Categories
Whitepaper

Insurance 2.0: Elements for the future

Insurance 2.0: Elements for the future

.
Share on facebook
Share on twitter
Share on linkedin

Life is risky! Insurance helps us gain and sustain financial security, especially during times of uncertainty.

Risk exists whenever the outcome is uncertain. In insurance terms, pure risk is the chance that something harmful could happen, which results in loss or damage to property or involves injury of people. In today’s demanding and unpredictable world, identifying risks must be done with an evolving and agile approach.

Discover why the future of insurance needs to be in alignment with a 4 step risk management strategy, have a holistic approach and be more cost-efficient.

Synopsis

Insurance was started by communities to help one another .

Background

Insurance was started by communities to help one another. Being that if a community member suffered a loss, the entire community would come together to help and support that member. Insurance is about the pooling of risk to take advantage of diversification and to protect people against losses beyond what they can individually afford.

Still to this day, 20% of the insurance industry is held by mutual companies based on the NAIC, such as State Farm and Liberty Mutual These are companies that are owned by the policyholders and are not supposed to be for profit.  

The concept of insurance has always been about helping one another in the darkest of moments. Insurance is there to protect the health and wealth of individuals while providing stability for businesses to progress. However, this fundamental mission often loses it’s visibility as insurance companies grow. 

So when we talk about the future, it’s important to go back to the roots of why insurance exists. Insurance is as old as time, it made sense back then, still makes sense today, and will make sense in the future. So while we don’t imagine the core concept can be disrupted, we do believe it is time for it to be reimagined for this century. 

 

Thesis 1: Risk Management, Not Just Financial Indemnification

Currently, insurance broadly operates by a group of people paying into insurance company premiums and, if a loss occurs, they will pay that member the full or partial amount of the assessed loss, assuming that loss and scenario are covered in the policy contract. This is what is called financial indemnification. This is an effective form of risk management as it really is sharing the amount of risk with one another and not holding one person totally accountable. Most of the insurance industry has operated this way for centuries. However, not all have been this way. Many of the regulations around fire protection and measures like the sprinkler system were innovations that the insurance industry played a role in. And it makes sense. If there is no loss, there is no need for claims to be paid. It is a win win.

Successful Risk Management – The Cyber Insurance Example
Though traditional, financial indemnification is an effective approach to insurance however for the needs of today’s world, it needs to evolve. Take commercial cyber insurance as an example. Commercial cyber insurance is an emerging niche part of the industry solely focused on the digital world and the implications of it. The unique characteristics of the cyber market including, rapid growth, newer digital market, lack of sufficient historical data, and complicated risk dynamics have resulted in a different breed of innovation compared to the rest of the insurance industry. 

Many cyber insurance experts reflect at the evolving ecosystem or affirmative cyber 1 as follows:

  • Transparent risk assessment: Companies focused on identifying and quantifying different risks and loss scenarios. There are usually two types of companies here: some are mainly helping insurance companies focus on price better, and some are focused on helping the customer better understand their own risk exposure and predictions. Many do both.
  • Cybersecurity: Most experts believe that cyber insurance is meaningless without proper security in place. Many companies might not even provide cyber insurance without it.
  • Cyber Insurance – financial indemnification must be defined for different types of financial loss that can happen as a result of a cyber breach or loss, this may include (but not limited to):
    • Customer & Employee Data Loss
    • Business Interruption & Extortion
    • Third-Party Lawsuits
    • Payment Fraud
    • Reputation Loss
  • Cyber recovery – companies that assist in the recovery and forensic analysis post a cyber event. The objective is to minimize the damages, find the responsible parties, and to assist with the recovery process as quickly as possible. This includes but not limited to: notifications of customers and regulators, restoration of personal identities, repairing damaged computer systems, etc.

In more simple terms, traditional insurance for the cyber world is not enough to provide full coverage and protection. Other services are needed to create ALIGNMENT.  The idea is that you pay a company to help manage your cyber risk and to indemnify you if a loss happens. Many companies act as or collaborate with the Chief Security Officer.

Examples of this are in the Healthcare HMO model for companies like Kaiser Permanente. In Kaiser, individuals pay a subscription (membership) fee as a member. Kaiser collaborates with you to keep you healthy and covers your healthcare costs if the need arises to align objectives.

The 4 step risk management approach
The 4 step risk management approach is the new basis of our modern insurance approach. Risk management and not just old school financial indemnification. In summary and to align objectives, insurance companies should:

  • Dynamically identify, quantify, and communicate different risks that can result in harm.
  • Find ways to mitigate, or eliminate the risk if possible.
  • Cover the costs associated with the recovery as the result of:
    • Failure of the safety and mitigation system
    • Risks beyond the scope of the safety system
  • Fix the problems caused by a loss event and assist with full recovery

To properly execute this, budgets, complete financial pictures, risk appetites, and compliance of the insured have to be fully taken into consideration.

Let’s now imagine if there was a different way of doing auto insurance using this 4 step risk management approach with the idea of aligning the customer with the insurance company. In this scenario, the insurance company is there to manage the risks associated with driving the car and not just pay for the loss. In this future, the risk manager constantly identifies the risks associated with driving a car – fully autonomous or not and seeks ways to lower the risks and provide help. Meaning instead of asking the customer to drop the car to a mechanic, the insurer picks up the car, and drops off the fixed car once ready.

The world is underinsured.

Thesis 2: Providing Personalized, Dynamic, and Holistic Protection

The Problem
The world is underinsured. This is a known fact. In California, it is estimated that only 13% of the homeowners carry earthquake insurance. This number is down from 33% from 1996. Based on Vero’s internal survey, only 25% of people have Disability insurance, from which only 9% have an individual policy with the majority purchasing typically insufficient amounts through their work. Swiss Re estimates the life insurance coverage gap in the United States to be upwards of 25 trillion dollars [Source]. 

On top of the insurable losses, the world is full of uninsurable losses that go beyond the scope of what the insurance industry is prepared to cover. Terrorism, Acts of War, and now a more recent example, aspects of the Covid-19 pandemic, are examples of such events. Most business interruption coverages exclude pandemics for business interruption and as such, many businesses became very vulnerable to the consequences of the mandated shutdowns.

There are several reasons why this problem can exist: 

1. Education, Attitude, and Trust
Often people have no idea what or how likely their relevant risk is, or what their current protection or insurance actually covers. A recent survey shows that only 21% of people got a passing grade on their knowledge of their auto insurance policy [Source]. If people don’t understand the policy, it is unfair to expect them to choose the right coverage.

When individuals face a complex judgment such as a statistical probability, frequency, or incomplete information to face risks, they use heuristics to reduce the decision to a simpler task. Cognitive psychology examines how people don’t follow the principles of probability theory when judging the likelihood of uncertain events, but rather use heuristics or “rules of thumb” that sometimes lead to reasonably good estimates of the probability of an event. Often, though, average customers don’t do this. Pairing that with unintentional biases as well as emotions, for many not thinking about risk is the best way to cope with it.

