In recent years, natural disasters happen more and more often and insurance premium is getting higher and higher even you hardly make a claim like myself. As an adjuster, I would give you some ideas on how to save premium in terms of risk management.
If you have read my post Personal Risk Management and Insurance, you should understand no insurance policy covers everything. Basically it covers insurable risks which must be sudden and accidental. In daily life, major property risks are fire, water, wind/hail, theft…etc. Major auto risks are collision, theft…etc.
Insurance is spreading the risk or risk sharing. It uses premium of many to cover the losses of a few. A policy is a contract between insureds and insurers. Normally,
-the more it covers, the higher premium is;
-the lower deductible it carries, the higher premium is; the more claims you make;
the higher premium is.
Therefore, to make a wise decision when you purchase insurance, you should balance risk retention (deductible), risk transferring (insurance) and cost control (premium).
Tip one: risk transferring – ask yourself what major risks you have?
All-Risks policy is a most comprehensive and also most expensive policy. It covers more risks than a named peril policy. For example, Mr. Smith has a sick dog who constantly pees on a carpet which is ruined eventually. This loss is likely covered under an All-Risks policy but definitely not covered by a named peril policy. So before purchasing a policy, you need to ask yourself what major risks you are facing and then check with an insurance broker/agent what kind of policy could respond to them. If you only have concerns for fire, water, theft… which mostly are covered by a named peril policy, why pay extra money for the All-Risks policy? Bottom line is transferring major risks (especially in terms of severity) to insurers to avoid financial disaster when a large loss occurs.
Tip two: risk retention-get a policy carrying a bit higher deductible and assume small losses yourself.
You know a policy carrying a lower deductible costs more. On the other hand, a small claim makes your premium go up as high as a large one. So most of time, when you have a small claim, it may not be worthwhile to put through the claim as your premium increase could be more than the claim amount. Furthermore, have you ever heard that when you have a large loss, the chance of deductible being waived is greater on higher deductible amount?
Here is an example. Mr. Smith has a water claim in the amount of $15,000 and his policy deductible is $1000. In the end, the $1000 deductible is waived based on disappearance deductible clause in his policy. Mr. Wright has a similar claim with the same amount; but his deductible is $500 . Unfortunately, Mr. wright’s deductible is not waived based on the same policy wording. How come???
Many insurance companies encourage their clients to assume small losses in order to save operational and claim costs, so they place this incentive clause in the policy and some of the insureds are not aware of it until they have a claim.
I am quoting a sample of this kind of clause for your better understanding:
“The deductible will disappear if:
1) your amount of claim is $5,000 or greater and you have been insured with us 10 years or more and your policy deductible is $1,000 or greater; or
2 your amount of claim is $10,000 or greater and you have been insured with us 10 years or more; or
3) your amount of claim is $10,000 or greater and you have been insured with us less than 10 years and your policy deductible is $1,000 or greater.”
Yes, as you can see from the clause, the incentive plan also rewards customer loyalty. The longer you are with an insurer, the higher chance of deductible being waived. I would suggest that do not change insurers that often if not necessary. Majority of insurance policies follow industry standard, so they are very similar. Most of competition is on service side. Insurance companies are well aware of it and put lots of force to improve service.
Tip three: risk prevention-take reasonable measure to prevent loss from happening
Risk is a type of uncertainty. It seems very hard to be avoided but the probability is likely reduced when you take preventative measure. For example, before vacation, turn off water main and drain all the water from plumbing pipes. I have seen many cases that pipe burst during owner’s vacation and the property sit in the water for a while, causing extensive damages. Also maintain your vehicle periodically to minimize risk of mechanical failure during driving. Most insurance companies implement surcharge on premium when you have a claim. At least you will lose claim free discount for 3-5 years. Thus, the fewer claims you have, the more premium you save.
All above are my general suggestion as an experienced adjuster. You may discuss specific needs with a broker/agent. In essence, most cost-effective way to manage your risk is retaining minor risks, transferring major risks and minimizing probability of loss by taking preventative measure.
Feature photo taken by Wen- Q
Wen Q 