Insurers often charge an extension fee for new or potentially dangerous treatments, but how do they calculate the risk, and why do their fees vary so much? Christina Ryan, senior account handler at insurance broker Inevexco, which administers Professional Beauty Direct, explains

Insurance

In running your salon or mobile beauty business, you’ve probably come to see liability insurance as a necessary evil. We often hear customers comment on the amount of money they pay to their insurers, despite having never had a claim, but if you have only paid a premium of £52.50 then have a claim for £10,000, where does the insurer gets the money to pay out? All those small premiums go into a pot and the insurer will pay the claims from that same pot – the contribution of the many will settle the claims of the few.

You may have already heard horror stories of treatments gone wrong, resulting in claims running into thousands of pounds. Claims don’t always have to come from an injury – some people claim because they don’t get the results they expected or found the treatment more painful than they thought it would be.

The main thing to remember is that the more invasive a treatment is, the more things can go wrong. Those side effects and complications they tell you about in your training can happen to real clients and the results can be catastrophic. Cryolipolysis is a good example – on the face of things, it’s just using a machine that could be considered foolproof. However, we have recently seen claims arising from cryo burns and the fat it should have removed being turned solid, leaving the client with a lumpy, scarred stomach.

Calculating risk

This claim is likely to be settled in excess of £13,000, which makes the £89 additional premium for the extension a little more understandable. Think how many £89 premiums it will take for the insurer to be able to pay £13k damages – and that’s just for one claim. Even something as seemingly trivial as a wax burn to the lip or brow is settled at around £5,000 and the premium for a basic policy, which covers these treatments, is just £52.50.

The same thought process applies when choosing a price to charge for a new treatment, the plasma pen being a good example. This is such a new treatment that it was being offered before the machine was even medically approved in the UK. When a treatment is so new, neither insurers nor therapists fully understand what could go wrong and how severe the consequences could be. Insurers will, therefore, often choose a higher starting price to protect themselves should the treatment end up causing lots of injury claims.

New information

After a year or so, they will review the claims history and decide if the price should go up, come down or stay the same. If an insurer charges pennies for a premium and pays out thousands in claims they will not stay in business for very long and could leave their customers without protection in the event of a claim if they just don’t have the funds to pay them. It is a careful balancing act of keeping prices competitive while making enough money to be able to pay claims when they arise – and pay staff and run their own businesses too.

You may have noticed that different insurers charge different premiums for treatments, which can give the impression that they don’t understand the treatment and are overcharging. I can’t speak for everyone, but as the big beauty insurers all use different underwriters, they have each had a varying experience of claims, so they have separate qualification requirements. All these things have a direct impact on what you pay. Insurers tend to apply rate rises or high premiums when they have had to pay a lot of high-value claims (or when a treatment is very new) as a protection mechanism to ensure there is enough money in the pot to deal with any claims.

Pricing structures

At Professional Beauty Direct, we spend hours each week keeping up to date with the latest treatments. We try to reflect in our pricing the invasiveness of the treatment, the skill required to carry it out and also the quality of training courses being provided. Sometimes when a new treatment comes into the industry we will work closely with a specific trainer offering exceptional training in that new treatment and we will insure their qualifying therapists only, until such a time comes where we have maybe a year’s worth of claim-free data. Then we would look to extend cover to other qualified therapists and training providers.

We hope this little insight into how insurance works will help people understand why the prices are charged as they are. In buying your policy you have accepted that there is enough of a risk to want some back up if it all went wrong so how much are you willing to pay if the worst did happen? An extra £89 or the £13k for the claim?

Contact Professional Beauty Direct insurance on 0345 605 8670. professionalbeautydirect.co.uk