Controlling expenses is an important part of running a business. It is therefore understandable that price plays a role when comparing insurance quotes.
The difficulty is that insurance policies are not all the same.
Two quotes may carry the same policy name and headline limit but offer materially different protection. If a cheaper policy excludes an important business activity or contains a restrictive condition, the saving may become insignificant when a claim occurs.
The best value policy is not always the one with the lowest premium. It is the policy that provides appropriate protection for the risks the business needs to insure at a sustainable price.
Start with what the policy covers
A quote might describe the cover as public liability, professional indemnity or business insurance. That description alone does not tell you exactly what is covered.
The policy wording, schedule and endorsements work together to define the cover.
Differences may include:
- The business activities described on the schedule
- Exclusions for particular work or industries
- Limits applying to certain claims
- Excesses payable by the insured
- Geographic limitations
- Conditions that must be followed
- The treatment of subcontractors
- Whether defence costs are included within or paid in addition to the limit
A lower premium may reflect narrower coverage, a higher excess or a restriction that is particularly relevant to the business.
Is the business correctly described?
An insurance policy is arranged based on information provided about the business.
If that description is incomplete, the insurer may not have considered all the activities being performed.
For example, a landscaping business may also undertake excavation, tree work, irrigation installation or design services. A consultant may provide advice, prepare reports and manage projects. A trades business may use subcontractors or work at locations with strict contractual requirements.
These additional activities can change the risk.
It is important to check that the policy reflects what the business actually does, not simply the broad industry category it falls within.
Limits and sub-limits are not the same thing
A policy may advertise a substantial overall limit while applying much smaller limits to certain types of claims.
These smaller limits are known as sub-limits.
For example, a policy with a $10 million headline limit may apply a lower amount to a particular extension or category of loss. Some costs may also be included within the policy limit rather than payable in addition to it.
The headline number is important, but it should not be considered in isolation.
The excess can change the true cost
The excess is the amount the insured must contribute when a claim is made.
Choosing a higher excess can reduce the premium, but the business needs to be able to pay that amount if something happens.
It is also important to understand whether different excesses apply to different claims. A policy may have a standard excess as well as separate excesses for matters such as property damage, theft, water damage or certain professional services.
A cheap policy with an unaffordable excess may not represent good value.
Your contracts may affect what you need
Many businesses enter contracts requiring them to maintain particular types and limits of insurance.
A contract may also contain indemnities, warranties or obligations that extend beyond the protection provided by an insurance policy.
Having a certificate of currency does not necessarily mean every contractual obligation is insured.
Before signing a significant contract, it can be helpful to have the insurance requirements reviewed and discuss any unusual obligations with an appropriate legal adviser.
Claims are where the difference becomes clear
Insurance is purchased before anyone knows whether a claim will occur.
At quotation time, a restrictive exclusion may seem unlikely to matter. After a loss, it may become the most important part of the policy.
This is why insurance should not be assessed solely as an annual expense. It should also be considered in the context of the financial loss the business may face if something goes wrong.
Questions to ask before choosing a quote
Before accepting the cheapest option, consider asking:
- Does the policy cover all our business activities?
- Are there any important exclusions or conditions?
- What excesses apply?
- Are there sub-limits within the overall policy limit?
- Does the policy meet our contractual requirements?
- Have our turnover, wages, assets and activities been accurately disclosed?
- How does the cover differ from the alternative quotes?
- What support will be available if we have a claim?
A good insurance comparison should explain material differences rather than focusing only on price.
Look for value, not simply the lowest premium
Price will always be relevant, but it should be considered alongside coverage, service and the financial strength of the insurance arrangement.
The right question is not simply, “Which quote is cheapest?”
A better question is, “Which option provides appropriate protection for our business and represents good value?”
General Advice Warning
The information in this article is general in nature and does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your circumstances and review the relevant Product Disclosure Statement or policy documentation.