The insurance industry has centuries of experience in understanding risk, but we believe there is a gap in how the industry is sharing that knowledge with the consumers. It is fair to expect that brokers and agents play a role in consulting customers and are supposed to fill this gap. But, the truth is that often even brokers and agents don’t have access to this information. The license education for agents is typically around learning how insurance works and not on how to do need assessment and evaluate risk profiles. As a result, the way advice is provided can be very inconsistent.

On top of that, factoring in how the insurance incentives and the commission structure works, can contribute to compromised quality advice.

The current way that risk is measured on a consumer-level typically tends to be in silos resulting in gaps.

Why for many self-insuring can be a smart move

2. The Risk Reason
The current way that risk is measured on a consumer-level typically tends to be in silos resulting in gaps. Risks do overlap and should be looked at holistically. Especially when we want to measure its impact on an individual’s finances and as part of a financial plan.

Another major flaw is that the current approach considers the risk to be quite static. This reflects in how often changes are assessed and solutions are adjusted which can result in major over or underinsurance over time.

Lastly, some risks are hard to measure (e.g. cyber-attacks) and the insurance industry is still trying to better understand the dynamics of it through getting access to new data sources and models.

The insurance industry often lacks the agility to offer products that are a better fit for more modern risks and needs.

3. Solutions: Products, Flexibility, and Cost
The insurance industry often lacks the agility to offer products that are a better fit for more modern risks and needs. The way that risk analytics usually works is to look at the past and see how the dynamics of different risks have worked as a measure of predicting the future. In an ever-evolving world, this might not always be the best way to assess risk.2

Many of the current policy languages might have not evolved in decades and as such customers might be paying for risks they might not have, or not get the coverage for what they need. In addition, policies are often not flexible in the way that different coverages can be chosen.

On top of this, insurance can get quite expensive and for many, it might just feel unaffordable with no clear return on the investment.

For some risks the magnitude of the potential loss can be so significant that the insurance premiums become unaffordable for almost everyone, and as such the obligation falls on the government to step in to support the losses. War is an example of this. However, for some events such as earthquakes in California, many have mixed feelings due to the high premium costs and the potential large magnitude of the loss across the state. This has resulted in most expecting the government to step in the case of loss rather than purchasing an Earthquake Policy.

Solution 1 – Unbiased transparency and education for customers
Transparent, holistic, and unbiased advice can help people understand what risks they have, and how different policies help them cover potential losses.

Transparency in this context means to simplify insurance and risk in order to help them fix it. Transparency correlates with the first step of the risk management process: identify the risks and communicate it in layman’s terms.

In addition, communication should be broadened beyond legal policies and verbiage so that the customer understands the policies in simple terms.

Lastly, to assure unbiased and quality guidance there are two main options:

  • Change of incentive structure
  • Providing consistent automated advice based on data and not opinions.

Due to the complexity of risk management, it seems the best option would be a combination of both with the future moving more towards the latter with time. Meaning, as much as possible, the core advice should be provided automatically based on risk data of the user with the support of non-commissioned experts wherever human expertise is required.

Risk should be measured holistically, and on-going, and certainly not limited to only insurable losses.

Solution 2 – Better risk and gap analysis
Risk should be measured holistically, and on-going, and certainly not limited to only insurable losses. The goal should always be to minimize the impact of different losses in the customer’s future, with or beyond insurance.

This would require:

  1. More advanced predictive risk models.
  2. New data sources and seamless integration in an individual’s life while respecting their privacy to monitor their ongoing risk profile for real-time responses.
  3. Measuring risks beyond the scope of the insurance industry and finding alternative or complementary ways to finance and manage them.
  4. Measuring protection to assess gaps by considering government benefits, employer benefits, self-insurance, and even other forms of financing and protection beyond just insurance.

 

Solution 3 – Holistic solutions that are built for modern risks
The traditional insurance concept is all about financing the recovery from a loss. Insurance began as a peer-to-peer model where communities pooled their risk as non-profit. Between new creative ways to finance risk, as well as new insurance products and policies that offer more flexibility as well the possibility of covering modern risks there is a lot that needs to be changed.

There are certain advantages for focusing holistically on protecting the customers at scale:

  1. By real-time tracking of data, new opportunities are presented to measure and dynamically offer solutions that fit a specific customer need.
  2. Providing data back to carriers to create new solutions to better match the need of modern customers.
  3. Lowering the cost of insurance by leveraging alternatives to insurance for financing risk such as: self-insurance, lending, warranties, or even donation-based funding.
  4. Eliminating overlaps and better personalization by designing the full protection package.
  5. Better integration into financial planning, prioritizing budget and optimizing ROI.
  6. Lowering the cost of distribution by holistic acquisition and retention, which can result in cheaper products.
  7. Risk management as opposed to only financing which allows for mitigating the loss.

Thesis 3: Making Insurance More Affordable Without Compromising on Protection

In the article on why self insurance is a smart move, we discussed how the insurance unit economics works and how policies are priced for common personal lines like Auto Insurance. As a summary, the two main components of the price consist of the expected loss for specific risk and the overhead of the operational costs of an insurance company. These overhead costs usually include the costs of acquiring, underwriting, and servicing a customer.

Looking at the priority of what are the typically the root causes for a certain price, here what should hopefully result in cheaper insurance in the future across markets:

1. Loss Control
As mentioned, for the majority of the insurance products and lines, the bulk of the cost is in the claims that an insurance company expects to pay back, and for a specific individual what is called “expected loss”.

As a result of this, finding cost efficient ways to reduce the likelihood of different risks happening, as well the lowering the costs of recovery or dealing with them can result in savings on the insurance premiums. That is a big reason why the healthcare industry has put an emphasis on preventive measures to lower the risk of major medical issues and subsequently the expected loss.

In today’s world and using modern technology there are many ways to do this. For auto insurance this can mean safer cars. In life insurance, this can mean encouraging policy holders to live a healthier lifestyle. In workers Compensation insurance this can mean real-time analysis of worksite hazards. With the increase in the use of such technologies, many insurance companies have started to reward their customer by providing discounts and sharing some of the profit back to them.

Another major factor is to eliminate moral hazards leading to unjustified claims and to identify fraudulent behavior. The FBI estimates that that cost of insurance fraud (non-health insurance) is around $40 billion dollars a year, meaning each cost each American family $400-$700 due to increased premiums [Source]. There are companies such as Lemonade who are looking at new ways of providing insurance and aligning the incentive of the insured and the insurer to lower fraud. On top of this, with targeted marketing, KYC (know-your-customer) initiatives, and machine learning for pattern recognition, many companies are looking at other ways to tackle this.

