Insurance

[edb49]

Let's say I offer rented can machines to businesses. So they pay me £x/month, and their staff can pay 50p for a can of Coke.

Can I offer them insurance against the machine using (as an example) too much power? E.G. If it exceeds the specification power usage then I will pay the excess of their power bill.

What I'm getting at is whether insurance like this is "special" and I need to be underwritten or similar before I offer it.

[Jemco]

edb49 said:

Let's say I offer rented can machines to businesses. So they pay me £x/month, and their staff can pay 50p for a can of Coke.

Can I offer them insurance against the machine using (as an example) too much power? E.G. If it exceeds the specification power usage then I will pay the excess of their power bill.

What I'm getting at is whether insurance like this is "special" and I need to be underwritten or similar before I offer it.

Why would you want to? If I rent a machine from you, how could I prove how much power it's using? If I can prove it, how much power could a machine take over and above the specification? What power management devices would it have? How often would it be checked/maintained? Therefore, from an underwriter's point of view, what is the maximum exposure? Following on from that, the underwriter would need to build in some chance of profit and is also likely to have a minimum premium.

This isn't a regular type of cover that people consider. I hope that I haven't taken your question too literally - but, it is an unusual scenario.

Finally, under the Financial Services Act, unless you are FSA authorised, you are unable to offer insurance to your customers without involving an authorised intermediary. And, guess what? We need to earn a margin too.

Hope this helps.

Jemco

[edb49]

Jemco said:

This isn't a regular type of cover that people consider. I hope that I haven't taken your question too literally - but, it is an unusual scenario.

Finally, under the Financial Services Act, unless you are FSA authorised, you are unable to offer insurance to your customers without involving an authorised intermediary. And, guess what? We need to earn a margin too.

I was trying to use an analogy, not really talking about coke machines as you've no doubt guessed.

Could we sell the same service under a different name? E.G. Using our Coke machine example, how about "Electricity Overusage Protection Service" instead of "Electricty Overusage Insurance". I suppose I'm asking if "insurance" is a protected word when describing a service.

[Jemco]

edb49 said:

Jemco said:

This isn't a regular type of cover that people consider. I hope that I haven't taken your question too literally - but, it is an unusual scenario.

Finally, under the Financial Services Act, unless you are FSA authorised, you are unable to offer insurance to your customers without involving an authorised intermediary. And, guess what? We need to earn a margin too.

I was trying to use an analogy, not really talking about coke machines as you've no doubt guessed.

Could we sell the same service under a different name? E.G. Using our Coke machine example, how about "Electricity Overusage Protection Service" instead of "Electricty Overusage Insurance". I suppose I'm asking if "insurance" is a protected word when describing a service.

It's not the word "insurance" that's regulated, but the practice of transferring risk to an underwriter in return for the payment of a premium is.

[edb49]

Jemco said:

It's not the word "insurance" that's regulated, but the practice of transferring risk to an underwriter in return for the payment of a premium is.

I don't quite understand. Using a different example, we bought a company car recently and paid an amount for servicing and maintenance for the first 3 years. As I see it, that's transferring risk from us of excessive maintenance costs to the dealership/manufacturer. It was sold as a "Service Plan" but is effectively insurance. Does the dealership have to be FSA regulated to sell the service plan?

[Jemco]

edb49 said:

Jemco said:

It's not the word "insurance" that's regulated, but the practice of transferring risk to an underwriter in return for the payment of a premium is.

I don't quite understand. Using a different example, we bought a company car recently and paid an amount for servicing and maintenance for the first 3 years. As I see it, that's transferring risk from us of excessive maintenance costs to the dealership/manufacturer. It was sold as a "Service Plan" but is effectively insurance. Does the dealership have to be FSA regulated to sell the service plan?

In this example, the dealer isn't accepting the transfer of risk in return for a premium. You have subscribed to a maintenance plan that he has already priced. In his view, it is a known and predictable cost. The maintenance plan will have been for specific items/work and you have simply pre-paid for them.

Insurance is the transfer of risk, in return for payment of a premium, in respect of an unexpected loss. A vehicle maintenance programme, or similar, is an expected loss. If you do a certain number of miles, your car will need servicing and there is a particular cost involved. This is not insurance as it is an expected cost.

[edb49]

Jemco, thanks for all the help so far

I still don't quite understand the distinction between an expected and unexpected risk. With the maintenance plan from the dealer, it covers brake pads/discs, tyres, wiper blades, etc. Depending on how the car is driven, there will be a different usage of these consumables.

I can understand how the servicing element can just be a payment in advance, but the maintenance element is a variable cost surely. There must be some situations in highly unusual usage where the dealership spends more on maintenance and servicing than the consumer has paid for? Likewise there will be many very profitable jobs for the dealership; they pick a commercial rate which works for them most of the time.

[smartie]

edb49 said:

Jemco, thanks for all the help so far

I still don't quite understand the distinction between an expected and unexpected risk. With the maintenance plan from the dealer, it covers brake pads/discs, tyres, wiper blades, etc. Depending on how the car is driven, there will be a different usage of these consumables.

I can understand how the servicing element can just be a payment in advance, but the maintenance element is a variable cost surely. There must be some situations in highly unusual usage where the dealership spends more on maintenance and servicing than the consumer has paid for? Likewise there will be many very profitable jobs for the dealership; they pick a commercial rate which works for them most of the time.

There may be different usage on tyres etc, but it's not risk - they WILL wear out, it's a certainty.

Insurance is for unexpected events, using tyres up is not unexpected.

[Eric Mc]

Tj=he dewal with the car seems to indicate that it was a leasing arrangement - so legally, you haven't actually bought the car at all.

[edb49]

Car was bought outright..

[S1MMA]

Jemco, what sort of risks do you broke? London market?

edit: just read your profile and seen the links.....

Edited by S1MMA on Thursday 21st February 10:16