The Path to Sustainable Low-Cost Motor Insurance for SMEs - Part One
Buying Insurance Is Selling Risk
Globally, insurance is transforming from “recovery after risk” to “prevention of risk” *, as sensors and other tech help prevent loss and harm. Locally, July saw the launch of InsTech.ie – which aims to make Ireland Europe’s insurtech hub – and media reports of recent Competition and Consumer Protection Commission (CCPC) findings, Judicial Council guidelines on personal injuries and more, all point to an industry being disrupted.
Of course, while such market developments will affect premia, there is also an opportunity for SMEs to directly benefit from this changing landscape.
Motor insurance is a case in point as it is a mandatory and major cost for many businesses. If you are a SME, here are seven insights that can help you get the best deal from your insurance provider.
1. In essence, insurance is about risk transfer from one party to another. It is one means of minimising potential business losses. Another is prevention. During Covid-19 lockdowns, you may have had some vehicles parked-up so the driving element of the risk was avoided. Avoiding risk first is both a prudent and complementary strategy to buying insurance.
2. Insurance companies are usually for-profit institutions, so it helps to understand that insurers are buying your risk. If you make yourself attractive to underwriters, you will get more offers.
3. Generally, your motor insurance premium tends to go towards third-party claims (~65%), own damage claims (~10%) and insurer overhead/profit (~25%). As a rule-of-thumb, for you to make significant premium savings, underwriters want your claims – or “loss ratio” in insurer speak – to come in under 50% of the nominal premium.
4. HSA research shows that most Irish SMEs are not proactive about reducing driving risk**. Your core business may not be transport-related, but if your staff use vehicles for work – even their own cars - you are in fact a fleet-operator with exposure to loss. Often SMEs with under 20 vehicles do not to have a fleet manager nor a fleet management system. All of this results in knowledge gaps around driving activity and associated costs. To paraphrase, when it comes to driving at work, “what’s not getting measured is not getting managed”.
5. Businesses that proactively manage risk have lower running costs – such as fuel, servicing, maintenance and repair – and pay less insurance than the average because they claim less. At renewal time, you can show your insurer – through your claims history and road risk management activities - that you have a robust loss prevention system in place. You are then more likely to be viewed as a good risk and so justify preferential rates.
6. As technology transforms insurance, providers will increasingly look for evidence of risk management and “no data, no discount” will apply. This is because insurance companies run on data. So, ask your insurance broker to find underwriters who will recognise, support and reward your efforts to prevent motor claims.
7. Before renewing, your broker should also ask your insurance provider for a record of your claims experience. Use this to get alternative quotes, or at the very least, signal to your current provider that you are shopping around and this will keep complacency to a minimum.
Of course, motor claims can’t be magically wished away.
In Part Two of this three-part series, we will address the issue of How to Have Fewer Motor Insurance Claims.
Sources:
* From “Megatrends shaping the next decade” – Peter H. Diamandis
** HSA 2018 Work-Related Vehicle Safety Inspections - “59% of workplaces audited did not have driving for work risk assessments”
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