Lastly, it is very important to note this is all while making sure the customer’s best interest is in mind and the process of how that claim is handled is transparent. We have already covered both alignment as part of risk management, and transparency as part of user centricity. Loss control should not result in less protection for the customer.

2. Improving the operational efficiency in operating a risk pool or an insurance company
There are many ways that technology is working on lowering the cost and improving the efficiency of insurance. A holistic and centralized approach to risk and insurance management can potentially result in much cheaper distribution costs which should ultimately result in major savings on the overall cost of insurance.

The big factor in the cost of insurance is the expense ratio or the costs associated with acquiring, underwriting, and servicing a customer. Insurance, pooling of risk, is an efficient way to finance risks and hence fosters economic progress. Insurers need to have a growing capital base to absorb the volatility they assume, else financial ruin is just a matter of time. They earn a margin beyond what is necessary to cover all expenses else access to capital dries out. Hence a fair and sustainable insurance offering is one that pays as much as possible of the premium back in the form of loss indemnifications, while still allowing the insurance company to earn a bit more than the marketing costs. This means a close to very minimal expense ratio.

Furthermore, until insurance can be run at a closer to 100% loss ratio, evaluating alternatives financing options to insurance may at times result in better returns on the premiums paid.

Lastly, at Vero, we believe risk and insurance management can be democratized for everyday people if insurance is in alignment with a 4 step risk management strategy, has a holistic approach and is more cost-efficient. The power would be in the hands of the insurance consumers and the real foundation of insurance would be at the forefront: helping one another.

Footnotes

1. [Affirmative cyber refers to insurance policy language that covers or excludes cyber-related losses. As opposed to“Silent cyber”, which is also known as “unintended” or “non-affirmative” cyber, where the unknown or unquantified exposures originating from cyber perils that may trigger traditional property and liability insurance policies [Source].]

2. [Not even mentioning the work of Nasim Taleb and “The Black Swan” events.]

Do you have the protection you need?

Life is full of risks. To your family. Your assets. Your future. The problem is traditional solutions that propose traditional answers, one policy at a time.

Vero’s fast and free Protection Plan is an unbiased analysis of all your risks. We’ll recommend what insurance to buy — and which policies you can safely cancel to save money.

Continue reading

©2020 Vero Intelligence, Inc.
370 Convention Way
Redwood City, CA 94063

Follow us

Categories
Whitepaper

Eight Ways to Reduce Insurance Costs Without Compromising Protection​

Eight Ways to Reduce Insurance Costs Without Compromising Protection

.
Share on facebook
Share on twitter
Share on linkedin

Key Takeaways:

  1. Personalized Protection and Self-Insurance: Personalized risk and needs analysis, as well as self-insurance reduce the amount of insurance you need to purchase.
  2. Subsidizing the Insurance Cost and Leveraging Group Insurance and Government Benefits: Leveraging various subsidies and group discounts such as employer-provided insurance or utilizing different tax incentives can help you save money on premiums paid each year.
  3. Risk Mitigation: Risk mitigation and loss prevention can result in better rates on insurance premiums and in avoiding payments associated with having a loss.
  4. Choosing the Right Type of Insurance Policy: Selecting a policy like a pay per mile or declining term life insurance can significantly lower the insurance cost while still ensuring that you are adequately insured.
  5. Bundling and Loyalty Discounts: Insurance companies often offer significant discounts and perks for customers who bundle multiple policies or for loyal customers on the back of the decreased cost of customer acquisition and coverage overlaps. Discounts such as employer-provided insurance or utilizing different tax incentives can help you save money on premiums paid each year.
  6. Applying All Available Insurance Discounts: Most insurance companies provide discounts for customers who belong to certain groups or professions.
  7. Bulk purchase: For some policies like life insurance, buying higher limits can result in better rates for every $1000 of coverage.
  8. Shop around: Be intentional with your insurance – don’t let your policies roll over year after year as that will be a lost opportunity to save on better rates. Shop around and see which insurers provide a better deal, but be sure to compare and consider factors beyond price.
Insurance is essential, but the premiums can add up quickly: healthcare, car, house, disability and life, to name a few. Handling multiple policies can be overwhelming so many people often end up overpaying for insurance. There’s always room for lowering premium costs, but it takes some knowledge and comprehensive analysis to do so.

 

We take a deep dive into insurance costs across different insurance policies, providing the complete guide for consumers to lower their insurance costs without compromising on their protection.

There’s always room for lowering premium costs, but it takes some knowledge and comprehensive analysis to do so.

1. Personalized Protection and Self-Insurance

Insurance plays an essential role in keeping you protected from the financial fallout of adverse life events. But not all adverse events are created equal – some are more predictable than others; some are more impactful than others. Insurance is most effective for managing the risk of low likelihood but high impact events.

However, no two insurance customers are the same when it comes to personal risk profiles, so a one-size-fits-all approach can cost you a lot in excess premium that you pay every year.

In contrast, personalized protection is based on individual circumstances and the elimination of unnecessary protection that stems from overlaps between policies. Customized insurance policies meet your unique individual insurance needs ensuring that you get the protection you need – not more and not less – at the lowest costs possible.

Self-insurance is another way you can lower your insurance costs. It is a risk retention mechanism in which you set aside money to finance potential future losses, rather than transferring risk to an insurance company in a traditional insurance contract. Self-insuring may be more cost-effective than buying insurance from an insurer, but it only makes sense for more predictable and smaller losses.

The following are some practical examples of how this lowers the cost of insurance:

Home
The premium for home insurance, among other factors, depends on the insured’s profile, including their age and behavior-related factors. This means that you should be on a lookout for a discount if you are over 60, which usually ranges between 5-10%.

Also, for those who have not experienced a loss within a specified time period, insurance companies offer a loss-free discount (up to 15%). In case you are a non-smoker, you are a lower risk for your insurer and, therefore, qualify for non-smoker discounts.

Health
Health insurance is an essential type of insurance which everybody should have. Still, getting the right health insurance policy can be an overwhelming task, and many end up with coverages that don’t fit their needs.

To ensure that you optimize your health insurance coverage, you can start from a self-insurance approach by choosing a high deductible, high coinsurance, and high out of pocket maximum policy.

Also, opening a Health Savings Accounts (HSA) contingent to deductibles can help you leverage a self-insurance strategy to lower your health insurance premium. HSA is an account that allows you to set aside pre-tax money to pay for qualified medical expenses.

The elimination approach can help you lower your health insurance costs as well by avoiding overlapping coverages that stem from different policies. For example, you should consider the overlap between your health insurance with your auto policy when choosing Medical Payment and Uninsured / Underinsured motorist bodily injury (UMBI) coverages.

