In the 19th century there was a practice in American bars of enticing customers by offering a “free lunch“.
The customer would need to buy just one drink to qualify for his “free lunch” but the food tended to be cheap and highly salted … so the customer would go on to spend more money on beer.
What has beer got to do with locum insurance?
This can have two effects on you, 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 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 locum insurance companies 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 their premiums to attract customers.
Clearly the long-term sustainability of this strategy is in question and it’s you, the policyholder, who could suffer.
Remember, if you think a premium is too cheap: 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