While some of the longest serving companies are insurance companies because they have been risk-adverse, we are now at a tipping point where it is more risky to do nothing.
The importance of risk management was highlighted at one of SSP’s thought-leadership events, where David Smith, CEO of Global Futures and Foresight, described how risk analysis will enable the insurance industry to move towards a preventative role, where it becomes less about compensation.
When this happens, the industry will move from being one of the least trusted to one of the most trusted industries.
Given the interest in this topic, what should insurers and brokers be doing now to improve their risk selection and validation? Two industry specialists share their views with us…
View from Kevin Pallett, Managing Director at Aspen Risk Management Ltd The focus of an owner, chief executive or finance director may be on growth, maximising profit, expansion into new markets, product development or cost savings, but one thing is for sure, it will not usually be on buying insurance.
So it’s rather perplexing why so many brokers and insurers insist on trying to sell a product that companies do not seem to want, and do so by offering cheap prices with an increasing degree of commoditisation, even for larger commercial cases. Lowcost structures and cheap prices are all very well if the product actually meets the client’s needs. Unfortunately, in many incidences, this is not the case.
Nowhere is the saying “Price is what you pay, value is what you get” more true than in insurance where, for most customers, the product is only fully understood after they have paid for it. Actually understanding the client’s wider needs and finding an offer that matches those at an acceptable price is a far better way to transact business and build a relationship for the long term that delivers real value.
The client’s real need is to identify the risks and threats that their business faces, and then look at what can be done to prevent them from happening in the first place. Then if the worst should occur, what can be done to mitigate or even negate the impact and recover quickly. The final line of defence is financial compensation. However, money can never fully compensate for pain and suffering or customers finding new suppliers. Clients need risk management, of which the insurance product only forms a part.
So why don’t insurers focus on the client’s real needs? This will pay dividends for the client over simply buying a package of insurance cover. It may even mean they actually buy less insurance. This approach begins with a detailed, in-depth understanding of the business and a needs analysis.
Digital technology, globalisation, cyber threats and the challenging economic climate are rapidly changing the operating environment for UK business. Companies of all sizes are trading outside their comfort zones – with global sourcing of components and materials from countries like China and India, and dealing with just-intime supply chains.
In contrast, the Confederation of British Industry identified a lack of in-house expertise among UK mid-sized companies in areas such as legal, human resources and risk management. Recent research from The Institute of Chartered Accountants in England and Wales (ICAEW) showed that as many as 51% of SME (Small and Medium Enterprises) intend to increase their risk management spend.
All of this spells an opportunity for insurers to work in partnership with their selected brokers to meet clients’ needs more effectively to win and retain business.
Insurers can help businesses identify the risks they are exposed to, so these can be mitigated through proactive risk management, considering which risks could be retained and which can be transferred through insurance.
This can be achieved through the use of risk surveys and analytical tools, as well as help with business continuity planning and health and safety. Other areas where support could be provided include data backup, cyber and intellectual property risk, and legal and human resources advice.
Enriching the information already available with other geographical, behavioural and demographic data from various sources provides the most accurate picture, minimising the risks faced by both the business and its insurer.
Clients need to carefully differentiate between the various offerings of insurers and brokers, seeking out the firms that want to develop longterm relationships and offer more than just cheap insurance. Risk is a fact of life for every business. But not every business faces the same risks. That’s why it’s vital to get professional advice that considers the big picture.
Clearly, when it comes to risk, prevention is better than cure – which is where the art of risk management comes in. So it’s time to start selling what our clients want to buy – not what many think or assume they want to buy.
View from Adrian Coupland, Director, Insurer Partnerships and Data Services at SSP
At the moment, the lack of consistency in trading methodology is still an issue in the market.
Although there are exceptions, insurers are generally still behind the curve in developing their e-trading solutions – and brokers are aware of this. Therefore, while brokers understand the significant efficiency benefits that are achieved from the automation of tasks and straightthrough processing, there is also a lack of real traction in e-trading for simple products.
However, brokers and insurers need to get on board with e-trading to enable time to be spent on the more complex risks, so they can really understand and address the client’s needs. While there is a preconception that larger risks can’t be traded electronically, the advantages of bringing broker advice and an online approach together to enable better validation of risks are clear.
While such larger risks may not deliver an immediate quote, automation will improve the electronic exchange of risk data and documentation, as well as the final bind process. Not only does exchanging data electronically provide certainty of the risk being insured, as both sides have visibility of the same data, but it also enables documents, surveys and pictures to be attached as part of the risk submission.
The greater efficiency achieved through e-trading enables insurers and brokers to use their expertise in the right way, providing the support required to give customers the best service. Moreover, by being able to evidence that customers are getting the most appropriate advice and products, brokers can demonstrate to the FCA that they are acting in the customers’ best interests.
With brokers having to find ways to shrink their frictional costs and transact commercial business more effectively, e-trading provides the optimum solution. However, if insurers and brokers fail to take up the baton now, they risk losing out to disruptors who are seeking to expand their presence in the market.
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