I’m starting this blog with a bit of history. In the 19th century there was a practice in American bars of offering a "free lunch" in order to entice drinking customers.
The customer would need to buy just one drink to get a free lunch. It was a tempting offer, but the lunch that was provided tended to be cheap and included high-salt foods, and the customer would go on to spend more money on beer.
The concept went on to become an economic buzz phrase for ‘opportunity cost’ – what you could have bought if you hadn’t spent your money on something else. Economist Milton Friedman even titled a book “There’s no such thing as a free lunch”.
What has beer got to do with insurance?
I was reminded of the phrase when a prospective client asked us for a quote recently. We provided a range of quotes for cover that was suitable. They advised us that they had gone with another provider, whose price was almost two thirds cheaper than our highest quote – and a third cheaper than our lowest.
You may ask, why are we telling you this. Does this mean Practice Cover is expensive?
In truth, for like for like cover, we are incredibly competitive. But in the locum insurance market – like other healthcare products such as PMI – there are always insurers who try to boost their portfolio of customers by promoting pricing that is unsustainable in the long term.
This can have two effects for the policyholder:
Firstly the insurer will have little choice but to put its prices up in a year or two to protect their ‘loss ratio’. (The loss ratio is essentially how much the insurer pays out compared to how much they take in in premiums.) The consumer will be forced to change provider and look for the next insurer that’s chasing market share.
Secondly the insurer – or in fact the underwriter – will take a dim view of claims. This can mean they fight hard not to pay, or have such tight terms of insurance that there will be fewer valid claims to pay out.
We are aware of one of our competitors having a loss ratio of 200%. This means they would actually pay out double in claims what they take in premiums, because they are slashing the price of the premium to attract customers.
What does this mean for the policyholder?
We think you should look at these pricing strategies in a circumspect way.
If a premium is suspiciously low, then the policy is probably poor quality. This means the policyholder will have a fight if they’re to get a claim paid. So cheap is OK, so long as you never have to claim.
At Practice Cover we have a low ‘loss ratio’, which means that our policies are properly priced and provide quality cover, and are therefore sustainable. We don’t need to up our prices or hoodwink our policyholders to stay solvent. In fact, we haven’t had to increase premiums for more than 5 years.
Feel confident that your insurer will pay claims
Our customers agree that we have a reputation for paying claims when they arise – without quibble. Here’s a great example:
Dr Helen Douse is a GP in Rugby. She said: "I had an absence insurance cover plan from Practice Cover. It was really easy to set up and very good value compared to other policies.
“I recently broke my dominant shoulder in a skiing accident and was rendered unable to write, use the computer at any speed, or drive – and therefore unable to work. I was very pleasantly surprised at how easy it was to make a claim... a simple form to be submitted (and a short report from the GP) along with copies of my GP-issued sick notes was all that was needed.
“Almost before I knew it payment was on its way to my bank account, relieving the additional stress of financial worry when needing to pay a locum to do my work. I would really recommend this policy."
The conclusion of our tale?
If you think a premium is too cheap, remember: there’s no such thing as a free lunch.
The opinions presented in this blog are solely those of the author on behalf of Practice Cover Limited and they do not constitute individual advice. Practice Cover is a trading name of Practice Cover Limited and is authorised and regulated by the Financial Conduct Authority