It’s the same principle, just a higher risk and therefore a requirement for a larger amount of capital. At a practical level, I agree, it would be hard to implement for anyone but the biggest clubs.
But it would still be an exceedingly interesting exercise* to add up the premiums a club would pay to insurance companies and analyse the savings it makes when they claim.
Over time, and granted, that might be a long-ish time, I maintain the overall point that financially, that club would be better off investing that money instead.
*If we worked it through with the Mitchell Park Sporting Club - from memory our annual insurance bills are about $16k a year. That’s NOT PL or PI, that’s simple stuff I think, like building and contents etc. We have made a couple of claims for broken windows and the like, but nothing major to the best of my knowledge.
Over 4 years we might have “saved” $5k a year by having an insurance policy - this is a gut feel. Over 4 years, with a stock standard 6.25% term deposit from Bank SA, starting with the $16k worth of premiums we would earn $4.5k in interest if we didn’t touch it for a total of $21.5k, take out the $5k worth of things we would normally claim for and that’s still $11k and $3k interest for a total of $14k at the end of the year…
So with insurance, we’ve spent $16k to save $5k for a total of minus $11k. Without insurance (but with the capital) we’ve spent a total of $5k but ended up with a positive $14k balance at the end of the year.
How many years would it take until the “risk” the insurance companies are supposedly covering is completely mitigated? If we roll that $14k each year and reinvested the $16k worth of premiums again, it starts to add up very, very quickly - and this is without being too clever with other investment options - it’s just a bank account.
The problem is if you get a major disaster before your capital is mature - but my argument against that is:
ThisThisThisOr, in other words, when a major disaster occurs, insurance companies don’t really want to pay for it either and will do mostly anything to get out of it, so your risk isn’t covered anyway! And therein lies the problem, any insurance business model isn't mutually beneficial. Someone is losing and when the pockets of the insurance company are naturally much deeper, they're not often on the losing side.
Might as well look after yourself IMO.
Posted: Mon Jun 01, 2015 3:04 pm