Takeaways - what are the commercial insurers up to?

Over many years, UK based commercial insurance companies will approach different segments of commercial markets. What this means is that they will build up statistics, both their own and external research, and decide whether they will start to insure different types of business.

It is a common misconception that every insurer is happy to underwrite, or insure, every single type of risk. Insurers are fickle beasts most of the time. The problem this present is that, whilst they may be happy to insure a particular type of risk in 2010, this is not to say that in 2011 they will turn around and say no thank you.

Takeaways are a prime example of the way insurers dip their toes in and out of markets at will. Even taking into account the terrible effects of the recession on our high streets, there are still tens of thousands of independent takeaways in operation. Every single one of these risks needs their own individual takeaway insurance policy Forget the big chains as they have their own, separate, block policy arrangements.

The single, or multi location, independent operators are the ones that we speak to on a daily basis. They are suffering from all angles. Joe Public does not have enough money to spend, energy costs are increasing, raw material costs are on the up and many of the commercial insurance companies are looking to either increase premiums or exit markets entirely.

As there are thousands of takeaways, some insurers have been chasing a quick pound. They decide that if they built a bespoke product for the market and sold it cheaply, then they would get hundreds and thousands of pounds of premium income. This is what they have been looking for over the past few years. We have seen insurers that in 2006 would not touch a takeaway with the proverbial barge pole, suddenly decide a few months later that they were going to corner the takeaway market.

But there is a reason why insurers did not touch this market. If you did not price correctly and properly address risk management, then you would not make money. Takeaways are more susceptible to losses than, say an office. They always have been and always will. They may not have as many break ins, but they get windows smashed, have money stolen and employees slip, trip and fall and burn themselves. This all results in an industry that a) certainly needs insurance and b) needs to pay above average premiums. If the market price for an annual takeaway insurance premium is £700, if a new insurer comes in an starts to charge £500 per risk then this means a few things.

Firstly, they are likely to grow market share. Secondly, they are going to be getting just under 30% less per risk than the market price which is usually in the region of being correct enough to make money. The last, and most pertinent point, is that they will start to pick up the worst performing risks. These are the ones that search around year after year for ever cheaper premiums, whilst at the same time suffering losses. These three points all add up to an insurer that is growing a book of business that will be un-profitable. Add into the equation two very harsh winters, resulting in increased burst pipe claims and an increase in crime since the recession kicked off. This means that their un-profitable book of business becomes even more un-profitable.

Now we are seeing, in 2011, some, not all, of the insurers either increasing their premiums by 20% plus or they are just exiting the market. No longer will they cover fish and chip shops, takeaways or kebab shops.

Where this occurs, you may need to seek a different business insurance broker. Many brokers tend to have a small number of insurers for each category of business. If they only have a couple of insurers covering takeaways and both of these react to their unprofitable underwriting by increasing prices or exiting, then even the broker may struggle.

We are not saying a change of broker will always save money. But, remember that market price we talked about still exists. Natural economics makes this happen. That market price is still available and could either save you money or at least give you an alternative that is pretty close to last years premium.

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