When Did You Last Negotiate Your Business Insurance?
ASIC says it can pay to ask — but price is only one part of a proper insurance review
Written by: Melissa Cunliffe (CA)
Your insurance renewal arrives. The premium has increased again. You look at the number, complain about it and approve the payment. For many family businesses, that is where the annual insurance review ends.
ASIC’s recent review of motor vehicle insurance found premiums had risen sharply and many customers were not actively comparing or challenging renewal pricing. Of consumers who contacted their insurer before renewing, 31% obtained a lower premium without reducing their cover. ASIC also found that, where insurers charged more for instalments, paying by instalments could cost 10%–20% more than paying annually.
The lesson is not “buy the cheapest insurance”. It is “understand what you are buying, what it costs, and whether the renewal still makes sense”.
Why business insurance deserves a financial review
A family business may have insurance across vehicles, plant, property, public liability, professional indemnity, cyber, business interruption and other risks. Small increases across multiple policies can become a substantial annual cost.
Insurance is therefore both a risk-management decision and a cost-management decision.
Loyalty does not necessarily produce the best price
ASIC found many consumers stayed with the same insurer and did not shop around or contact the insurer because they assumed it would not help. Yet nearly one in three consumers who did contact the insurer obtained a lower premium without reducing cover.
For a business with a fleet or several policies, a structured annual review can therefore be worth real money.
Monthly versus annual premiums
Instalment payments may help cash flow, but they can also have a higher total annual cost. Businesses should compare the total dollar amount payable under monthly or instalment options with the annual upfront premium.
That does not mean annual payment is always best. If paying $30,000 upfront would create working-capital stress, the instalment cost may be commercially justified. The key is to know what the convenience is costing.
Do not reduce cover blindly to reduce the premium
The cheapest policy is not automatically the best policy. A lower premium achieved by materially increasing the excess, removing cover or understating insured values may create a much larger problem when a claim occurs.
Review premium alongside the excess, insured value, exclusions, optional benefits, replacement conditions and the risks that matter to the business.
Check whether the insured values are still right
Vehicle and plant values can move in either direction. Some assets depreciate rapidly, while the cost of replacing specialised equipment or rebuilding property may increase.
Do not assume last year’s insured value should simply roll forward. Ask what the asset would realistically cost to replace or what value the policy basis requires.
Business interruption is often the overlooked question
Insurance of the asset is only part of the risk. If a workshop burns down or a critical machine is unavailable, what happens to the income the asset generates?
Business interruption cover and continuity planning should consider how the business would meet wages, debt repayments, rent, temporary premises and other fixed commitments while operations are disrupted.
What about the people the business depends on?
For many family businesses, the most important “asset” is not listed on the balance sheet. It may be the owner, a key employee or a person holding critical knowledge.
Insurance review should therefore form part of a wider risk conversation: what events could stop the business functioning, and how would the family and employees cope financially if they occurred?
A practical annual insurance review
List every current policy and its renewal date.
Record annual premium, instalment cost and excess.
Remove assets no longer owned and add new assets.
Check insured values and replacement assumptions.
Identify changes in business activity, turnover, premises, staff or risk profile.
Compare appropriate alternative quotes.
Ask the existing insurer or broker to explain increases and review pricing.
Review business interruption, cyber and key-person exposures as well as physical assets.
Document the decision and any changes to cover.
The educational takeaway
Insurance should not be a once-a-year automatic payment. The objective is appropriate protection at a commercially sensible cost. Negotiating price matters, but understanding the risk the policy is intended to cover matters more.
Before automatically renewing, review your premiums, coverage, insured values, payment options and the risks your business faces today.
Book a consultation with 4P's Future Accounting today to review the financial side of your insurance strategy and make sure your business is protected without paying for cover that no longer adds value.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
