Is it a good idea to sign a long term agreement in exchange for a discount on your business insurance premium?
I spoke to a company director this morning who had taken out a five-year long term agreement (LTA) on the company’s commercial insurance in order to save money. In other words they had signed an agreement promising to stay with the same insurer (and probably the same insurance broker as well) for at least five years. A discount of between 5 – 10%, on the insurance premiums due during that period, was probably agreed in return for this loyalty.
This means that the company is effectively tied in and cannot now easily move to a different insurer or insurance broker offering more favourable terms, until the five years is up, even if they are unhappy with the service they are receiving. However, if the insurance company decides it wants to increase the premium, due to, say, a poor claims experience, it can usually get out of the LTA quite easily.
If you are considering taking out a long term agreement, it is, therefore, important to read the small print and see exactly what you’re agreeing to.
In the current market, when insurance companies are competing against each other and offering discounts for new business – loyalty may not always be rewarded.
So, before you decide whether or not a long term agreement is a good idea, consider who will benefit the most from it – you, your existing insurance broker or the insurance company?