything from CCTV, alarm upgrades, perimeter fencing and staff training.
8. Business Interruption (BI) cover – Without doubt the most misunderstood and incorrectly calculated cover I have seen in any insurance programme. Business Interruption cover will fund the loss of profit the business will encounter until it is back at 100% operating capacity after a loss. Business Interruption is based on a calculation of Gross Profit but this is NOT what your accountant will call gross profit – the two are very different. This cover is critical as it is likely to be the single greatest difference between your business surviving a major loss or not.
9. Challenge your claims reserves – One of the first things an insurer will look at when considering its pricing for your business is how much has been paid out to your business in claims over the last 3-5 years. Until claims are settled, insurers will put money aside into what’s called a ‘reserve’. This reserve will be on your record for other insurers to see until it is settled – which can take years due to some claims taking a long time to work through the process. Make sure you keep on top of how your claims record looks and regularly challenge how much is sitting in reserves.
10. Link your Employee Benefits programme to your insurance programme – insurance is all about covering losses such as loss of earnings following an accident at work. But what if there was no loss, or you could reduce the loss your business insurer would pay? If you have an Employee Benefits programme that includes Personal Accident cover or Private Medical insurance then let your business insurer know. In the event of an accident these insurers can compensate or rehabilitate your employee more quickly which means any claim under your Employers Liability business insurance is reduced and premiums therefore lowered.