Lower your insurance premiums – here’s how…
It’s not always switching to or from XYZ carrier. To lower your insurance premiums you need to???
The answer = Lower your total cost of risk.
This means lowering both your exposure and experience loss costs. Your experience loss costs can be improved via risk management processes such as loss control, risk engineering, loss prevention, and avoidance. The five steps of risk management are vital whether you are a Fortune 500, small business or for your personal insurance.
Although getting a 10% cheaper quote by moving from one insurance carrier is great, that’s peanuts compared to the amount you can save by lowering your total cost of risk and loss experience (and more sustainable).
Example
For example- if your insurance company is pricing a portfolio of personal auto or homeowners business at a 70-75% loss ratio, with 10%- 15% for expenses/acquisition costs- you can figure out the remaining margin. Every company has a different return requirement on its capital so the margin requirement can change slightly but probably not much different unless the company has a unique capital structure or reinsurance treaty.
Assuming your are the average insured, that means out of the $1.00 of premium $0.75 is going to losses, $0.15 to expenses, and $0.10 in profit margin to your carrier.
For a moment let’s think about the 80/20 rule that Tim Ferris lives by, in the example above- where is the biggest opportunity for savings??? Where you should spend your energy??
Your loss costs!!!
If you get the $0.75 expected loss down to $0.65 through thorough risk management measures (which is a ~15% reduction via your efforts), you’re now seeing the savings on the base rate- which will lower the gross up for acquisition expenses and margin.
Expecting expense component of your premiums to continuously decrease will only be possible via a change to the insurance ecosystem or major technology advances. With the savings being passed through to YOU the customer not any of the other stakeholders.
Expecting your insurance carriers to take less and less margin over time for the same risk, is not a fair expectations (however there are carriers who will play this game- be careful of your counter-party).
Recommendation
Our recommended strategy will increase the likelihood to lower your insurance premiums year over year by moving savings into your control and is much higher probability than insurers dropping their margins by 50- 100% YOY.
We will show you how to lower your loss costs and perceived areas of risk to insurance carriers by industry or product line over time. For example, we detailed some of the risks of the Craft Breweries here.
If you have a specific question about a product or industry, please contact us and we will include a detailed analysis in upcoming posts.
If you get comfortable with your risk controls and risk management– then there are additional options around risk financing we will discuss (captives, deductibles, & retentions) in more detail.
