10 practical measures to control your insurance spend during the COVID-19 crisis - by Scott Norton
I've seen a lot of things in the 16 years I've worked in the insurance industry. Floods, fires, cyclones, break ins, injuries and lawsuits. I feel like nothing really surprises me anymore. Except for the latest Covid-19 situation. This is completely uncharted territory and is going to be a lot of firsts for everyone. As a business owner myself I can relate to other businesses currently looking down the barrel of reduced levels of revenue leading to the inevitable reality of cost cutting. I know like most in my industry that insurance is a begrudging purchase and often one of the 1st things considered on the chopping block when expenses need to be reigned in. Rather than making wholesale changes to your insurance program or dropping policies all together here are 10 practical ways you could save on your insurance spend without putting yourself or your company in jeopardy.
The 10 point checklist
First and foremost, find yourself a great general insurance broker. One you can trust to give you the right advice, lives in the real world, is fully open with disclosure and that you're confident will be there in a time of need. If you already have someone that ticks all those boxes, then you can skip to item 2. If not, consider this for a second: your general insurance broker only gets paid when you buy or renew your insurance policies through them. Without your business they have no business model and as such are directly incentivised both from a regulatory and financial perspective to protect your best interests.
Review your sums insured. It's perceivable that with the potential downturn in the economy many businesses are going to be carrying lower stock levels, selling off business assets, or returning leased items upon end of contract. If you've consistently just rolled over your policies from year to year without checking these figures you could be doing yourself a disservice. Further to this don't think these sums are set in stone for the full insurance year and that you're locked in. At anytime through the year you can have these sums adjusted and if reduced a pro-rata reduction in premium may apply.
Like item 2. Take the time to review and provide accurate information on your proposal forms and renewal questionnaires. It's often been tempting for time poor customers to simply say "same as last year". But if you've fallen in this trap for several years in a row it might pain you to realise just how inaccurate the information and figures your insurance premiums are based on have become. For example, your Public Liability premium is usually largely based on estimated turnover, staff numbers, sub-contractor and labour hire usage, business description and possibly who your customers are and where they're located. A change to one or a number of these factors may see a reduction in cost. It may also have an increase in cost particularly if this is the 1st time your broker or insurer is finding out new information that increases your risk.
Consider taking a higher excess. This is sometimes a hard pill to swallow and usually customers are reluctant to give thought to this avenue. However, sometimes without a claim over a 3-5 year period you may end up ahead having taken the higher excess. Not every policy class will see a noticeable reduction for an increase in excess. However, it may also have the unintended benefit of making you more risk aware leading to implementation of better risk management in general. Saving you in other areas of your business.
Utilize annual payment credit terms instead of paying on credit card or by premium funding. Over half my clients pay their insurance premiums via premium funding. This is where a customer can pay their yearly premium off over 10 instalments for a small additional interest rate. Given interest rates are at record lows these rates are usually quite small somewhere in the 3-6% range. Premium funding plays an extremely important role in the Australian insurance landscape but most brokers usually get afforded credit terms from the insurers. By virtue these credit terms are also extended to the customer and can sometimes range from 15 - 90 days. An increasingly popular trend evolving in the industry at present is giving customers leniency when coming up with annual payments to assist with cash flow.
If you have a fleet of vehicles or mobile plant/equipment take the time to make sure your insurance schedule is up to date. For a couple of reasons. You might be paying a premium on units you no longer have. And conversely if the item is not listed on the insurance schedule it may not be covered in the event of a claim. Further to this consider reviewing the sums insured on these items as often you're required to nominate a value. This is usually set correctly when purchasing the item and then forgotten about. If the basis of settlement is sum insured or market value whichever is lower there's no point paying a premium on $100,000 figure when the most you might receive is the $50,000 current market value.
Building sum insureds. It amazes me just how often I see customers set their commercial or even domestic Home sum insureds by taking the purchase price of the property and deducting the land value as set out on their rates notice. Your building sum insured should most likely be the cost to rebuild the structure at todays prices. You can see how neither the purchase price nor your land value should form any consideration when deciding on this figure. If you haven't had a quantity survey done for some time, or even used a rebuilding calculator now is perhaps a good time to consider going through this exercise.
