Higher insurance premiums are forecast in 2013 as insurers seek to recover the cost of recent severe weather events such as bushfires and floods. With few small businesses having the financial resources to cover every contingency, how can owners get maximum insurance at minimal cost?
The following are 10 ways to save on insurance premiums:
1. Find the right broker
Insurance brokers assess their clients' insurance requirements using a needs-based analysis, which takes into account potential threats and evaluates the current risk-management strategy.
"It's about making sure that clients don't buy insurance that is of no use to them, that they pay the right price and obtain the best terms and conditions available," says insurance broker Mark Roberts of Williams & Roberts.
Word of mouth is the best recommendation, but another is the National Insurance Brokers Association of Australia, which represents 500 brokers nationwide.
2. Establish a risk-management plan
Are there measures that could minimise overall risks to your business, such as encouraging a healthy lifestyle by employees or conducting regular safety training? If you don't have in-house knowledge, some companies, like US insurer Nationwide, offer an online risk assessment questionnaire that may help guide your plan1.
3. Cost-reduction measures
Installing a proper security or fire-prevention system may win premium discounts from your insurer, depending on the coverage. Check with your broker or insurer on whether any such measures would help reduce premiums. Look out for changes in insurers' policies too.
4. Avoid over insuring
"Most brokers are paid by fee or commission, and if it's commission only they're going to try selling as much as they can," Roberts says. "Try to find a broker who is sympathetic to your particular circumstances and avoid the salesmen."
Consider the key risks to your business and insure against those, rather than signing up for a wide range of unnecessary coverage.
5. Start out lean
When launching a new business, it's important to spend as little as possible on insurance.
"The last thing you need to do when starting out is to spend half your profits on an insurance program, which instead of complementing the business becomes a millstone around your neck."
Roberts says the basics when starting a new business are property cover, business interruption, burglary and public liability insurance.
6. Shop around
Make sure you or your broker shop around for the best possible rates for your business. Obtain multiple quotes and compare not only insurance premiums but levels of coverage to see what is realistically required. However, avoid underinsurance as it could prove costly should disaster occur, as seen in the recent Queensland floods.
7. Increase deductibles
Higher deductibles typically mean lower premiums, although be careful not to leave yourself overexposed. If you have sufficient operating funds, it may be preferable not submitting a minor claim if it's going to mean paying a high excess.
8. Review coverage regularly
Review your insurance at least once a year to determine if there is any unnecessary coverage, such as insurance paid for a discontinued product line. Your insurance broker should also be keeping you up to date with regulatory changes that might affect your business, such as workplace health and safety.
9. Get your claim and credit history in order
Insurers may consider a business that has a history of filing claims a greater risk, and charge higher premiums accordingly. It therefore may be wiser to only seek compensation for larger losses. Similarly, a poor credit history can act as a warning to insurers of potential claims ahead, so make sure your finances are solid.
10. Choose the best location and building structure
Businesses located in higher crime areas can attract increased premiums, so do your research before establishing new premises. In addition, older buildings lacking modern electrical systems or without security alarms may result in higher premiums or could even be uninsurable.
Choosing the right insurance at the right cost can ensure peace of mind as well as minimise the required financial resources.
Quotes from writer's own interview.
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This article represents the views of the author only and not those of American Express.
Anthony is a communication consultant at BWH Communication and a freelance writer with 15 years' experience in the stockbroking and media industries of Australia and Asia. He is a regular writer on business and other issues for publications in Australia and Japan. He consults on communication strategy to businesses ranging from private enterprises to professional service firms and publicly listed companies, with a particular interest in entrepreneurship in all its forms.