In a letter to clients, one insurance agent has laid out some steps his clients can take to relieve some of the financial pressure that big-ticket insurance bills can bring, including ways to contain or reduce premium costs.
Insurance protection may have been considered an essential business and personal requirement, but there are certain covers and levers within some policies that can be pulled to help reduce your premiums, they say.
Grant Milne of broker ICIB says whether your insurance invoices are soon due for payment, have already been paid for the year, or are being paid by a monthly premium funding agreement, there are things you can do to take some pressure off.
It is common for brokers to offer premium funding finance. This comes with relatively high finance company interest rates; however it can spread out cash flow obligations. ICIB says it is offering to rebate the commission it earns on these deals and other brokers should be asked to do that too. And they and most other brokers seem to be up for extended invoice payment credit terms without involving a finance company and without incurring interest charges.
Paying the premium charges is one thing, but there are some more fundamental changes you should consider as well.
For personal insurances, Milne says premiums can be reduced by taking a voluntary excess for home and contents cover, for example an additional excess of $1,000 on top of your standard excess can save premium cost.
And he recommends you review the sums insured on your car or other vehicles. They should reflect current market value because in a claim, that is the limit of what you can expect to recover. He also suggests reviewing which drivers are covered because tightening up this could save as well.
Many insurers offer package discounts, so check that you have them when they apply to multiple policies and coverage.
Here is a list of things to consider if your business operations and risk has changed materially:
Public Liability – premiums are based on employee numbers and annual turnover so if these have significantly reduced, there may be scope to reduce the premium (most effective where premiums are greater than $2,000)
Annual Travel – given the current restrictions on air travel this policy may not be required for the time being, unless you have current travel booked and paid for that you genuinely believe will proceed.
Business Interruption – similar to Public Liability, these premiums are based on future trading projections. Reduced levels of Gross Profit or Revenue or Rents income should be reflected in the premium charge.
Material Damage – premiums can be reduced by taking a voluntary excess (most effective for very high excesses e.g. $10,000) or where reduced stock levels will be held for the balance of the year (effective for very high stock values)
Commercial Motor Vehicles – if your fleet is laid up, the risk of road accidents will reduce which may result in premium savings (effective if your business will be affected for several months).
The risks of under insurance
Everyone in the insurance industry wants to talk about under-insurance and the ICNZ regularly warns of the pitfalls. But despite the fact it sounds like self-interest, it is a genuine risk.
In fact, at this time, it is possible that the threat of burglary, vandalism, theft, looting, and fire may indeed be elevated. Imagine if you own a holiday home you can no longer get to, or have personal or business property in locations you can't inspect or protect. You may need enhanced cover at this time.
And Milne advises strongly against reducing sums insured on physical assets like buildings and plant & machinery in an attempt to reduce premiums. He says there is simply too much risk of large natural disasters in New Zealand.
For those who have the resources, perhaps some level of self-insurance could be considered. But if you don't have the advantage of substantial backup resources, remember, insurance is there to cover the high-impact costs for low likelihood events, and in times of economic crisis most people are more vulnerable to those consequences if they occur.