Unpack Your Commercial Insurance Premium to Find the Savings - March 16th 2018

Our first blog post (January 16/18) addressed our top FAQ. This post takes a look at Strategiq Risk Management Consulting’s least Frequently Asked Question. In fact, no one in our office locations of Kamloops and Winnipeg - or anywhere else in Western Canada - has ever asked about this! Typically, your broker will make contact a month or two prior to the policy renewal date and arrange a brief sit down, at which she reviews your current coverages and asks if there are any new assets or operations that ought be be covered. Shortly after that your broker gets back to you with the news that your premium for the coming year will be X. Rarely if ever does a client ask: “Where did you get that number from? The default response from the broker is probably something like “Well it came from the underwriters at the insurance company.” True enough, but let’s unpack that insurance premium a little more. What goes into the setting of an insurance premium?

An insurance premium is a compilation of five components:

• a forecast of the insurable losses expected over the coming policy period
• a buffer to absorb any losses in excess of the forecast amount (called a “risk load”)
• a premium to compensate the insurer for taking on the risk
• an administrative charge to cover the costs associated with administering the account including handling any claims
• a profit margin markup
Once the above “bare” premium is calculated by the insurer, the broker adds a commission (normally 20%) and this becomes your organization‘ s insurance premium for the year.

Here is your key takeaway

The forecast of expected losses drives the calculation of the other components. The other components “riff” off that forecast. Reduce the expected losses and the other elements follow suit, including the broker’s commission. If you would like to achieve substantive savings on your commercial property and liability insurance, focus your attention here. How do you do that? There are two approaches; a quick win and a longer term solution. The quick win is to run a market allocation exercise; something many large organizations and municipalities do every few years using in-house risk management specialists. The longer term solution is an enterprise-wide risk management plan.

Important to note is that you no longer require in-house risk and insurance specialists in order to have access to market allocation expertise and guidance. And it costs you nothing. We believe Strategiq may be the only risk management consultancy in Western Canada offering market allocation guidance. Give us a call or send a note, and learn more about how market allocation exercises achieve big savings on insurance. Your premiums cannot go up; they can only go down.