Cutting insurance premium costs

Jenny Keefe says by introducing higher than minimum standards and initiatives like employee-paid excess costs and flex schemes employers can save on insurance premium costs

Case Study: FDS Group

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To borrow from Woody Allen: "There are worse things in life than death. Have you ever spent an evening with an insurance salesman?"

Unfortunately, spending time with insurance providers is a necessary evil if you want to keep insurance costs in check. But the good news is that with a few simple tactics, you can shave your premiums.

The easiest way? "Don’t have any risks," says David Stirling, director at brokers Crispin Speers & Partners. Put simply, the best way to cut costs is to cut risks.

"Some companies ignore risk, and some companies don’t think about it, but many people get professional and actually make an effort to make sure that they do take action. If they do they will benefit from lower premiums," says Stirling.

Take car insurance. Kevin Delaney, traffic and road safety manager for the RAC Foundation, says: "There are simple things employers can do. For example, most fleet managers have the policy of changing the tyres when they are down to 1.6 mm, which is the legal minimum. But really you should be changing the tyres when they are down to 2.5 mm, and, yes, it does mean that you will lose maybe 5,000 miles.

"But if, for example, your financial services director gets wiped out because his or her tyres weren’t up to doing the job when they slammed on the brakes in the wet, then 5,000 miles [worth of tread] actually seems like quite a good investment."

More stringent maintenance testing and driver licence checking can also make your fleet more attractive to underwriters.

Driver training is considered one of the most effective ways to get a safer fleet; Kwik-Fit Fleet’s Profit through safety survey 2004 found that 38% of employers believe this to be the case. However, many organisations are slow off the mark – the survey found that two-thirds of firms do not provide driver training for employees.

Choosing safer vehicles, for instance those that score highly on the Euro NCAP crash and safety tests, can help to curb claims. Although there are a few things to bear in mind, says Andrew Howard, head of road safety at the AA. "You are always in a funny world when you start to go into this area. One of the things that generally happens when [you buy safer vehicles] is that the vehicle takes the damage not the occupant. The airbags go bang, the seatbelts retract and they all need to be replaced or the car gets written off.

"This can make minor accidents more expensive, but major accidents, when you start bearing in mind the cost of the accident to the victim, a lot cheaper. But, provided that you are working on the basis that you don’t want your employee injured and off work, you are better off with a car that protects well."

One solution is to make drivers personally liable for the excess of any claim made if they are at fault. Some firms even dismiss workers who claim more than four times. This technique could, however, backfire if employees decide to conceal accidents and get the prangs patched up themselves at any old garage.

Private medical insurance (PMI) is another big-ticket benefit where savings are possible. And you don’t necessarily need to reduce the amount of cover offered or cut down the number of hospitals staff can visit.

Getting staff to pay an excess for their PMI is a classic way to save that extra few quid. Peter Elliot, group risk director at provider Jelf Group, says: "If the cost is at a level where the employer is uncomfortable with the increase, then they will have to consider putting in an excess on the policy. By cost shifting and putting some of the onus of the burden of the cost onto the employee, [employers] can get an immediate reduction on one years’ premium."

Employees pay the first say, £100 to £150 of any claim, which can reduce employer premiums by up to 10%. However, this requires extra paperwork and might discourage employees from seeking treatment early. Elliot adds that insurers prefer staff to make small claims sooner rather than foot huge medical bills later.

His other suggestion is to offer health advice, drug and alcohol training or an employee assistance programme (EAP). "Health awareness can include making employees aware of the benefits and help them understand things they could be doing to improve their health. It makes them more aware, but I’m not sure whether in real terms you would see an immediate reduction in the cost of their private healthcare scheme."

This is a long-term solution, as staff might make more small claims at first, when they become aware of the benefit. Educating employees saves money in the long run though, as workers may avoid more serious ills. Moreover, wellbeing schemes that help workers to manage their weight and eat healthily will bear fruit in the end, with the price of life, critical illness and disability cover higher for the overweight than those of healthy weights.

One of the quickest ways to prune premiums is to stop staff smoking. Simon Bailey, head of marketing at Scottish Equitable, says: "If employers have got a no smoking policy then they get a 5% discount on their insurance premium. It’s an easy way to a few percent off."

Setting up a flexible benefits scheme can be a way of clawing back costs on insurances such as PMI, life assurance and income protection. Staff cherry pick their own benefits and you don’t waste money. "The flex route allows employees to insure themselves to a level that they are happy with and need, rather than the employer prescribing what they should have," says Bailey.

"Although it is swings and roundabouts – putting in a flex scheme is a reasonably complex task in itself."

He adds that, when auditing any insurance outlay, an organisation should look at the return on its investment, be it in terms of recruitment and retention, getting sick staff back to work quickly or keeping company cars in good nick.

"It’s important not to isolate the cost of insurance. Employers need to remember what they are trying to protect against. But, yes, there are things that you can do to limit the cost of the scheme."

Case Study: FDS Group

Two years ago field marketing agency FDS Group resolved to pare back its company car premiums. It ended up cutting its insurance spend in half.

Jaime Fever, finance executive, says: "When I first joined the company our claims history was appalling [but we have been] working on our insurance over the last couple of years, [so] now our claims history is pretty respectable."

Company car drivers now have to pay an excess on any claim if they are at fault. Staff are £250 out of pocket on the first claim, £500 on the second and £1,000 on the third. "It’s really encouraged them to buck their ideas up," he says.

The firm also enlisted a fleet management provider to help it seek out the best insurance deals and manage risk. "Due to our claims history we’d always found it hard to get good deals. They are managing the risks for us so will hopefully bring accidents down." The firm has also outsourced accident management of its 250 company cars, and drivers access a 24-hour car hotline for advice and breakdowns.