Auto:
Self-insurance and elimination techniques will have the biggest impact on your car insurance costs. Drivers and operators as well as vehicle characteristics will have a bit lower, but still considerable impact on the cost. Uninsured / Underinsured Motorist and Medical Payment coverages can overlap quite a bit with your health, disability and life insurance, as such choosing the right amount, will depend on those coverages. Here is the list of various discounts and their approximate range:

  • Self-insurance and Elimination:
    • Deductible (up to 40 – 50%)
    • Uninsured Motorist Bodily Injury Coverage (UMBI) / Uninsured Motorist Property Damage Coverage (UMPD) (up to 10% with Collision / up to 20% without Collision)
    • Medical Payments Coverage (6% with Collision; 10% without Collision)
    • Collision + Comprehensive (Up to 50% – 60%)
    • Eliminate riders that are not needed – Low impact
  • Drivers and Operators
    • Driver Segment (Years Licensed, Gender, Marital Status)
    • California Good Driver (20%)
    • Named Non-owner (up to 60% on Body Injury and Property Damage)
    • Mature Driver (5%)
    • Inexperienced Driver Training (4%)
    • Student Away at school (7%)
    • Good student discount (5%)
    • Superior Good Driver (additional 5%)
  • Vehicle
    • No. Operators / Vehicles (up to 16%)
    • Alternative Fuel Vehicle (10%)
    • Vehicle Type (up to 60% on Bodily Injury and Property Damage)

Life
As a safety net for your loved ones, life insurance is vital. Still, life insurance policies can be complicated, which is why many end up paying more than they need or want to.

To ensure that you optimize your life insurance coverage, be specific about what your objective is. For example, if the purpose is to replace your income in case of a loss, buy only coverage for the lost income after-tax adjusting dynamically and decreasing as years go. However, most life insurance policies are level term which don’t offer the flexibility to lower the amount of protection per year. Alternatively, you can buy shorter term life policies. Make sure you also eliminate riders that are not needed.

In addition, there are underwriting factors that you can leverage to make sure you get the right policy at lower costs. Since age is a major determinant of life insurance premiums, make sure you buy one sooner rather than later to lock in lower costs. Also, behavioral changes, such as quitting smoking or improving health, can considerably improve your life insurance costs.

Disability
Disability income insurance is intended to protect your income if you are not able to work due to illness or injury. The benefit period is the main feature differentiating various disability policies. This is the period you’ll receive benefits if you’re unable to work. That is why short-term disability insurance and long-term disability insurance exist. In the former’s case, benefits last for 8-52 weeks, while the latter provides benefits for much longer – it will depend on your plan but usually for 2, 5, 10, 20 years, or even until you reach retirement age.

As with life insurance, make sure you eliminate all riders that are not needed and all unnecessary protection. Also consider the overlap with, such as UMBI and MP for Auto.

Depending on your rainy day fund and savings, you may consider a longer elimination period – the time between an illness or injury and the receipt of benefit payments – to lower your disability insurance costs. For similar reasons, you can also skip short term disability insurance, unless subsidized by your employer.

 

 

2. Subsidizing the Insurance Cost and Leveraging Group Insurance and Government Benefits

Health
With only a few exceptions, the Affordable Care Act requires everyone to have health insurance. One can get health insurance coverage through the employer, or programs like Medicare or Medicaid if they qualify. Also, you can buy your own health insurance. As a rule of thumb, individual health insurance is more expensive since health insurance subsidies from the government and/or employer can significantly reduce your monthly premium payments compared to health insurance bought on your own.

Federal-sponsored health insurance available at reduced or no cost for people with incomes below certain levels is known as subsidized coverage and includes Medicaid and the Children’s Health Insurance Program (CHIP), as well as Marketplace insurance plans with premium tax credits. Make sure you leverage all government-sponsored schemes for which you are eligible.

If you buy your health insurance through the Health Insurance Marketplace, you are eligible for a tax credit you can use to lower your monthly premium. This amount will depend on the income estimate and household information you put on your Marketplace application.

Employer-sponsored health insurance means that the employer contributes a certain portion – with the national average being from 70% for family coverage to 82% for individual coverage of insurance premium and employees pay the remaining amount. When you consider that annual premiums for employer-sponsored family health coverage reached $20,576 in 2019, paying only $6,015 (equivalent to 30%) toward the cost of the coverage is a massive saving.

It’s good to know that if you are married, you can leverage your spouse’s employer-provided health insurance policy. If this is the case, you can get so-called “opt-out” payments from your employer if it offers extra pay to those employees who choose not to enroll in employer-offered group health coverage.

Another powerful tool to optimize health insurance is a Health Savings Account (HSA), which offers multiple tax benefits: first, it’s on a pre-tax basis, which means that every dollar you contribute from your paycheck to your HSA is a tax-free dollar; second, interest earned on this account is also tax-free; and finally, unlike a 401(k) or an IRA, you will not be required to pay taxes on the HSA money when you make withdrawals.

Disability
There are federal, state and private disability plans that can provide coverage in case you become incapacitated by illness or injury. Make sure you utilize all government and employer programs available for disability insurance.

Social Security Disability is a federal program that provides benefits to those with total disability. Also, there are five states with state-sponsored disability plans — California, Hawaii, New Jersey, New York, and Rhode Island — requiring employees to receive short-term disability coverage.

Many employers offer group disability insurance plans for which the premium can be paid with pre-tax dollars. This means that you won’t owe taxes now, but you will pay taxes on the money you receive if you collect your benefits.

 

Life is full of risks and that’s why it’s important to get insured. Still, there are steps you can take to lower the costs associated with insurance coverage.

3. Risk Mitigation

Here’s a little more about what you can do to curb the premium you need to pay each month to have the coverage you need.

Home
Not all homes are created equal when it comes to home insurance. Make your home watertight secure and your behavior on track to crush your home insurance costs.

If your home is equipped with protection devices, this added security layer should be reflected in the lower monthly premiums you pay each month. For example, if your house is a smart self-monitored home or a professionally monitored building or has in-built fire protective devices such as sprinklers, fire exits and smoke alarms, you may benefit from a discount that may go up to 10%.

If you have theft protective devices such as deadbolt, monitoring services, or if your home is within a gated community, this can bring you up to 5% discount as your house becomes a more secure, and therefore lower risk. Similarly, smart homes with water leak detection and shutoff can get up to 12% discount for home insurance.

Maintenance is key to securing not only good quality of living conditions but also lower insurance premiums. A house that is maintained has a lower risk that a big-ticket unexpected cost can happen. So not only will new wiring, plumbing and an impact-resistant roof get you a tax credit when you decide to sell your house, these home renovation projects can secure you lower insurance costs while you own the house.

