How is your not-for-profit's insurance premium worked out?
07/13/2024
Many of the cost pressures charities and other non-profits face today can be directly linked to a single event or source. For example, a Bank of England interest rate rise will lead inevitably to an increase in mortgage costs, while a jump in the price of crude oil will quickly lead to an increase in the cost of filling up a petrol or diesel vehicle.
But when it comes to insurance premiums, numerous factors are involved in determining a fair and sustainable price. In this article, we explain some of the key factors insurers must consider when setting a premium.
Internal factors
The first thing to be aware of is that insurers must take into account factors both within, and outside of, the control and scope of your organisation. Internal factors will include:
1. Your organisation’s activities
Insurers need to understand what kinds of activities you run or are involved with so they can evaluate the associated risks. This includes understanding how many individuals interact with your organisation, and whether your activities include anything that might be considered high-risk, for example working at height. Providing detailed and up-to-date information when arranging your insurance will help to ensure you have appropriate cover in place. This includes not only your usual day-to-day activity, but also occasional or one-off events that might introduce different risks.
- See our article on event risk management.
2. Your property
An important part of the insurance premium calculation is the location of your property. Insurers will consider factors such as flood risk and crime levels in a locality.
They will also evaluate other risks associated with your property, such as the construction materials used. Properties with timber frames, for example, will typically attract a higher premium than brick-built buildings, due to their increased fire risk.
Other modern construction methods, such as modular buildings, can also influence premium costs, as there is often no choice but to replace an entire section of a building if something goes wrong. Listed or heritage properties are also often more expensive to repair in the event of damage, as specialist materials and skilled labour are usually needed.
3. Your cover requirements and claims history
The other main internal factor that insurers will consider is what type and level of cover you require, and your claims history. This could include examining any previous incidents or claims, or instances where you have been denied insurance.
Examining claims history is a routine part of Zurich's underwriting process and helps ensure we can give you the best possible service and protection. On a broader level, building an understanding of the most common types of claim experienced by our customers enables us to provide more useful and relevant risk management guidance.
To find out what other internal factors can impact your insurance, take a look at our guide.
External factors
Premiums are also affected by changes in the world around us, including events and circumstances over which we have little control.
1. Rising raw material and labour costs
The cost of repairing or reinstating property after a loss has been affected by a variety of major global events in recent years, including COVID-19 and the conflict in Ukraine. These events have exacerbated shortages of raw materials and labour, leading to delays in supply and increased costs.
2. Increase in large losses
There has been an increase in the frequency and severity of some large loss events in recent years, including subsidence, wildfires, storms and floods. Escape of water is also a growing issue, with claims increasing by 15% between 2021 and 2022. There were £2.7 million worth of escape of water losses each day on average in 2022.
3. Rising personal injury claims
We are seeing an increase in the volume and severity of personal injury claims, partly as a result of the growing number of ‘no-win, no-fee' legal firms.
At the same time, care costs are increasing due to longer life expectancy and advances in medical treatment. Many seriously injured people are now surviving accidents that would once have proved fatal. Insurers must factor in the increasing cost of long-term care when working out premiums.
To find out what other external factors can impact your insurance premium, download our guide.
What you can do as a customer
The list above is by no means exhaustive and there are a variety of other factors insurers must consider. You can find out more about some of these factors in our guide, Insurance premiums explained.
Understanding the key factors that determine your organisation’s premium will give you a better idea of what you can and cannot control. The most important thing you can do is provide as much relevant information as possible at policy inception or renewal, as well as notifying your insurer of any significant changes in your organisation that might affect your cover requirements.
Doing so will help ensure you get the cover you need while also reducing the risk of underinsurance.
What is underinsurance?
Underinsurance is where the sums insured on a policy are set too low to cover the full reinstatement costs in the event of a fire, flood or other significant loss. In these circumstances, insurers will apply a ‘Conditions of Average’ clause, meaning any payout in the event of a claim will be reduced in proportion to the level of underinsurance.
Case study
A village hall committee took out insurance several years ago, with a sum insured of £300,000 but the actual cost to rebuild the property is £600,000. The hall was partially destroyed by a fire and the committee claimed under their buildings insurance to reinstate the building.
The total project cost, including debris removal, professional fees and repairs to the surrounding car park was estimated at £100,000.
This meant that the village hall was underinsured by 50%. The ‘Condition of Average’ was applied and the insurer made a cash settlement of £50,000. The committee were left with a deficit of £50,000 and the hall was out of action for 3 years whilst funds were raised.
Want to know more about the factors that determine your premium, download our guide - Insurance premiums explained
