Insurance buyers are experiencing the challenging reality of a hard market, many for the first time. Underwriters are cutting cover, increasing premiums, and are being very selective on the classes of risk they are willing to insure. In some cases, buyers are unable to even get terms for renewal, reflecting a significant change over what we have seen in the soft cycle that has prevailed over the past decade.
Hasn’t impacted you yet? You are certainly in the minority, and it’s a pretty good bet that it will at your next renewal. Rates are expected to continue to rise and risk selection will continue to dominate underwriter behaviour for some time yet.
In these difficult times, what strategy do you adopt to engage with the underwriting market? Are you on the front foot with your strategy, or are you simply waiting for the results to hit with little ability to influence the outcome? Whilst there isn’t a lot small businesses can do to influence the outcomes, medium and large organisations can make a real difference.
Having been insurance buyers for a number of large ASX companies, ABM’s partners have first-hand experience in development of insurance strategies. First and foremost, it’s not about buying insurance - it’s about selling risk.
This may sound like a subtle difference but it is an important one. If you want the support of underwriters you need to convince them that you are a good manager of risks. You do that by engaging with them to show them how effectively your organisation manages risk. This is evident through your organisation’s risk management framework, your risk culture, and your commitment to an effective control environment. These elements should make it evident that you understand your risks, have confidence in their controls, investigate your incidents, and take the necessary lessons from them.
Unfortunately, selling risk is not something practiced by many brokers. Their focus is on individual risks, or classes of risks, rather than risk management.
Adopting this approach ABM's partners have saved organisations millions in premium. In some cases shifting the dial from being seen as “uninsurable”, to a “good risk” simply by demonstrating the commitment to, and effectiveness, of risk management.
As a business the key ways to increase the value from your insurance program in the hard market are to:
1. Ask hard questions of your brokers – ensure they understand the market, and develop and implement a strategy specific to your renewal, well in advance of expiry
2. Engage with the market by presenting your risks to the underwriters – nobody can sell your risks and risk management better than you
3. Change your mindset – from risk comes opportunity. You are in a position to influence your insurance program much more than in previous years – both positively and negatively!
Not all brokers are created equal. Ask your broker to show that they have the skills and experience to ensure you get the best outcome. Most brokers have never been buyers of insurance (or sellers of risk), so you must be specific and firm on what you expect from them. If they can’t step up, go elsewhere.
If you'd like another view of your insurance program's design & function, or if you need assistance in evaluating your broker performance, give us a call for a free strategy diagnostic.
(Photo credit: Edu Lauton)