More and more risk managers are considering multi-year insurance contracts as a way to lock in beneficial terms, conditions, and pricing before today’s “soft” market hardens. Before you make a decision, consider these facts.
A multi-year policy offers significant advantages:
- Locks in favorable rates and coverages. Some insurers are slashing rates as much as 25% to attract buyers. The long-term potential for savings can be highly advantageous.
- Lessens hassle. Because multi-year policy renewal dates are several years apart, you’ll avoid the time-consuming, costly process of annual policy renewals.
- Strengthens relationships. A multi-year policy can help build long-term relationships among you, your agent, and your insurer. You’ll probably enjoy better rates, terms, conditions, or claims services than under single-year coverage or a three-year cancelable policy.
Here’s the downside of multi-year coverage:
- Vulnerability to market timing. A multi-year contract leaves you locked in to specific terms, conditions, and rates for an extended period – which can prove frustrating if the cost of coverage continues to drop.
- Cancelable or adjustable rates. Many “non-cancelable, multi-year” policies contain one or more clauses giving the insurer an out. Even if a policy is non-cancelable, it might still allow the company to raise rates based on your loss history or other factors.
- High up-front costs. The entire premium is often due at inception. Although you might get attractive premium-financing terms, lost opportunity costs on your company’s internal rate of fund returns might offset premium savings.
- Fragility of the relationship. Relationships grow from trust and experience over long periods, not from a single multi-year policy from an insurer with whom you might have little experience.
True guaranteed-rate, non-cancelable, multi-year polices can provide a variety of benefits not available with traditional annual policies. However, in some instances, these policies might be little more than marketing gimmicks designed to lure you with the possibility of substantial savings.
For an evaluation of your situation, feel free to get in touch with our risk management professionals.
