Kevin Pallett is Managing Director of broker only commercial insurer Fusion. Having spent over 25 years in the industry he believes in finding ways to modernise and improve the industry's working practices.
He writes on the issue of contract certainty.
Ours is a tough, demanding industry – so why do we make the job harder than it needs to be?
We should be able to offer policyholders contract certainty as a bare minimum. The fact that so many policies are arranged without it is a huge indictment of the industry. It is not as if we derive any long-term benefit from operating in this way! In effect, we embrace inefficiency and invite disagreements and disputes for no good reason.
Insurance is complex. Even when the circumstances are straightforward and everyone is pulling in the same direction, there is a need for technical skill and proactive communication. Unusual and problematic risks merely accentuate the requirement. So you would think the cornerstone of insurance procedure would be objective standards that allow everyone to know where they stand.
Wouldn't you?
But as anyone with five minutes' experience knows, this is rarely the case. And because this situation has endured for years, the industry has grown to like it and clients have had to lump it.
But this year, things are different. We now have a statutory regulator. And the Financial Services Authority cannot understand why it is so difficult to ensure that everyone knows where they stand when a deal is done.
That is why you are reading so much about contract certainty in the trade press. The FSA wants it to be the norm and it has given the industry breathing space to introduce reform. There have been shrieks of alarm from those wedded to the current way of doing things. But these practices clearly cannot continue. It is time to move on.
The good news is that contract certainty already exists, here and now. Policies are being effected on a contract certainty basis as you read these words. And it is happening without any radical overhaul of traditional insurance practice. Contract certainty is being offered simply as a result of all parties agreeing to a manageable timetable and honouring their commitments.
The secret is for the insurer and broker to commence work in advance of the renewal or inception date. This enables them to assess the client's risk management and insurance needs and agree the cover, terms, conditions and premium before the policy goes live.
The work done in advance includes issuing the policy, completing the survey and agreeing any risk improvements. Thus the client is guaranteed certainty of contract. They know what they are buying and they've got time to check what they've bought and make amendments or additions before it takes effect.
The philosophy also applies to renewals. Working in advance means providing terms or holding discussions at least three weeks before renewal. Any company making this commitment should have sufficient confidence to guarantee renewal on expiring terms if it fails to meet its deadlines.
Some grizzled insurance people will think this approach revolutionary– and maybe for our industry it is. But elsewhere in commerce it is bread and butter stuff. No wonder the FSA is perturbed.
If the insurers you deal with can't offer contract certainty, you should be placing business with firms that can.