Everybody pays for insurance and none of us enjoy it very much. However, without insurance we’d be in real trouble if we have a car crash, a house fire, or something of that order. If you understand how your premium is spent, you can get a better idea for the value of your insurance. After all nobody wants to overpay for their insurance do they?

A Brief Breakdown of an Insurance Premium

• Risk coverage. Part of your premium (and it should be a substantial part) goes to actually covering the risk involved. This is devoted to ensuring that in the event of you making a claim that the insurer has enough money to pay out. The idea being that the total amount of claims doesn’t exceed the total premium for coverage collected. While different insurers have different ideas about how risk is calculated this part of your premium is an essential.
• The insurer’s costs. This includes their administration, their staff costs, their IT spending, etc. In essence the insurer can’t run a business on thin air. So your premium reflects (in part) the expense of running an insurance brokerage or agency.
• The insurer’s profits. Profits are the reason that every company stays in business. Ignoring a few small social enterprises every business in the world has a single primary duty – to make money for their shareholders. If an insurer is doing its job properly estimating the risk of insurance then a small part of the premium will be a profit margin.

Where can savings be made?

This is the important question. If you want to get the most value for your premium then it’s important to know where your insurer could reduce costs.

There’s very little saving to be made on the risk coverage side. Insurers are generally good at assessing risk and ensuring that the coverage they issue is more than they pay out in claims. That’s important because an insurer that can’t meet its obligations is bankrupt and can’t pay out in the event that you need to make a claim.

There’s also not much that can be done about the profit margin part of things. Insurers are required to attempt to make a profit and there would be very little incentive to run a business that didn’t generate a profit.

So the only area in which an insurer can make a saving is in the area of costs. One of the simplest ways for them to do this is for them to invest in the right tools for insurance companies. This might include software automation products such as SchemeServe insurance software.

This software eliminates a lot of the administrative burden for insurance companies. It takes away the need to maintain a hardware infrastructure (servers, back up facilities, etc.) and it also allows them to focus their efforts on one software system. Many insurers are still working on various legacy systems which don’t always communicate well with each other. They then have to make an effort to move their data from one system to another and that costs time and money. That’s your money.

If you want to get the best value for money from your premium you should ask your insurance broker if they’ve taken the software automation route. If not, you might want to ask them why they haven’t and why you’re paying for unnecessary admin in your premiums.