All Insurance Professionals

If you are (at times) unfortunate enough to listen to a local radio station during the day, or watch day time television, you can’t have failed to notice the huge advertising investment from insurance comparison sites on the subject of business insurance among other areas. There are around three or four main brand names that seem to dominate the radio waves and the cable and satellite TV channels.

They appear to work on the basis that is they continue to advertise, day in and day out; eventually you will get the message and use their services when your home or business insurance falls due for renewal. But, do these companies really make that much money that they can afford to advertise so heavily?

The answer, to those of us in the industry is no. What they are doing is investing heavily in the front end, to gain new customers, in the hope that you will stay with them for a few years at least and they will earn commissions or fees. They tend to say that they do not earn commissions, to try and set themselves apart from insurance brokers. But, at the end of the day, they receive a finder’s fee, commission or one off payment from the insurer that eventually secures the business. This front end amount they earn can be significant. For a £300 motor policy, they could earn up to £200 in first years commission, with this amount reducing as the renewal years pass.

The problem is that all insurers are still quote happy to make a loss on their “new” business, ie first year premium. In the hope that in future years they can convince you to stay with them and they therefore do not have such a high or heavy up front cost.

But, we are starting to see a small tide change in the way that insurance is priced. Before the recession kicked in during 2008, you could quite easily have earned investment income of 5% on any amount just by sticking it in the bank. The insurance companies were smarter than this and could quite easily add 10% to all their premium income by investing cautiously and wisely. But, as 2008 finished and we moved into 2009 and 2010, investment income was not quite as good as it was. The FSA would not allow the insurers just to invest their monies where they wanted, it had to be invested very, very carefully as the last thing they wanted was a whole lot of insurance companies going the same way as the banks.

As a result of all this, the insurance companies have realised that wholly unrealistic pricing is not the way forward, at least for business insurance. Where an insurance company is insuring hundreds of thousands, or even millions or cars, they know what to expect and a small one or two percent change in the pricing can help them make the all-important profit.

So what does this mean for you, the insurance purchasing public? We are hearing from the Bank of England monetary committee that in the next few months we are likely to see interest rates starting to increase. Although this is positive from an insurer’s point of view, it is not enough, during 2011, to prevent some price increases going through.

The good thing is that for all the bravado that we get from the insurers about them putting in increases and having prices they will happily walk away from, it is nothing but rhetoric. If you have a good claims history, you will be able to get a better price and it won’t take you that long. If they try to increase your premiums, get an alternative and we can guarantee (99%) that they will suddenly capitulate and drop their prices down to your comparable quote.