In this piece, JOSEPH INOKOTONG states that rate cutting is not always bad entirely, as in some cases it can be good for both customers and insurance companies.
Rate cutting in insurance refers to the act of an insurance company reducing the premium that a customer pays for a policy. This is typically done in an effort to attract new customers or to retain existing customers. Rate cutting can be beneficial for customers as it can help them save money, but it can also be problematic as it can lead to underpricing of risk and potential financial losses for insurance companies.
However, it is not uncommon for insurance companies to engage in rate cutting from time to time, but it is not necessarily standard practice. Many factors can influence an insurance company’s decision to lower rates, such as competition in the market, changes in risk profiles, and fluctuations in the overall economy. Insurance companies also need to balance the need to remain profitable with the need to attract and retain customers, so it is not uncommon for them to adjust rates as needed. Ultimately, whether or not an insurance company engages in rate cutting will depend on a variety of factors specific to that company and its overall strategy.
Likely factors that may lead to rate cutting in insurance include Market competition: If there are a lot of insurance companies competing for business, they may lower their rates to attract more customers. Changing risk profiles: If an insurance company’s customers become less risky over time, they may decide to lower rates to reflect this change. Fluctuations in the economy: If the economy is doing well, insurance companies may lower rates to stay competitive and attract more customers.
Regulatory changes: Changes in government regulations can impact the insurance industry and lead to rate cuts.
In spite of the numerous factors that can influence rate cutting in insurance, the act can be a double-edged sword. On one hand, it can be beneficial for customers as it allows them to save money and may even make insurance more accessible to more people. On the other hand, it can have negative consequences for the insurance industry as a whole.
A few potential negative consequences of rate cutting are Underpricing of risk: If insurance companies cut rates too much, they may not be adequately accounting for the risks they are taking on. This can lead to financial losses for the companies.
There are several ways that rate cutting can be checked in the insurance industry. Here are a few ideas: Government regulation: Governments can implement regulations that limit how much insurance companies can reduce rates. Industry self-regulation: Insurance companies can work together to set standards for pricing that prevent excessive rate cutting. Greater transparency: Greater transparency in pricing can make it easier for customers to compare rates and choose the best option for them, which can help to keep prices competitive.
Again, insurance experts say rate cutting is not always bad as in some cases rate cutting can be a good thing for both customers and insurance companies. For example, if a company is able to reduce its costs through technological advancements or other innovations, it may be able to pass these savings on to customers in the form of lower rates. Also, rate cutting can be a sign of trouble: In some cases, rate cutting can be a sign that an insurance company is in financial trouble.
Despite these, many people will want to save money while purchasing their insurance policies because lower rates mean more funds to spend on other essentials or luxuries, but switching to an insurance company that offers a lower-cost policy may cost more in the long run. The new cut-rate policy may not offer the same protection as the previous policy, and it may be up to the policyholder to make up the difference in case of an accident.
It, therefore, becomes imperative to know all the answers such as if the new policy provides the same coverage as the old policy, before making the switch to another.
Lowering coverage limits is the easiest way to decrease policy costs, although the owner may not be fully protected if one of these lower-cost policies is chosen. The unbelievably low price the new insurance company quotes may only be good for its bare-bones policy. Take a look at the old policy and make sure that the new policy will offer coverage in the same Naira amounts.
Also, make sure that both policies offer the same type of coverage. For example, if you currently have both liability and collision insurance, depending on the jurisdiction of the operation, switching to liability coverage only will lower your costs. You may think it is worth the risk because you cannot imagine you’ll ever be involved in an accident, but experts say that more than five million people find themselves in accidents every year.
Unfortunately, if you only have liability coverage, your insurance policy will only pay for repairs or replacement for the other driver’s car and not yours.
Increasing the deductible (the amount of money that the insured must pay before an insurance company will pay a claim) decreases the amount of the premium (or monthly payment). Paying a higher deductible for a lower premium might sound like a good idea now, but it may not be worth it when your car is damaged and you have to fork over the deductible. If your previous deductible was N550, and the new one is N1,500, it may be hard to find the money to pay for your portion of the repairs.
In the case of motor vehicle insurance, make sure you understand how repairs will be handled before you agree to a policy with a new company. Ask these questions: Will my car be repaired with new parts or used parts? Am I limited to specific auto body shops? If so, are any of those shops close to my home? Will the policy pay for the full replacement cost of my car or the depreciated value? Does my policy cover the cost of a rental car while my vehicle is being fixed?
Also, it is important to know the type of customer service to expect because accidents are upsetting and stressful, therefore, dealing with an insurance company should not add to the stress, but all companies do not offer the same level of customer service. The new company may be able to offer lower prices because it hires far fewer claims agents than the current company.
When an accident happens, you want a quick response from your insurance company, your claim processed without delay, and repairs completed in a reasonable time frame. No company is going to admit to poor customer service, but it can be uncovered how happy customers are by reading online reviews and asking friends and family members about their experiences with their insurance companies.
An independent agent can help find the best policy. Choosing a new insurance policy based purely on cost alone may end up being more expensive than you could have imagined. An independent insurance agent can help to weigh the pros and cons when considering making the switch to a new insurance company. Independent agents do not work for one particular company; they can research several companies to find the best coverage at a reasonable price. They may even be able to offer cost-saving suggestions that you did not know were possible.
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