It’s critical to note that securing coverage for a business or individuals should be based upon exposures and needs, and not solely premium dollars. Far too often the lowest premium dictates where a buyer ends up, which is how insurance should not be purchased. Competitive premiums are always of utmost importance, but there should be much more to any buying decision than only the lowest cost program.
Risk Management Analysis
A primary rule of thumb in the insurance industry is for buyers to refrain from trading dollars with insurance carriers, because when that is done with lower deductibles/retentions than needed, the buyer usually loses in the end. In order to avoid this, it’s critical to understand the role analytics plays into building the most effective risk program, and at the lowest possible premium amount. This process is known in the insurance industry as a risk management audit/analysis.
Prior to determining what deductibles or retentions one should accept from the insurance carrier, a thorough review of historical premium and losses should be evaluated. The best method to use to arrive at your optimum deductible is through the analysis of a Loss Stratification, where claims for the past five years are categorized, accordingly by coverage, year and size. After being armed with this information, then and only then can a decision be made as to what retention level the buyer should choose. The buyer can then evaluate the results and make a decision that would fit their “Appetite for Risk”.
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