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Smart Shopping for Insurance While Waiting for Change

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September 11, 2019

BenjaminsWhen the discussion turns to insurance, most NeuGroup members indicate they are containing renewal premiums by increasing retentions and accepting limits.

Kicking the can. This amounts to kicking the can down the road, since the more permanent solution is to have insurers come up with more holistic products that bust the current, outdated coverage-type silos.

Why insure? Members agreed that the best reason to insure is to help bear the cost of a catastrophic event. Earnings smoothing was dismissed as a reason given that the payouts are unlikely to happen in the same reporting period as the event. Thus, smart insurance shopping should start with an assessment of the catastrophe coverage you need and how to optimize what you pay in premium.

Optimize the premium paid. Our member treasurers say they look at the premium sensitivity to retention and limit amounts. Often premium savings hit a cliff past a certain retention level, since insurers have to meet capital earnings targets. A similar nonlinear relationship can exist with limits. You may also have difficulty finding coverage at all past certain limit thresholds. Here are three tips to optimize premium payment:

  1. Extend the term. Reduce the opportunity for increases by asking for three- or even four-year contracts. Premium pricing tends to go up more than down and locking in rates will capture the benefit from this asymmetry.
  2. Look at all hazard coverage. One member, for instance, covers almost everything except for D&O this way. There’s an advantage in pricing, but it’s also an efficient way to pool retention and structure coverage to optimize the use of your balance sheet and those of the insurance market.
  3. Look to new market entrants. One member shared how he improved his cyber coverage at 175% savings to peers he benchmarked against by working with a Swiss insurer that was keen to enter the market. They spent a lot of time evaluating his company’s networks, security and defenses to get comfortable with the risk, but with that level of saving it was worth it.

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