We are all so used to the idea that insurance is essential that it is easy to lose sight of the fact that, although sophisticated, the basic contract is simply a bet. The insurer is willing to risk paying you a lot of money against the possibility of accident or loss. The premium (or stake) demanded for this bet is generally very small - compared with the potential pay-out - and this alone should give pause for thought.
What such thoughts reveal is that the insurer, like the bookmaker, is far better informed than you as to the likelihood of the insured event occurring. This huge advantage in knowledge enables the insurer to make "the book" (yes, the analogy to betting extends even to the terminology) in such a way as to guarantee a profit.
One real difference is, however, that some of your insurance cover is mandatory (employers' liability and motor for example) and the odds in the favour of the insurer widen to vast proportions. The insurance companies and brokers also know that we are creatures of habit and, as a norm, are reluctant to change from the devil we know.
Despite all this, you can take actions that improve your cover and reduce your risks and over time minimise your premiums. Some of these actions can be implemented quickly and produce rapid though small advantages. The real key, though, is to think like an insurer and take the longer view.
It's a Competitive Business
The obvious starting point, whether you insure direct or through a broker, is to shop around. Competition in the insurance market is fierce and whether your slice of business is big or small there are people out there who want it. In this respect a good broker can be invaluable as you can insist that they search for the best deal in each category of cover. If you have all your current policies with one company it is a "racing certainty" that with little effort your existing premiums can be reduced. Different companies have different specialities and outside their familiar territory they will tend to load premiums.
It is as well to think not only in terms of decreased premiums. Sometimes it is better to seek improved cover. Quite often the basic cover listed in a policy can be enhanced simply by asking for some specific inclusions. In exactly the same way, it is always worth challenging the standard exclusions, especially if you have concerns that your risk in a particular area is above average.
There is, of course, a limit to the reductions and improvements you can achieve through negotiation. The process is, nevertheless, worth going through as the discipline pays dividends at each and every annual premium renewal round.
Competitive bids are of course only going to be useful if you obtain them in time. So you should start to think about next year's insurance now and, most importantly, make a diary note to ensure that you can change insurer smoothly when the time comes. Never leave it until the renewal notice arrives: that's too late.
If you happen to occupy a leased or rented building, it is certain that you are also paying insurance in with your rent. This is negotiated by your landlord and since the cost is completely defrayed by you, the Landlord has little incentive to do a good deal. Find out what you are paying and what level of cover is supplied. If, as may well be the case, the premiums seem high and the exclusions onerous, take steps with the landlord (if necessary in combination with other tenants) to ensure that alternative suppliers are found. Some years ago a small business with a fully repairing lease was forced out of business when their building suffered from subsidence; the landlord's insurer had specifically excluded such cover.
You can decide
It is axiomatic that the insurance business wants to sell you as much cover as possible. Whilst this is a legitimate commercial goal, it is not necessarily in your interest. The best guide to need is an examination of the cost of the premium relative to the sum insured. For example, you will almost certainly find that the relative cost of insuring against the loss of desk top computers and, in particular laptops, is high. It may be in your interest to spend a smaller one-off sum introducing practical security and carry any losses. The opportunity for such pieces of "self insurance" will vary from business to business but opportunities there will be.
It is increasingly the case that the actual value of the hardware is falling, whilst the value of what the hardware contains is rising exponentially. Transferring premiums from replacing physical assets to providing for business recovery (the cost of rewriting programs, re-establishing databases, replacing design data, etc.) is almost certainly a more cost effective use of your insurance budget. Interestingly also the premium for such cover still tends to be low against the value of the risk insured. This is especially true where you are able to demonstrate sound and consistent practice in securing back up data in a safe site and have sound and consistent "computer hygiene" procedures.
Thinking Ahead
Insuring against risk is just as capable of analysis as any other of your commercial activities. You can be sure that the cost of cover will keep on rising and that unless you are proactive some of the higher risk areas are going to rise at a rate far above normal budget inflation. Some examples may help you to minimise your exposure and guide you towards being categorised as a "good" risk.
Employers' liability insurance is getting ever more expensive, one of the most important drivers in this process being the increased number of claims for office related illnesses, especially RSI. You can present to potential insurers a good risk profile by ensuring that your staff are trained in good workstation practice and that you carry out workstation evaluation as a routine. As important, you need the co-operation of your human resources department to ensure that all new entrants are screened in respect of any previous history of illness. They might also consider making good workstation practice by employees an integral part of the conditions of service.
Motor insurance is another high cost item and one where the overall performance by the company drivers will impact on premiums. Quite apart from the moral and social advantages of promoting safe driving, establishing a regime where this is an important company goal will yield better terms at renewal time. It is in the interest of neither the company nor its drivers to shy away from imposing sanctions on the rogue drivers on our fleets. Again you will need the active support of human resources to achieve any significant result.
Reducing the Odds
Look at the real risks to your business. Whilst the likelihood of a major fire, or flood, or aircraft catastrophe are remote and your premiums probably reflect this, have you considered the impact such an event might have on the ability of your business to survive?
Business interruption insurance up to very high levels can be cheap, all the more so when you are known to have a good claims record (i.e. you have made very few or none over a period of time). Think about the other circumstances that might severely impede the business or bring it to a halt.
We live in an age where pressure to bring product to the market has reduced product lift cycles dramatically. The concomitant of this reduction is an increased exposure to claim. Look at you product liability cover, hunt out the exclusions that might damage your business and hassle your developers to maintain rigorous quality assurance checks throughout the development programme.
Remember you are at risk with both your staff and customers in respect of the activities of many contract staff. It is, of course, wise to insist on a suitable level of employers' and third party liability in outsourced contracts. In today's climate this is probably not enough. you need to see the small print and to ensure there are no unacceptable exclusions, that the policy gives effect to the cover you need, and above all that you are fully covered in respect of any actions by the contractor's staff whilst on your site.
There are many other areas to explore. On travel, for example, do you implement a rigorous policy of restricting numbers of key personnel in one car/plane/train? Do you run checks on dangerous locations?
Key person insurance: have you fully researched the possibility that one or two employees, almost certainly not in the top echelon, would seriously impact your business if they were suddenly no longer available? If you have, is there a contingency plan for dealing with the problem or eliminating the risk? With increasing dependence on software, it is certain that your exposure is higher than you think.
To return to the starting point, knowing which bets you need to cover and understanding the "book" is the nearest any gambler can get to finding that elusive system that guarantees success.