If you haven’t contacted your insurer lately, you’re probably paying too much for your insurance.

When I moved home I contacted my insurer, MiWay, to inform them of the change of address and that my car would no longer be in a locked garage. They informed me that my monthly premium would be increased by nearly R200. After picking myself up from the floor I told the consultant that I would have to shop around for other quotes. He asked me to hold a moment. A few seconds later he came back on the line and said he had looked at my customer profile. As someone who was such a valuable customer they had re-assessed and would only increase my premium by R20.

I was ecstatic and thought my insurer was just fabulous. But then I started speaking to other people about their insurance experiences and a pattern started to emerge.

When Rosa was notified by her insurer Auto & General that her premium on her household insurance was to increase by a massive 21.7%, she sent them an email to question the figure. “They replied quickly, offering me a reduced quote that was an increase of just 4.2%, which obviously I accepted,” says Rosa.

Gillian, a savvy consumer, has learnt to question her OUTsurance insurance premiums each year. “Last year, they dropped the proposed premium by R11 000 for the year when I showed them competitor quotes. This year all I had to do was to say “I am querying the premium increase” and they instantly kept it the same as last year instead of hiking it by 17% – a saving of R4 000 over the year.”

It’s understandable that customers are starting to wonder why they have to continually question their escalations. Surely the client’s profile and behaviour should already have been priced in, and you should already be getting the best deal possible?

Pressure to retain good clients

The reality is that insurers are willing to make less money from good clients rather than lose them altogether. As Dawie Buys, manager of insurance risks at the South African Insurance Association (SAIA) explains, the short-term insurance industry is a hugely competitive business and insurers will do everything in their power to retain clients who have a good risk profile, as it is far more expensive to put new business on the books.

Buys says the present difficult economic situation means consumers find themselves with less disposable income and often the first thing they look at is where they can save on insurance premiums. “It is therefore not abnormal for them to approach their insurer with a request to have the level of their premiums reviewed. Insurers then take a look at their circumstances and risk profile and if it is a client who they would like to retain they will compromise by offering a lower premium at renewal where it may be justified.”

Christelle Fourie, CEO of insurer MUA, says that consumers typically shop around when it’s time for their annual policy renewal, so for the insurer it is a very fine balancing act to try and increase premiums to keep up with inflation, but at the same time retain profitable clients.

“Ultimately, we have to work hard to retain our good clients. You will find most insurers will be prepared to renegotiate renewal increases if a good client is not happy with the increase proposed.”

In response to my query around the handling of escalations, Antoinette O’Callaghan of Auto & General Insurance said that factors such as general global financial dynamics, rising inflation, unpredictable weather conditions as well as the customer’s individual risk calculations are used to calculate premium increases.

In the case of Rosa who had household contents insured with Auto & General, O’Callaghan says the general increase for household items is 10% in order to prevent the customer from being underinsured as the increase in the insured value will also account for a portion of the overall premium increase that is allocated (see sidebar: How your premium escalation is calculated).

The benefit of having a good track record

O’Callaghan says when a customer contacts them regarding a premium increase, “we will do what is possible to assist and retain the customer. This may range from adjusting the customer’s cover based on the individual’s specific needs which may have changed since inception of the policy, to reviewing the increase to determine if a discount can be allocated.” In some cases, Auto &General will make a business decision “to insure certain customers at a rate lower than what we would deem economical to insure the customer for the next year.”

So Rosa really benefited from the fact that she has a good track record. She has been insured by Auto & General since 2008 and has never claimed against her policy. “Based on her outstanding customer profile a decision was made to insure her at a lower rate and a discount was allocated accordingly.” While Rosa is understandably frustrated that Auto & General did not initially put through a lower premium increase, it highlights the need for customers to remain proactive.

In Gillian’s case, Ernst Gouws, CEO of OUTsurance, said that over time a client’s premium rating could change. “When we calculate a client’s initial premium at the time of taking out cover with us, we use a very sophisticated actuarial model to predict the client’s likely future experience with us. Based on this, we set the client’s initial premium. Over time, we get to learn a lot more about the client’s actual experience with us, and we use this data – gradually over time – to adjust the client’s initial premium.”

Gouws explains that some clients therefore get an annual adjustment which is in excess of inflation reflecting a worsened profile, while others get a below-inflation increase. Some clients don’t get any inflationary adjustment to their premiums, which implies a premium reduction in real terms.

Due to the fact that Gillian had not claimed between September 2012 and June 2014, her profile was close to receiving no renewal adjustment but still fell within the standard 7% adjustment bracket. “When she called in to query her premium, our retention advisor did his best to retain her as a client. Our system allows our retention advisers a measure of discretionary discount, and it allowed us to waive the renewal adjustment and offer her roughly 25% discount on her premium.”

As Gillian had subsequently submitted two claims, when she called the second time she did not receive any further premium reduction but the adviser was able to waive the renewal adjustment.

“We believe we offer our long-standing clients very good value for money. Yes, it sometimes happens that we are able to give a client some further discount when she queries her premium or wants to cancel, but this depends on the client’s profile with us. There are also many clients who call in because they are unhappy with their premiums or because they were offered a lower premium by a competitor but to whom we cannot offer a better deal. Over time a good profile with us does lead to lower premiums in real terms, without the client having to query her premium,” says Gouws.

The consumer is king

The long and short of it is that insurance companies want to make profits and will not be offering significant discounts on premiums or lower escalations unless pushed to do so. The good news is that it is a highly competitive industry which benefits individuals with good risk profiles, but you have to be proactive.

“We live in a world where the consumer is king and if you look after your insurance claims record, you will be in a position of power to successfully negotiate increases down, without having to change insurers,” says Fourie.

Different insurers may also offer different rates for the same cover so it’s still worth shopping around. As Buys explains, insurers hire actuaries who have developed different rating factors that influence the different elements to different extents. “Imperfect pricing and differing strategies to an extent also result in policyholders being able to purchase insurance cheaper at another insurer,” says Buys.

So get proactive and check that you’re getting the best deal from your insurer.