Price vs Cost of Insurance: What’s the difference?
Price is the tangible metric we all judge value on. Unfortunately, more often than not, price doesn’t always represent the right cover, resulting in higher costs by not having the right policy in place.
The ideal scenario is a balance of insurance spend and risk cover. There will always be cheaper alternatives in the market – but at what cost to you and/or your business.
Below we have explored some of the key themes and areas to consider when purchasing insurance.
Price vs Cost
| Area | Price | Cost |
| Prices substantially lower than market rates | You may see a surprising low rate in the market, this could be a new provider increasing their market share or have under estimated claims. | You have a roller-coaster effect of pricing never getting stability and because you have ‘anchored’ yourself on the low price, the true market rate looks overpriced. Due to the fluctuations in price you end up paying more over a 5 year period than sticking with a consistent insurer. |
| Added Value | We look at price thinking we are comparing apples with apples when in fact you are comparing apples with pears. | Most reputable insurers provided added value advice, services and add ons that are not |
| Risk Management | The better risk management you have (whether that’s a dash cam for a vehicle or security for a business) insurers underwrite the price differently. | Some insurers will give bigger discounts for risk management and also fund or provide partners at little cost to make your risks lower. You may be missing out on risk management opportunities by an insurer based on price alone. |
| Liquidity | Insurers can sometimes underestimate claims values and leave themselves exposed to more claims payments than incoming premiums. | If an insurer goes into liquidation you will have to buy a new policy with little hope of recovering any premiums you have spent. |
| Don’t just be a number | Insurer often forget that there are real people and businesses at the end of a premium. You should be a valued customer to the insurer you choose and not just a number to generate a profit. | Whilst insurers heavily depend on technology to price insurance, relationships and real people are still key to getting to know your and/or your business. It can make a real difference to the price of insurance over the long term. |
| Time in the market | If you ‘go to market’ every year then insurers are less likely to attach loyalty to your risk. By trying to seek the best price in the market each year you lack the stability of having loyalty from a particular insurer. | If you have claims in each year with different insurers, then they are less willing to give you a better price over the market as they are seeking for long term relationships. You actually end up paying more or not being able to get the cover you need. Best practice is to shop around every 3 years. |
| Everything comes at a cost | You are not just buying a product when you pick an insurer, you are buying the service for claims, added value, the people, expertise and advice. | If and when the time comes to make a claim or you need some advice it pays to have spent the time picking the right insurer for you, instead of just the cheapest one. |
| Use the right broker | Don’t just use a broker who is promising to deliver the lowest price. | This means they are not giving you the best advice specific to your needs. You want to get best value for money not just lowest price. |
Product types
Here are a number of products and the key areas you need to look out for – 60% of cases we see are missing these vital elements.
| Product | What to look out for |
| Motor | Is breakdown and courtesy car covered as standard |
| House | Make sure you have personal possessions cover as standard |
| Travel | Does it include travel disruption cover |
| Business Travel | Does it include personal travel as well as business travel |
| Property Owners | Is malicious damage cover included as standard |
| Management Liability / D&O | Does it included Corporate Legal Liability (CLL) and Employment Practices Law (EPL) |
| Cyber | Social Engineering should be covered as a minimum |
| Commercial Combined | Does it include business interruption cover |
There are many elements to consider when selecting the right insurance for you. If you are due a renewal and would like to talk it through with us, please do not hesitate to contact our team on 01282 452255 – it’s what we do.
Written by Laurence O'Connor