Finally, your behavior counts too. Since smoking poses a fire hazard, if you are a non-smoker, you’re a much lower risk to the insurance company than someone smokes. This is the reason why you are eligible for a non-smoker discount.

Auto
The anti-theft discount is meant to reward drivers who have taken measures to secure their cars. With equipment such as an anti-theft device, you can get as much as a 15% break on your Comprehensive Coverage, while airbags can earn you a 5% discount on Medical Payments.

Life:
You can take numerous steps to enhance loss prevention and reduce risks for which your life insurer will reward you with lower premiums. For example, if you are a smoker, you can quit smoking. Also, you can take steps to embrace a generally healthier lifestyle and improve your overall health. This way, not only will you benefit from more disposable income on the back of your lower insurance costs, but from a healthier, better quality of life.

Life insurance is what brings a piece of mind. It’s there to ensure that your loved ones are financially secure if you were to die.

4. Choosing the Right Type of Insurance Policy

Life

Term life insurance provides coverage for a certain time period and it only protects your dependents if you die prematurely. In contrast, whole life insurance provides lifelong coverage and includes an investment component known as the policy’s cash value. Term life insurance is much cheaper, so if your goal is to ensure your loved ones’ financial security when you are not around, this is an option to take. The key question to ask yourself before buying life insurance is for how long you want to secure that peace of mind for your loved ones and choose a term accordingly. Shorter terms such as 10 years instead of 30 years will be enough.

Also, if you are of generally good health, it might make more sense to buy a ladder or decreasing term life insurance instead of level term insurance and accelerated underwriting instead of the guaranteed issue of instant life insurance.

Accelerated underwriting allows you to buy a term life insurance policy without a medical exam. Guaranteed issue life insurance also doesn’t require a medical exam or history, and you can’t be rejected—hence the name guaranteed issue. But if you are relatively young and generally healthy, it makes sense to go for accelerated underwriting instead of guaranteed issue life insurance, since the latter is much more expensive and the chances are you won’t be turned down since you are young and in good health. Healthy adults who need to get coverage quickly can get a term life insurance policy with accelerated underwriting without paying more than they would for a policy with an exam.

Health
There are different health insurance plans, and each will come at different costs.

With an HMO (Health Maintenance Organization) plan, you choose a primary care physician and all your medical services go through that doctor. Before you get to see a specialist doctor, you need a referral.

With a PPO (Preferred Provider Organization) plan, you can go to any health care professional you choose, even those outside of your network. 

By choosing an HMO plan, you’ll pay a lower premium while still receiving medical care that you need, although you will lose some of the flexibility. 

To leverage the full power of your HSA account, pick a health plan that can be paired with it. 

Auto
To unleash the full power of insurance customization, choose Usage-Based Insurance (UBI) when shopping for auto insurance instead of a traditional one. If you are a responsible driver, your premium should be lower. To determine your driving habits, insurers use telematics, or a technology monitoring your driving behavior to determine a customized insurance rate or offer discounts. 

Younger drivers who typically pay higher premiums can see a considerable impact of UBI on their insurance costs.

Insurance is needed to protect us as we go about our lives, but dealing with multiple policies, often signed with different insurers, is not convenient, to say the least, and downright overwhelming in most cases.

5. Bundling and Loyalty Discounts

Bundling different insurance policies into one super-package allows you to create one point of contact, a one-stop-shop for all your insurance needs. Not only does it bring convenience as you have only one premium payment to manage and one insurer to communicate with for changes or upgrades, but you can often get considerable discounts. And, as you go about your life and your dynamic insurance needs change, you can add to the bundle as your property list gets longer as you buy a car, home, motorcycle, or other insurable possessions.

Also, some companies offer discounts to longtime customers, so make sure you take this into account when buying insurance, especially if you consider switching insurers. Still, make sure you consider all aspects as, in some cases switching insurers may pay off even after factoring in loyalty discounts from your existing insurance company. But also keep in mind that insurance companies don’t like to see customers who switch insurers too frequently as this may be a sign they are a higher risk to insure.

To attract new customers, insurance companies will usually offer discounts to those newly signed up with them. But even when you switch to a new insurer, you can be rewarded for your loyalty to your prior insurer. For example, new business and a new home discount can get you around a 10% discount.

Auto
Combining auto and home insurance with the same insurer can save you up to 19% in premium payments. Also, if you choose to insure multiple vehicles with the same insurer, you may save up to 30%.

Home
Bundling home insurance with other insurance policies can get you a considerable discount, which will typically range from 5% – 30% for homeowner HO3 policy up to 15% for HO6 condominium coverage.

If you choose to purchase add-ons through your home insurance policy, you may secure yourself substantial savings on insurance costs. Insurance floaters (also called riders) expand your coverage to protect you against risks not covered by a standard homeowner’s insurance policy. For example, home insurance can come with identity theft cover and, as such, will typically be cheaper than to buy a separate identity insurance policy. Also, a so-called companion discount – usually around 10% is offered when a homeowner’s policy is written for a customer who has an active automobile policy with another carrier. Also, if you bundle your home and auto insurance, you may only have to pay a single deductible.

Life Insurance
Multi-life insurance bundling can also get you a considerable discount, typically ranging from 10% to 30%.

 

Disability
You can save on disability insurance if you buy it together with some other types of insurance, such as life. Typically, this discount would be in the 5%-10% range.

6. Applying All Available Insurance Discounts


Home
If you choose to pay premiums on a monthly schedule, it usually costs more overall. Since the cover stays the same, you’re not benefiting from a better policy, so it makes sense to pay annually and save in premiums paid.

Some businesses, associations and organizations offer their employees or members discounts for various insurance policies, including home. Make sure you check if one of these options is available through your employer or an organization that you are a member of and leverage any discounts you qualify for.

Going green is a growing trend and insurance is no different. Many insurance companies now offer incentives to their customers to go green. Environmentally conscious homeowners that can prove that their homes are built up to “green” standards may qualify for green discounts.

These discounts will be applied to homes built with green alternatives including alternative energy sources, such as solar, wind and geothermal power; Energy Star-qualified homes with energy-efficient heating and cooling systems and appliances, lightning and electronics; houses with water-saving, low-flow plumbing and fixtures; houses made with toxin-free materials and those that include debris recycling.

Auto
Insurers often partner with various professional organizations, alumni associations, and other organizations to offer their members discount rates. You may be eligible for a special auto premium reduction if you are a member of one of the partner organizations. These group discounts can be applied to affinity groups (usually a 5% discount), alumni associations (5%), retiree associations (5%), service professional (5%) and degree-professional (5%).

Also, make sure you pay once a term as that way, you may secure a discount.

Disability
If you choose to pay for disability insurance annually, your premium may be lower. Also, check if you are eligible for an association discount. For example, the American Medical Association (AMA) members benefit from a 10% discount with MetLife. Other schemes include hospital residents, interns and physicians discounts, and business owner discounts (10%-15%).

