Minimising Insurance Cost and Self-Insurance
Minimising Insurance Cost and
There are only two ways of minimising expenditure on insurance: First, by reducing the element of risk involved in materials movements, and, secondly, by introducing selfinsurance to take care of small and fairly predictable losses and seeking the insurer’s assistance only for protection against catastrophic losses.
Risk Improvement and Minimisation of Loss
The nature of packing, the mode of transport and the extent of care exercised in materials movement have a bearing on the probability of losses occurring and on the quantum of such losses. Whenever there is an improvement in any of these, the insurers should be persuaded to consider a reduction in premium rates. It is sometimes profitable to discuss risk and loss rninimisation measures with the insurers, themselves, who may come out with suggestions based on their experience over a wider range of clients.
It appears a sound policy, from the point of view of cost reduction, to consider self-insurance for certain risks, especially where the size of operations is large.
The cost of processing claims has to be taken into account while calculating the expenditure on insurance. Self-insurance could operate more profitably for the transit of finished goods than for incoming materials, because, in the case of finished goods, all the risk factors attendant on transit are within the organisation’s control and the experience of losses over the past few years should be readily available to ascertain the pattern of transit losses. But to transfer the insurance responsibility to the carriers is an unwise move. Self-insurance could be introduced progressively by first excluding claims for less than a specified amount and working up to a stage where only the most restricted form of insurance to take care of catastrophic losses is taken. But these are decisions which have to be taken in each case depending on the circumstances, taking into account the accumulation of risk.
the maximum possible loss arising out to an accident, the administrative expenses in dealing with insurers, suppliers and buyers, regarding claims and the tax angle.
A systematic and periodic, preferably, an annual review of the existing insurance arrangements of the organisation, the cost and benefits, should be undertaken. The insurance needs of a large and complex organisation are ever changing and the insurance cover designed with care today may not remain a perfect fit two years from now.