Thinking of reducing your insurance to cut costs?

Soaring inflation is hitting everyone hard. All industries, businesses and individuals are affected, and the insurance industry is no exception.

The Office of National Statistics (ONS) reports that CPIH (Consumer Price Index including Housing) was 9.2% in December 2022, up from 4.8% the year before. This is resulting in a real-terms impact on the cost of living where everything from energy to food and fuel to borrowing is more expensive than it was one year ago.

Choosing basic covers could leave you with an inadequate level of protection

The impact this has on the insurance industry and everyone who buys insurance is huge. We’ve already started to see a shift in consumer behaviour where rather than prioritising cover and protection, clients are more concerned with keeping costs as low as possible, opting for more basic levels of cover than they perhaps need to protect themselves and their businesses adequately. While this can provide some short-term financial relief, the medium to long-term situation could be disastrous, specifically in the event of a loss.

Insurance is a difficult sell at the best of times. Purchasing insurance is essentially purchasing a promise that should something go wrong; insurance will be there to put things right. So, we all buy insurance hoping that we won’t have to use it, hoping that we’ll file it away and not have to think about it again until next year’s renewal. But when something does happen, there is nothing worse than realising that the basic cover you took out isn’t adequate. By then, it’s too late. You can’t go back in time and buy the cover you need, and you can’t purchase “after the event” cover to rectify the gap. The financial burden of putting things right sits with you, and the earlier decision to save costs by reducing cover is proved to have been the wrong one.

Outdated rebuild valuations and inaccurate sums could leave you underinsured

In challenging financial situations, it’s tempting to cut corners when it comes to the usual processes you would follow. When renewing Buildings and Contents Insurance, your insurance broker will always advise you to check, check and check again your sums insured for buildings and contents to ensure they are accurate and up-to-date, taking into account significant purchases in the previous twelve months. In “normal” times, a broker would advise you to get a professional building rebuild valuation at least every three years, but during challenging financial times, you should consider getting such a valuation more often, ideally every year. With the cost of building supplies, materials and labour increasing so sharply, even a property that has been valued recently could be underinsured when it comes to the rebuild cost.

Likewise, with the cost of almost everything increasing, contents could easily be underinsured too. It is important to remember that when replacing contents, most policies will be written on a new-for-old basis – so you need to consider the cost of replacing items now, not necessarily the price you paid for it, or the price it may be worth as a used or preloved item.

We can help you to determine your sums insured and can also recommend professional valuation companies to help you do this.

Not taking out the policies you need could lead to gaps in insurance protection

Much like how some customers are taking out basic covers rather than enhanced protection, others may be tempted to opt out of additional products and services that further enhance their protection outside of their core policies. These short-term decisions to save money can prove to be a false economy in the long run if gaps in cover are exposed. Some examples of the type of cover businesses in particular should be considering as part of their insurance portfolio are cyber, management liability portfolio and terrorism, as well as value added services such as loss recovery, HR and Health & Safety support and legal advice. At Prospero, we can complete a full review of your business requirements and advise you on the protection you need to have a complete insurance portfolio. To find out more just give us a call on 0800 689 1370.