How Paying Your Insurance On Time Affects Your Total Cost of Risk

One thing that is rarely mentioned when taking about your total cost of risk is the payment of your premiums. Insurance companies are looking at many ways to determine the best-in-class clients, and the financial process is one aspect they consider. Best-in-class clients get better rates and therefore reduce their cost or risk.

Some key things to consider regarding this are:

Paying your premium on time prevents notices of cancellation from being issued on your account.

When you receive a notice like this, they usually give you a date that coverage will cease. This is usually 10 days. If you miss the notice or are out of town, your policy can lapse. If it does lapse, your agent/broker has to ask for permission for the carrier to re-instate the policy. In doing so, they will usually have you sign a no-loss letter stating you have not had any losses during the lapse period. This can eventually catch up to you if you have a loss during the lapse period, and it is uncovered or the carrier declines to re-instate the policy. This gap can extend as the broker then has to find a new market for your risk.

The insurance carrier decides you are a higher risk and decides to non-renew or not reinstate your insurance.

If you were with the best-in-class carrier with the best pricing and they decide they do not want to renew your coverage, the other carriers in your space might have higher rates or deductibles which will increase your premiums and therefore total cost of risk.

Late Fees

These can add up quickly and make your insurance dramatically higher.

Underwriting Considerations

The carriers have several factors they take into consideration when pricing your renewal and one of those is cancellations for non-payment. Even though you may be financially stable, this makes them think you are a higher risk because you have not paid on time. They will sometimes price your account higher or require financial statement to be provided.

Safety

When your insurance cost depends on safety they are looking for clients that take care of business. They might unfairly decide that if you do not pay on time that you might not be organized on the safety side as well and price your account higher to account for that.

Paying your insurance premiums and audits timely are another important factor for determining your risk profile and therefore will affect your total cost of risk. These are important considerations when managing your company and financial processes. It’s always safe to pay early and avoid the possible pitfalls.