Conditions in the Irish (and indeed, global) insurance market are extremely challenging. Significant increases in prices, limited capacity and lower quality of cover are all placing even greater stress on companies across the country.
With that in mind, we are offering some practical guidance explaining what your organisation can do to mitigate the damage.
Getting the right mindset:
Over the prolonged ‘soft’ market that prevailed for the last decade and a half, most policyholders would have approached insurance in the same way that they might any other procurement decision. In other words, they see themselves as a buyer. The reality, particularly in a hard market, is that companies are in effect sellers.
Rather than purchasing a service, they are attempting to strike a price and terms for transferring their risk to someone else.
This is a crucial conceptual difference and requires the policyholder to package and promote their risk in the same way that they might think about the products that underpin their revenue flows.
Another way of looking at this is that insurers are essentially similar to banks – in that both sets of institutions provide access to capital in specific circumstances. The only real difference being the trigger that makes that capital available to the client.
As with banks, periods of poor insurer performance led to a tightening of terms and a reduced willingness to provide access to capital. Yet few policyholders approach insurers in the same way that they might seek investment from a bank. Rather than building a narrative and showing the positive aspects of their company’s performance, they instead approach renewal as an administrative exercise. Getting out of this mindset – and working out how best to make your company’s proposition stand out – can be crucial to the way in which insurers perceive your business, allowing you to renew on more generous terms than your peer group.
Practical steps to improving your renewal:
Once you have adopted the mindset of a seller or a business seeking investment, you are already well positioned to get the most from the market. However, that mindset must be manifested by actions if it is to be truly effective:
- Start early – when capacity is scarce, negotiations with insurers are much more one-sided. Ultimately, your business needs to secure cover by a fixed time, giving the insurers greater leverage. By starting earlier, you take control of the process and give yourself a greater range of options. Similarly, a proactive approach means that you can spend more time packaging and marketing your risk.
- Set clear objectives – decide the priority of your insurance requirements in advance. Where are you happy to compromise? What are your red lines? Are you willing to take on more risk? Designing risk scenarios can be a powerful tool to help you answer these questions. Scenario modelling starts by assessing the risks you actually face and then determining the impact on your business. Once you have taken this crucial step you can determine exactly what you need from the market.
- Meet with as many insurers as possible – it used to be the case that policyholders would meet up with insurers as a matter of course. As time has gone on, brokers have tended to act more like gatekeepers and often jealously guard their client relationships. However, getting in front of your incumbent and potential future underwriters is an essential step in educating them about your risk and unlocking additional capacity. You should also ask your broker which other insurers they have approached on your behalf. Be clear that you want to understand exactly who these meetings were with, and what feedback was received.
- Create a compelling risk prospectus – too often, policyholders only provide pro forma submissions to insurers, or allow their brokers to create submissions that the policyholder never sees. This can seriously undermine underwriter understanding and appetite for your risk. Creating a comprehensive prospectus that details your risks, management and mitigation processes, along with all other pertinent details, can be the difference between getting a good quotation or none at all. You should not allow your broker to present something to insurers unless you have signed it off yourself. It is imperative that you are aware of the information being provided to the insurance market about your risk, if your disclosure is incorrect it could lead to a claim being disputed.
- Be willing to make big changes – a broker or insurer who views you as a captive client is unlikely to go all-out to get you the best possible deal. Being willing to change partners is essential to generating a competitive environment for your risk. Rather than running a traditional ‘conceptual tender’ in which a broker is selected based on what they might be able to achieve, we recommend taking a ‘written lines’ approach in which two brokers are allowed to approach their preferred insurance partners. This means that the quotes you receive are not estimates but achievable realities. You then appoint the broker who delivers the best price and terms. On cases Mactavish has worked on, the ‘written lines’ approach has achieved premiums savings of up to 50% against the incumbent broker’s estimate.
- Get regular updates – make sure you have regular calls with your broker and your insurer to understand the progress that is being made – ask questions, and demand answers – if your broker says a number insurers have “No quoted” then ask the reasons why, and don’t accept blanket justifications such as “there’s no appetite” or they “don’t like your sector”. Make sure you drill down further to get the exact reasons. If you are being lumped into a sector because of your activities, but your business better than the norm, then ask your broker to demonstrate how they have differentiated you from your peers. Similarly, you should not wait until the week before renewal before you are presented with the insurer’s final terms, by then it will be too late.
- Check the small print – as we pointed out in our previous note, hard markets impact both pricing and the extent of available cover. As often as not, neither insurers nor brokers will draw to your attention that a potentially important aspect of your cover has been removed from the wording. The effects of these changes are not negligible, and in some cases a tiny alteration in wording can have a significant impact. To use one very current example, policyholders in the UK may or may not have business interruption cover for Covid-19 losses depending on whether or not their policy wording refers to ‘premises’ or ‘vicinity’. A line-by-line analysis, with proper professional support is a must.
By thinking about yourself as a seller and proactively marketing your risk you will help your company to stand out from the herd. That, in turn, will lead to greater interest in your business, better terms and lower premiums.
Unfortunately, there are no shortcuts in a hard market and your renewal will certainly require more work than a normal year. The good news is that those who make the extra effort will continue to benefit over a number of renewal cycles, even as the insurance market begins to normalise. Put simply, being known, and understood by more insurers as a ‘good risk’ has a long-term impact that could give your business a competitive advantage.
Managing Director, Mactavish