Offering a discount for new business is simply a way of trying to attract new business by making you stand out from the rest (of policies). The thing we (EBM) are faced with is trying to combat the massive advertising budgets of companies such as NRMA, AAMI etc. We know that the product (RentCover) we have is exceptional, is competitively priced, and most importantly the service that is received, particularly when it comes to claims, will stand out and create loyalty. We know that and I’ve been around for over 20 years to see it.
The problem is that too many people will see the big names and figure that will ensure them the best product etc., rather than going with the products that have been truly designed from the ground up for landlords, as opposed to starting with a standard household policy and trying to adapt it to suit landlords.
RentCover from EBM is a product that has always been priced very specifically based on claims and with a view to sustainability. The excellent track record when it comes to claims is no accident, the pricing has been done to ensure there is an adequate premium pool to pay claims without trying to screw people (to use the technical term). If that price reduction was sustainable throughout the life of a policy then the premiums would simply be set cheaper, but it’s not.
The 60 days free is essentially a loss leader, it has been used many times by us over the years in different situations to encorage new clients. Like many businesses in other industries we make the decision that to get new customers to get a taste of our product we are willing to take a “hit” in the first 12 months, knowing that the vast majority will then remain with us for many years at the correct premium. It’s similar to a supermarket that offers some lines below cost so that you then purchase full priced products, could they sell all their products below cost? No, as they would go broke. Similar to a landlord that offers two weeks free rent to get a new tenant. Will they give them another 2 weeks free when they sign a new lease? Unlikely, they still need to make a profit. Unless of course the “normal” price is in fact overpriced.
With insurance you need to build a certain premium pool to be able to sustain losses. Within that there are some good years and some bad years, but at the end of the day if it is well managed there is enough money in it to keep the insurer liquid and pay claims fairly and promptly. If it was possible to reduce all RentCover premiums by 16%, we would do it, but it simply isn’t, that is if policy holders wish to get claims paid, and in the last 12 months alone over $12 million has been paid out. RentCover is a well managed product which is largely the reason we have had the same insurer for over twenty years (Mercantile Mutual originally who were bought out by QBE). Compare this to other products that have had to jump from one insurer to another, which is always a bad sign, consistency is the key.
In this case we have permission from the insurer (QBE) to offer a discount for certain promotions for the first twelve months, we don’t have permission to offer it to existing policies, many of whom by the way will previously have received the 60 days free on their original policy anyway. Under the binder agreement we have, it’s simply not something we are permitted to do. I guess something that most people wouldn’t realise is the amount of work that actually goes into setting premiums and ensuring that a product remains viable. It’s a complicated process that is done by minds far better than mine, but it’s vital if you want fair claim settlements when you really need it. That said we go to bat for landlords every year to ensure the premiums are kept as low as possible.
I personally introduced the 60 days free, including the current campaign. The reality is, if we were to try to apply it through every policy on renewal, the policy wouldn’t be around in two years time, which really wouldn’t be good for anybody. But the bigger we can make the premium pool in the meantime the more resilient it is to disasters, and the long term effect is keeping premiums down for everybody.