Remember that it’s important to note that while some policies may be cheaper than others, less coverage may be offered in return.

7. Bulk Purchase

Insurance companies frequently offer discounts to certain groups, such as military members and teachers or professional associations and union members. Also, insurance companies often offer volume discounts rewarding customers for buying more insurance by decreasing the cost per $1000 of coverage. This means that you may save on your life insurance if you apply for higher amounts of insurance. Make sure you check with your insurer if there is a scale of different coverage amounts and their corresponding rates.

8. Shop Around

As much as insurance is essential for protecting against potential disasters and financial losses, it is still an expense and a considerable one. The good news is that most of the policies are annual, which means that every twelve months, you have an opportunity to save money by altering your insurance policy while still being adequately protected.

It does require some effort because you need to be intentional about your insurance costs, but the benefits are worth it.

First, don’t just let your policies roll over year after year as that may be costing you a significant amount of potential savings that you forego that way. Policy premiums can vary considerably between insurers, so it pays to do some comparison shopping to get the best deal possible.

Next, once you become intentional with your insurance, armed with the knowledge acquired from the previous sections, contact your insurer and ask informed questions. Review the policies that need renewal and see where you can pinch pennies. 

At Vero, we’re putting the power into your hands to make highly informed decisions to protect the things and people you care about, with all the context you need to make the information meaningful and actionable. Get insured for less and only buy what you need. Discover more.

Do you have the protection you need?

Life is full of risks. To your family. Your assets. Your future. The problem is traditional solutions that propose traditional answers, one policy at a time.

Vero’s fast and free Protection Plan is an unbiased analysis of all your risks. We’ll recommend what insurance to buy — and which policies you can safely cancel to save money.

Continue reading

©2020 Vero Intelligence, Inc.
370 Convention Way
Redwood City, CA 94063

Follow us

Categories
Whitepaper

Why for many self-insuring can be a smart move

Why for many self-insuring can be a smart move

.

In today’s world, increasing financial resilience is challenging yet when done correctly, self -insuring can provide significant cost savings, flexibility and control.

Key takeaways:

  1. Insurance is better mainly for losses that we cannot afford and as a result some policies, or coverage options may not be great financial investments.

  2. Self-insuring can be done in the form of higher deductibles, co-insurance, lower limits, or not purchasing an insurance policy all together.

  3. People self-insure risks every day – cell phones, travel, going online, skiing, etc. Sometimes the “pros” make self-insurance seem scary or out of reach for average consumers (often in an effort to sell them something), that’s not the case. It just comes down to understanding the risk/reward of a particular risk.

  4. Self insurance requires a rainy day fund, which means putting aside money should an event occur, By saving money on insurance premiums, you can invest that money and benefit from the compound interest of your savings.

  5. Self insurance requires financial discipline and a holistic approach. Increased awareness to risk must also be considered.

Insurance premiums can quickly add up: healthcare, car, house, disability and life, just to name a few. And if you never claim, it can easily feel like you are pouring money down the drain. There is another option – self-insuring. But you want to be careful.

Insurance vs. self insurance

Here is a general rule of thumb: Insurance is usually built for losses that we cannot afford or it will be too expensive for us to cover. When we can afford the loss, insurance may not have the best return on the investment and as a result, it might financially not always make sense.

When you self-insure, you set aside extra money to pay out of your pocket for any losses or damages, if and when they occur instead of paying a premium to an insurance company to cover your losses when they occur.

The basic idea behind this, is that you will save money by avoiding making regular premium payments so that you have money to pay for damages if a loss occurs — which may or may not ever happen. However, you will need to be financially disciplined and to not actually invest the additional savings rather than spending it. Also, the investments should not be made into highly illiquid opportunities, so that in the event of loss, funds can easily be made available.

Self-insurance is the process of establishing a fund that you will use to cover the costs of a loss. It does not eliminate or control risks; it provides a means of covering losses that you will have only if the damaging event occurs.

How to Self-Insure and Why Smart People Do It?

What is self insurance in the context of risk management

Risk is a fact of life. We can make active decisions on how we want to handle risk, and in doing so, we have several options at our disposal.

  • Avoidance – this is when you eliminate the source of the risk. For example, if you don’t own a car, you cannot have your car stolen.
  • Loss mitigation and prevention – where the point is not to eliminate the risk, but to reduce/control it by, for example, wearing a seatbelt while driving.
  • Risk transfer – The contractual risk transfer to others, like an insurance contract.
  • Risk retention -where you keep the risk and pay part or all of the losses when they occur.

How to self-insure
You can self-insure by dropping certain insurance altogether or by being very intentional when choosing an insurance policy.

In the first case, you are left without any coverage for a particular risk, which means that you will be responsible for the full amount of losses. This approach may not work well with certain policies. For example, some policies may be required by the law. Also, self-insuring for events that may result in extremely high expenses, such as critical illness (heart attack, stroke, organ transplants, etc) may not really make financial sense and the cost of affording them might outweigh the cost of purchasing insurance.

The second option is to tweak your insurance policy to optimize for protection and price. You can do this by choosing:

  • Insurance policies with higher deductibles as they have lower premiums, so cost less. This means that up to an amount equal to the value of the deductible, you will be responsible for covering your losses. When your losses exceed the value of the deductible, the insurance company steps in and covers your losses based on the agreed amount. Additionally, it means that you choose to self-protect up to the value of the deductible and save your insurance for higher-cost events, which would be much harder to cover out your own pocket. Limit the coverage and choose more restrictive options. Be intentional about the protection that you need and pinch out any excess coverage that may look good on paper, but you don’t really need. For example, if you have an old car with a high depreciation in value, dropping your collision coverage does make financial sense.
  • Choose policies with a long elimination period. The elimination period, often found in long-term care and disability insurance policies, is the time you need to wait before your benefits kick in. Longer elimination period policies have lower premiums. Short-term disability insurance will have a shorter elimination period, usually up to 14 days. Long-term disability insurance policies typically have an elimination period ranging from 30 to 365 days, but some insurers offer even 720 days elimination period – so there are plenty of options to choose from.

Keep in mind that self-insuring doesn’t mean that you go uninsured. Instead, it means that you assume responsibility for financial losses that you may incur, rather than shifting these risks to an insurance company.

It also doesn’t mean that you just randomly drop whatever insurance policy, rather that you are being very intentional about selecting a coverage you really need.

Assuming financial responsibility for losses that may incur is truly an option if one can afford it and understands the insurance technicalities that would be waived.

Why self insuring can be smart for some and how the economics of it all works

Let’s start with how the economics for insurance work. Putting aside the investment, for most common insurance products, there are 4 key metrics: Gross Written Premiums (GWP), Loss Ratio, Expense Ratio, Underwriting Profit.

