The rising cost of issurance in business

In August 2023, Business Together4 MinutesBy Roylance WatsonSeptember 27, 2023

Insurance premiums are an essential aspect of business, but unlike other expenses, they have the potential to increase significantly.

It is crucial to understand the coverage provided by insurance companies and take the initiative to understand your business risks. I have a business myself and have seen dramatic hikes in our premiums, leading us to reassess what we are insuring and the dangers we face if we self-insure.

There are some instances where you can effectively manage through alternative methods. For example, the risk of financial collapse can be managed through robust budgeting practices, efficient cashflow management and regular reporting.

It is also apparent that most businesses do not understand their coverage until they make a claim and are faced with coverage issues. Many are looking at dropping some insurances altogether. I urge you first to consider the following:

Undertake a comprehensive risk assessment: Begin by identifying and evaluating all the risks your business faces and take proactive steps to mitigate them. While some risks can be addressed through insurance, others may require alternative risk management strategies. Recognising that not all material business risks can be insured against is important.

Adjust the policy excess: Evaluate the type of coverage required and its impact on the premium structure. Consider making a sound commercial decision regarding the level of financial compensation necessary in the event of a claim. For example, medical insurance policies have transitioned from covering total medical expenses to focusing solely on surgical costs. Some businesses may opt not to claim for minor damages and instead prioritise coverage for catastrophic events.

Bundle policies: Many insurance providers offer discounts for bundling multiple policies. Explore the possibility of consolidating liability, property and motor vehicle insurance with a single provider to benefit from cost savings.

Engage insurance experts: Seek the assistance of knowledgeable insurance brokers who can analyse various providers, policies and terms. They can provide valuable insights into coverage options, premium costs and insurers’ financial stability when it comes to claim settlements.

Conduct annual coverage reviews: As your business evolves, so do your insurance needs. The insurance market is constantly changing as well. Regularly review your coverage to ensure it aligns with your current requirements and avoid paying for unnecessary coverage or assuming that existing coverage remains appropriate when circumstances change, or policy terms are adjusted.

Insurance is a complex realm where businesses can feel caught between a rock and a hard place. Premiums can be significant, and in the current environment, they are increasing dramatically. However, not having adequate coverage can expose your business to severe downturns or even closure in the event of unforeseen circumstances. The key lies in striking the right balance by thoroughly understanding your risks, evaluating potential claim scenarios and assessing the impact that different coverage levels can have. By proactively managing your insurance needs, you can ensure optimal protection while maintaining a reasonable cost structure for your business.