At what point does insurance become less efficient than other financing alternatives? Insurance has some inherent advantages in the leveraging of premiums into loss settlements. Still, it does not offer any significant return on loss prevention investments and is suffering from increasing opportunity costs as the quality of the industry’s ability to administer its own product has been declining.
It begs the following questions:
- When might a different risk management solution be better than buying an insurance policy?
- At what point does investing in loss prevention mean you could reduce insurance for an exposure based on how current policies are written and priced?
- How can self-insuring for some loss exposures lead to a decrease in insurance premiums and avoid paying the insurance company administration expense?
- What alternative recovery plan would suggest that you could avoid the cost of the insurance claim experience?
Insurance is not inherently bad; it’s just struggling right now to do better at being what it has the potential to be. If your insurance company is absent while it waits for you to have a bad day, or if your insurance company responds to you in ways that don’t meet your expectations, then perhaps everyone would benefit from taking a step back to look at alternatives.
The competition to insurance is not different insurance; it’s not needing it. With insurance companies actively closing/restricting new policies, non-renewing customers, reducing coverages, increasing premiums, leaving some States, and eliminating programs, they’re trying to tell you they want you to want them less, too! We can all pitch in to help achieve this goal.
Darren McGraw & Mechelsen Private Client 