  • Gross Written Premiums (GWP) is the sum of all the premiums that are paid to the insurance company in that region for that insurance product in one year. A very large portion of this money is then paid back (or expected to be paid back) to the policy holders for claims.
  • Loss Ratios is the ratio of all the premiums that is paid back. For example, for auto insurance typically the loss ratio is around 60%. Meaning that if a company collects a total of $100M in premiums from all its policyholders in a region, a 60% loss ratio means that $60M is expected to be paid out in claims.
  • Expense Ratio is the ratio of all the expenses of an insurance company in order to operate, in comparison to the GWP. This includes distribution costs, loss adjustments, operation expenses, etc. For our auto insurance example ,most companies have an expense ratio of 30-40%.
  • Underwriting profit is the profit that is left after the claims and expenses are paid out. So by adding the expense ratio to the loss ratio, and deducting that from the GWP, what remains is the underwriting profit. So in our auto example if a company runs on a 60% loss ratio, 35% expense ratio and $100M GWP, their underwriting profit would be 5% of the GWP, or $5M.

These metrics are important because it’s how an insurance company prices a premium based on an individual’s risk profile.

For example, what is the statistical likelihood of a 35 year old, male, in the zipcode of 94085, and no driving accident to have a claim of $50,000?. If the odds of that is a 1% chance to happen this year, then the expected loss for that profile is $500.

Using that number, insurance companies add their overhead expense ratio and charge you a premium. For our example, if the company has an expense ratio of 35%, your premium would be something around 135% of $500, or basically $675. Basically, the $500 is the money they expect to pay to people like you on average, and the $175 is their profit.

So why all this technical jargon? Because this is the key to why self-insurance can be great for all risks that you can afford.

Let’s walk through an example: Let’s say you have $30,000 in your rainy day fund, and you have a $5000 car. Imagine you are trying to decide to purchase comprehensive insurance for your car or just collision damage. If the expected loss for someone like you suffering from a total loss ($5000) is $300 a year, the insurance company with a 35% expense ratio will probably charge you around $405. That $105 is exactly the amount of money that you are expected to save that year by not spending money on insurance on average. Money can then be saved, compound interest would be significant and assets grown.

Example: How self-insurance can lower the cost of insurance
Most insurance companies who offer auto or home insurance, have to file their rates and their pricing with each state in the United States. The idea is to make the process of how pricing works transparent. These are called rate filings. Higher deductibles are more cost-efficient and actually coincide much better with self-insurance.

Here we have looked at a few major US carriers in 2020.

  • The USAA rate filing shows that for Collision coverage, a $500 deductible is the standard offered deductible. By decreasing the deductible to $50, the price for that specific coverage (just the part of the premium that is paid for collision and not the entire policy) can be increased up to 80%, depending on the car model. Increasing the deductible to $1000, can result in savings of around 20%. Meaning that the difference between the lowest deductible option can cost twice as much as the highest deductible option.
  • For comprehensive coverage, there is an option to waive the entire deductible (deductible of $0). This can increase the premium cost for comprehensive coverage by a factor of 250%. The cheapest option would be a deductible of $1000, which results in savings of up to 30% from the $500 deductible base rate. Meaning waived deductible can be more than three times as expensive as the highest deductible.
  • For Chubb Insurance, the rate filing shows that from the setting a deductible of $5,000 can be 30% cheaper than a deductible of $250.
  • For Progressive Insurance, a deductible of $100 can be more than twice as much as the deductible of $2,500 for collision insurance, and over three times as much for comprehensive insurance.

Please note on average the collision and comprehensive coverage are 30-40% of the total policy cost.

Example: Long Term Disability Insurance 
Looking at options for a 35 year old male, we compared quotes for an elimination (waiting) period of 60 days versus 365 days. On average, the higher elimination period is 40% cheaper than the lowest option. Though, to typically cover the elimination period you can purchase a Short Term Disability insurance which usually costs as much as the Long Term Disability Insurance, Meaning it can double the  premium costs and in many cases it is not the best return on the investment.

Example: Health Insurance
Looking at quotes from Blue Shield of California for a PPO plan, we compared a high deductible Bronze (Co-insurance of on average 40%) plan, with a Gold (average 20% Co-insurance), with a Platinum (average 10% Co-insurance). The respective plans cost $1659, $2600, $3400 a month. Meaning that the Platinum plan costs twice as much as the high deductible plan.

For a single 35 year old male, the Platinum plan costs a little over $1000, whereas the High Deductible plan costs around $500.

Self-insurance is a useful approach in the case of smaller and predictable losses. In other words, the lower the potential loss or, the more predictable it is, the more it makes sense to self-insure.

Considerations

Self-insurance will work better in some situations than others, while in some cases, it won’t work at all.

  • Some insurance coverages are legally required, such as auto insurance required by state regulations (though liability loss limits will vary between states) and health insurance. Homeowners insurance will be required for those who bought their homes through a mortgage.
  • Self-insurance depends on the financial buffer that you have, or excess money stashed away to cover a loss. Self-insurance does not benefit from diversification across multiple insureds, and therefore it can become quite capital intensive.
  • A key factor when considering self-insurance is the potential size of a loss assessed against your own financial resources and the cost of liquidation and taxes for different asset classes in the event of a loss.
  • Keeping a portion of your assets more liquid in order to self-insure can result in less financial gain compared to investing them in less liquid asset classes.
  • Self insurance has a higher degree of discipline which would not necessarily work for all where insurance can help. Having additional savings can result in spending more rather than allocating it to a rainy day fund.
  • Discounted insurance plans at scale and the power of group purchasing can lower the associated costs of recovery and claims. Self -insurance cannot provide this. Many times when it comes to some insurance products like dental DHMO or vision plans, insurance companies negotiate discounted rates with the providers which can result in savings.
  • Minimized stress and risk: Many people prefer not to worry about anticipating risk even if financially costs more. In addition, for many, affording a loss might mean selling a property or liquidating other assets in which that cost of liquidation might just be too high.

However, it is important to keep in mind that you can’t look at the potential loss in isolation – you need to look at it from your own financial perspective. This is why you need to assess the size of potential loss against the money you have saved away for covering unexpected expenses, which we usually call an emergency fund.

Finally, the decision should always be based on an individual’s risk profile, objectives, and personal financial situation. Life is full of risks. To your family. Your assets. Your future. The problem is traditional solutions propose traditional answers. Let’s make sure you’re protected.

Do you have the protection you need?

Life is full of risks. To your family. Your assets. Your future. The problem is traditional solutions that propose traditional answers, one policy at a time.

Vero’s fast and free Protection Plan is an unbiased analysis of all your risks. We’ll recommend what insurance to buy — and which policies you can safely cancel to save money.

