Why the Lowest Premium Can Bring the Highest Risk
With a recent spate of overseas insurance providers becoming insolvent, and leaving their clients uninsured in the process, it’s important to make people aware that competitive offers from unrated or low-rated insurers can often mean a higher risk of insurer failure. Here, our Operations Director, Andrew Jenkins, discusses why the lowest price isn’t always right.
When looking for a new insurance policy, it’s all too tempting to go for the cheapest available price. However, low premiums tend to be offered by lowest-rated or unrated insurers – insurers who maybe see a niche or gap in the market that they hope they can capitalise on. Often these insurers enter a market without the expertise or vision required to make a success of their venture. If the venture fails then it’s policyholders who lose. Whilst there is no legal requirement for an insurer to carry a financial strength rating and any insurer is capable of going bust, unrated insurers are statistically more likely.
Last month, the Danish firm Alpha declared bankruptcy leaving thousands of taxi drivers in London without insurance. Up to 700 taxi drivers and 10,000 minicab drivers were informed by text message that their insurance was cancelled. This left many unable to work, as they couldn’t legally transport passengers without appropriate insurance.
Such situations have always occurred in the insurance industry and it’s not something that is going to go away anytime soon. Unfortunately, customers can’t prepare for their insurer going bankrupt, but the ideal situation would be to avoid using unrated or low-rated insurers.
They might offer a very competitive price, but people need to be aware that going down that road involves a higher than average chance of insurer failure. At worst, people will have to pay their premium again or look for compensation, neither of which are attractive options.
As insurance brokers, it’s our responsibility to point out these risks to our customers and put forward our recommendation for the best policy. We have the specialist knowledge to place you or your business with an insurer that offers the most comprehensive cover at the best price. However, it’s ultimately the customer’s decision as to whether or not they want to go with a cheaper premium.
If you have any concerns about an insurance carrier, we are happy to discuss this with you. Please get in touch with one of our expert team members on 0115 947 0032 or visit https://www.russellscanlan.com/get-in-touch/contact