The premium of an insurance policy should not be based on general pricing, but it should be a reflection of the risk. That is why cost-effective pricing is important to provide the right value for both the policyholder and the insurance company.
Generally speaking, a cost-effective pricing behaviour is not followed. The insurer that gauges its options on the cycle of the ‘soft’ market or the ‘hard’ market. And the customers that will continue to explore their options to arrive at the best pricing, which is normal consumer behaviour.
Insurers focus on the market cycle
Insurance companies often talk about a ‘hard’ and a ‘soft’ market. A familiar cycle resulting in general pricing rather than cost-effective pricing.
In a soft market, insurers are more willing to negotiate and be flexible with their terms. This means low premiums, high limits, broader coverages, and a more competitive landscape with high availability of coverage.
In a hard market, insurances are more expensive and harder to obtain. Premiums increase because of an upswing in the market. The capacity for most insurance types generally decreases.
Customers focus on the premium
In the choice between multiple insurance policies, the premium offered is by far the most decisive factor for the customer. The premium is looked at above all else, apart from other terms, conditions and even the small print in an insurance policy.
The premium is certainly an important factor, but it remains totally insufficient to use it as the sole criterion to judge the quality of the insurer.
The result of customers only focusing on the premium and insurance companies only focusing on the market cycle, is that cost-effective pricing will be neglected.
Premium should reflect the risk
The customers’ specific risk profile should determine the premium rate. No cycle-dependent pricing, no blanket increases. Each customer should be approached individually in this.
The insurance company should know all the details about the customer’s risks, how to handle those risks and how to organise the interaction to be known as a service provider. And not as the cycle insurer.
An empathetic insurer is willing to engage in a substantive dialogue. Not only should the customer answer all the insurer’s questions. But there should also be room for the insurer to clearly justify how the premium was arrived at in conjunction with the other conditions.
Cost-effective pricing is the result of teamplay
Only in working collaboratively, cost-effective pricing can work. Cost-effective pricing requires comprehensive risk assessments, a collective knowledge approach, strong relationships and strategies on loss prevention and risk management. And also, continuous review and adjustment is very important. Especially in the maritime industry, which is anything but static. Changing regulations, economic shifts, and technological advancements impact the risk landscapes all the time.
At IMU, we are convinced that our customers will take their responsibilities if it is clear that we also take our responsibilities.