Continue reading

©2020 Vero Intelligence, Inc.
370 Convention Way
Redwood City, CA 94063

Follow us

Categories
Whitepaper

Eight reasons why risk and insurance should be managed holistically and not in silos.

Eight reasons why risk and insurance should be managed holistically and not in silos

.
Different loss scenarios require various channels and dedicated resources to address the needs effectively. Silos create barriers to this and hinder communication, data and ultimately what’s best for the client.

Eight key takeaways:

  1. Risks in life go in both directions: Upside and downside. Gains and losses can offset each other.
  2. There is always going to be residual risk that needs to be accepted. Rainy day funds and savings should be considered across everything.
  3. Convenience – acquiring, managing, and paying for policies and dealing with claims can be a lot more streamlined and centralized which can result in much less friction and more convenience.
  4. Personalization – Insurance was built around products not people. A holistic approach allows for much better personalization of a protection portfolio.
  5. Coverage overlaps can result in over insurance.
  6. Savings on insurance premiums – you can bundle.
  7. Purchasing insurance with set priorities based on limited budget.
  8. Self – insurance vs investments: by smart management of your rainy day fund you may decide to invest more rather than pay for more premiums.
The management of risks is complex and therefore needs a holistic approach to address it’s many variables. Learn how a siloed approach in risk management and insurance can miss gaps, inhibit collaboration and ultimately not provide the proper expertise and protection.

Diversification - Offsetting losses with gains while maximizing returns


Not all risks manifest themselves at the same time, sometimes downside and upsides realizations naturally offset each other to some extent.

Risk elimination, mitigation and financing come at a cost; maximizing ROI requires making smart choices across all available options. Here is an example for dealing with the risk of a car accident:

  • Elimination: Not driving a car at all. For some people leveraging ride sharing services or public transportation might be a better option when considering: comfort, cost, and risks associated with driving.
  • Mitigation: Purchasing cars that are a bit more expensive but are equipped with driver assistance packages to reduce the risk of accidents.
  • Financing: Purchasing comprehensive auto insurance so the insurance company finances costs associated for a loss such as theft.
  • Acceptance or Self-Insurance: For many older car models, purchasing a comprehensive insurance policy is not worth it in terms of premium return. Increasing rainy day funds might be the better solution. 

A holistic approach to risk management and insurance should assess and analyze the cost ROI for different solutions and diversification across the risk portfolio.

Smarter Financial Planning


Most people have an overarching set of financial goals they want to achieve. To buy a house, save enough money to retire at age, or even a dream vacation However, when it comes to long term planning, suffering a loss is often not considered, specifically the odds of financial distress in different loss scenarios. A unified holistic approach can use powerful statistical models and actuarial science to calculate the expected loss for an individual for each scenario and as a whole, taking into account diversification. Matching the outcome of these models with an individual’s appetite to accept residual risk across all risk categories, as well as their budget and financial goals can provide a much more accurate forecast and plan for financial wellness.


Covering more while paying less for insurance
Almost all insurances require premium payments and it can get very expensive very fast. When you have a limited budget, it is important to maximize the protection by prioritizing coverage for losses that can be more devastating. For example, purchasing disability insurance over dental insurance. Or purchasing more life insurance than comprehensive coverage for your car.

Convenience in dealing with insurance
Based on the number of people and assets an individual is trying to protect, they might be dealing with upwards of ten different policies. Acquiring each policy, comparison shopping for each on an ongoing basis, making payments, accessing policy information, and most important in the claims process, increasing the number of insurance companies an individual has to deal with can significantly increase the friction. Having centralized dashboards to access all relevant information, acquire policies, ask questions, and to potentially get support with claim can result in a much better user experience.

Personalization of insurance portfolio
Insurance was built around products and not people. That means an insurance company looks at the profile of a driver, groups it together with other similar drivers, and offers an insurance policy that can be a good fit for all those people. The policies and recommendations are all about what the average driver and average risk looks like and what protection it may need. In an ideal world, an holistic approach should look at the aggregated needs of a family, and tailor their policy to the overall risk exposure and specific needs. Although, holistic is not the entire solution to this problem, it definitely can be a major first step towards creating tailored flexible insurance policies for any risk profile


Budgeting right based on priorities

Almost all insurances require premium payments and it can get very expensive very fast. When you have a limited budget, it is important to maximize the protection by prioritizing coverage for losses based on your objectives.

Objectives may include:

  • Protecting personal financial assets and to provide liquidity in the case of catastrophic losses
  • Minimize probability of financial ruin and blowing through the entire savings in the case of an emergency
  • Take advantage of network related discounts, premium subsidies and defer taxes
  • Get access to certain services, goods, and rights.

Each objective can result in a completely different prioritization of insurance in the case of budget constraints. It may result in prioritizing losses that are more likely to happen but less devastating (like car accidents), or less frequent but more devastating (like long term disability).

Many insurance policies can offer overlapping coverages. A holistic portfolio allows tailoring coverages so that they complement each other without too much overlap.

Avoiding overinsurance and overlaps in coverage
A good example of this would be auto insurance. An auto insurance policy can overlap with health insurance, umbrella insurance, and disability insurance. No recommendation is complete without considering the existing policies to avoid overlaps and purchase of unnecessary coverages.

Bundling to save money on premiums
Many insurance companies reward customers, sometimes as much as 25%, when they bundle their policies. The reason for this is that when an individual bundles their policies, the insurance companies benefit from: better retention, no extra acquisition cost, and overlapping coverages. The discounts are their way of sharing some of the profits back with customers.

Bundling typically works in two major ways: Bundling multiple separate policies with the same insurer or adding an endorsement to an existing policy instead of an additional policy.

Self-insuring like a pro
Insurance is built for losses that we cannot afford yet the financial investment does not always make sense at certain times. The basic idea behind self insurance is that by avoiding making regular premium payments, you can save and potentially invest a lot of money in the long term. Furthermore, by not having to pay for insurance company overhead expenses, self- insuring can potentially make a lot of financial sense for losses you can manage. Taking a holistic approach to self insurance is essential to anticipate a variety of scenarios and also save for unexpected costs.

At the end, it’s all about peace of mind
Taking a holistic approach to insurance ensures the consideration of various loss scenarios while also providing coverage and protection. A siloed approach to risk management misses gaps and the long term impact of risk compromising the essential component: a peace of mind.

 

Do you have the protection you need?

Life is full of risks. To your family. Your assets. Your future. The problem is traditional solutions that propose traditional answers, one policy at a time.

Vero’s fast and free Protection Plan is an unbiased analysis of all your risks. We’ll recommend what insurance to buy — and which policies you can safely cancel to save money.

Continue reading

©2020 Vero Intelligence, Inc.
370 Convention Way
Redwood City, CA 94063

Follow us