One of the first sections customers tend to drop in a downturn is business interruption. I would strongly urge everyone to resist this temptation. I've seen several times clients elect against advice to eliminate this cover only to then suffer a major loss to their property. In those instances, there's always a lag of rebuild time where revenue is significantly reduced. This is the part that contributes to inevitable insolvencies. I know it's not ideal but rather than eliminate the cover you may wish to consider being more creative with limits within this cover. Such as payroll which you don't have to insure for 100% of your workforce. You may make a business decision that following a major loss you will let all casual staff go. Again, I know this isn't a great situation to be in but in these times tough business decisions need to be made to keep companies afloat.
General insurance brokers can also help with your domestic insurances such as home/contents, landlords, motor, boat, caravan, motorbike, strata etc. Majority of consumers still prefer to purchase these covers online. However, with many direct insurers pushing hefty premium increases it's not uncommon to see brokers now with more competitive pricing in this space. Added to this is the unquestionable superior coverage offered through brokers plus the ability for a professional to take this task off your hands. Freeing you up to spend more time on your business.
I've deliberately left this point till last as perhaps it's the most controversial amongst my industry. Your brokers remuneration needs to be discussed. Yes, I know it's the big elephant in the room that no one likes to talk about. Brokers often don't like disclosing, and clients don't often feel comfortable asking. But I think it's something that really needs to be reviewed. By no means am I suggesting general insurance brokers don't deserve the 10%-30% commission they can receive as income for selling a policy. Customers aren't na√Øve on the subject. My experience has taught me customers are largely more than comfortable with this level of income for their insurance broker. Unlike billable hour industries such as accountants, lawyers etc your insurance broker doesn't charge to assist you through a claim. I face the situation currently where my income from a client was $2,524 ex-GST for the year. Nothing to sneeze at. However, that client had a total loss fire at their factory and now takes up a huge portion of my week. Again, not complaining that's just how the general insurance broker model is. Once it's all said and done I would have calculated close to maybe $50,000 in time if I charged out my daily rate instead of being paid in commission. So do keep this in mind when having a discussion surrounding your insurance broker's income. The main area I differ from colleagues in my industry is that I think insurance brokers could be doing more to wear some of the pain their customers are facing with them. For example, if you're premium was $1,000 last year your broker might've earned say $250. If your premium doubles this year to $2,000 your broker is now set to earn $500. If this increase is because of a claim, extensive re-marketing, or something your broker did work on then this could be justified. But if your situation involves none of these things it would be reasonable as a customer to question your brokers revenue doubling on the back of your misfortune. Plenty of general insurance brokers see their fixed commission levels as an entitlement and even look down their nose at brokers who dial back the commission to reduce the premium to a customer. My view on this is fundamentally different and I think there's still significant income for a qualified professional general insurance broker to make whilst doing their part in difficult times to assist customers.
Is Covid-19 covered under my business interruption section?
Unfortunately, the most likely answer to this is no. Generally speaking you need to have suffered a physical loss or damage to your premise in order to trigger resulting business interruption loss. Most policies have been extended to now include customer and supplier premises, prevention of access, public utility issues and even a provision for infectious or contagious disease. However, for nearly all these policies there is no cover for any disease declared to be a listed human disease under the Biosecurity Act 2015 (Cth) (including amendments). As the Act includes Covid-19 insurers can rely on this exclusion to deny a claim under the business interruption section of the policy wording.
In brief my advice is if you're not already, to start treating your general insurance broker as a trusted business advisor on your team. Bring them in on discussions and get their thoughts and opinions on how decisions are likely to impact your insurance policies. Talk to them and discuss the covers you have in place now and genuinely listen to their recommendations. Now is not necessarily the time to be cutting covers. In these times people may be forced to be more litigious than they would be under normal circumstances. As such you could be setting yourself or your business up for a short term saving in return for a long term loss.
My contact details
I really enjoy talking about insurance to anyone. Whether it's a commercial business insurance or domestic covers insurance is insurance and now more than ever consumers need professional advice on the subject. Insurance companies run a business just like you and me. They will be facing the same cost cutting discussions, and now more than ever will be sticking to the bare minimum requirements of their policies with little to no favours for anyone. If you're happy with your current broker I'd encourage you to remain loyal to them. They may just be the person that saves your business one day. If you don't use a broker or don't feel you're receiving the characteristics I've mentioned in item 1 above, then I'd welcome the opportunity to have a no obligation discussion with you. Please feel free to contact me anytime.