Unlocking cost efficiency and comprehensive coverage

Let’s think outside the box… In today’s climate of rising costs, businesses are increasingly concerned about the impact on their bottom line. While many are facing price increases without the protection of pre-existing contracts, there are innovative approaches that can help manage costs and maintain high-quality insurance coverage without passing the burden onto customers.

With this in mind, let’s explore specifically how insurance plays its role in cost management. I’ve worked closely with clients who’ve left no stone unturned in their search for the best insurance deals without compromising on coverage. However, fluctuating premium prices often make it challenging to find good policies at affordable prices. The most successful outcomes arise when businesses and brokers collaborate to develop a long-term strategy that yields future dividends.

A good broker possesses a toolbox packed with knowledge, experience and contacts that can be leveraged over an extended timeframe. Yet many businesses remain in the dark when it comes to this or are resistant to change within their operations.

If you are open to options, a powerful one to consider is the Long-Term Agreement (LTA). Particularly beneficial in conditions of high inflation and rapidly increasing prices, an LTA allows brokers to negotiate multi-year insurance deals on behalf of clients. Under an LTA, you pay for coverage on an annual basis (or via monthly instalments) and enjoy the benefits throughout the agreed-upon period. At the end of the term, the same insurer is obliged to present renewal terms based on pre-agreed rules. This could mean a fixed premium rate, ensuring that your policy cost remains the same without any changes. LTAs are especially advantageous in insurance markets affected by inflation, where annual rate increases can reach 10-15 per cent.

Certain conditions may apply, such as a penalty for terminating the contract before the binding period expires (your broker should provide guidance on this). Additionally, the insurer may set a cap on the number of claims paid during the LTA, beyond which they are not bound to offer renewal at the pre-defined rate. For example, if your premium is £100,000, the insurer may stipulate that they’ll not honour the LTA rates if you’ve made more than £30,000 in claims during that period.

In my experience, an LTA is a valuable tool for navigating periods of rapid premium increases and maintaining favourable terms during times when insurers tighten their stance on coverage. Insurers may have specific criteria for offering LTAs, such as a minimum premium threshold.  This is when any decent broker proves their worth, guiding you toward the best deal.

Another option worth considering are Low Claims Rebates (LCRs). Ideal for businesses with robust risk controls and potentially low claims, LCRs can even benefit businesses that have experienced claims, as they encourage the implementation and improvement of risk controls.

So, how does an LCR work?

LCRs are incorporated into the policy before its inception date, outlining a sliding scale that determines the activation criteria. Typically, the scale is based on the premium value (before tax) paid by your business. If your claims fall within specific thresholds, such as 0-5 per cent, 5-10 per cent, 10-15 percent etc, you’ll be eligible for a percentage rebate on your premium at the end of the policy period. In short, the lower the claims value paid, the higher the rebate your business receives.

LCRs offer a win-win scenario, allowing insurers and businesses to collaborate in minimising premiums while maximising coverage. They provide a monetary reward for effective risk management that results in lower claims. While LCRs are commonly found in policies covering vehicle fleets, they can also be available for other types of coverage.

These are just a couple of   additional options available to businesses I’ll investigate further examples, such as risk management funding, technology integration, negotiated coverage options, adjustments to excesses or deductibles, policy segmentation, and risk scheduling in future articles  In the meantime, why not talk to your broker today about  business insurance options that cover tomorrow?