Article date: 29 November 2004
Most SMEs would prefer the stability of a fixedrate premium option, according to new research into businessattitudes to insurance pricing by Norwich Union.
69% would opt for a tied-in, fixed rate premium,remaining the same (barring claims and major changes to thebusiness) throughout the negotiated period.
Only 11% were interested in the rollercoasteroption, paying steep increases some years, in return for reductionsin others. And nearly two thirds (62%) of SMEs would rather theirinsurance premiums increased by a modest amount year on year.
While most SMEs (84%) claim to understand thereason why their premiums change year on year, nearly half (46%)believe insurers increase premiums to keep up with inflation, whilea third believe premiums rise simply so insurers can make moreprofit. Less than one in ten were under the impression that brokerswere to blame, taking more of a cut.
More than a third of SMEs think that up to 40%of the total cost of a premium goes straight to the insurer’sbottom line, while 15% believe that as much as 60% would be profit.And nearly 5% thought more than 80% of a premium goes straight toprofit.
John Seaton, Underwriting and Pricing Director, Norwich Union,commented: "Customers may appreciate increasing levels of cost forinsurers, but they clearly have little understanding of therelation between the price of cover and its real cost. We are at apivotal moment in the commercial underwriting cycle where we canpotentially break the age-old pattern of volatile highs and lows inpremiums. We need to educate customers on the long-term nature ofinsurance pricing and the benefits of a gentler ride."
Opinions are divided on the motives behindindustry initiatives to control premium instability. While 40%believe that initiatives such as anti-compensation culturecampaigns and rehabilitation are good for the welfare of claimantsand society as a whole, a further 37% cynics believe they are justanother way for insurers to make money.
When quizzed on who they trust to give fairinsurance advice, most SMEs claimed they turn first to theirindependent financial advisor (29%). It’s good news forbrokers though, with as many SMEs trusting their broker to give animpartial view, as their friends and family (27%). Over half (53%)of SMEs would pay a slightly higher premium to their broker to getgood advice. Just over a quarter (26%) turn to the media fortrusted advice from financial journalists, while 22% now seekfinancial advice on-line.
Only 7% trust an insurer to tell it like it is,the only compensation being that banks and building societies scorean even less trusted 5%.
Perhaps surprisingly, however, insurers do notappear to suffer from the same ‘fat cat’ criticism asother industries. 40% of respondents thought that banks sufferedmost from fat cat bosses, followed by utilities (24%) andpharmaceutical heads at 13%. Insurance executives trailed in fifthposition, with only 7% of SMEs attaching the fat cat vilificationto them.
When it comes to choosing their main insurancesupplier, price, unsurprisingly, remains top of the list ofpriorities. While 32% of SMEs cite competitive pricing as the mainreason, only 25% always buy the cheapest commercial insurance theycan find. Other factors such as service, reputation, good policiesand being easy to work with also come into play.
For further information, please contact:
Debbie Wells at Staniforth on 0161 274 0100 or David Ross atNorwich Union on 08703 66 68 65/07786 526350.
Notes to editors
The research wasconducted for Norwich Union by independent research companyLightspeed Research amongst 500 SMEs across the UK.
- Norwich Union is the UK's largest insurer with a market shareof around 14 per cent
- With a focus on insurance for individuals and small businesses,Norwich Union insures:
- one in five households
- one in seven motor vehicles
- more than 800,000 businesses
- Norwich Union products are available through a variety ofdistribution channels including brokers, corporate partners suchas banks and building societies and Norwich Union Direct.
- Norwich Union’s news releases and a selection of imagesare available on the Aviva internet press centre atwww.aviva.com/media.
- An ISDN facility is available for studio quality broadcast.Call the press office on 08703 66 68 68
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