Insurance firms should work with their clients to promote the benefits of risk management
As companies seek to slash costs, risk management has come under the spotlight. In the first quarter of 2009, 1,311 companies were placed into administration in the UK. Airmic, the UK risk management association, said that its membership has shrunk by 3% over the past 12 months. Some top executives wonder what a risk manager does all day. And when belts are being tightened, many believe the role could be consolidated or eliminated altogether.
To avoid the chop, risk managers need to take every opportunity to show that they are indispensable, so that companies do not see them as a luxury they can do without. Brokers and underwriters may be able to help risk managers demonstrate how they add value in some areas, such as avoiding losses, saving premiums and extending coverage. But there are other areas where risk managers will be on their own, and they will have to show initiative.
Successful insurance managers can deliver big savings for their companies. This is generally well understood. Lockton International asked a sample of underwriters if a risk management function within a company could favourably influence insurance prices; 83% agreed that it could.
But given the current climate, risk managers will find it hard to continue to deliver consistently cheaper insurance programmes. With capital being squeezed on the one hand and claims rising on the other, the insurance market is widely expected to harden any time soon. If this translates into higher prices for corporate insurance, or fewer premium reductions, insurance buyers may find it difficult to take the message back to their bosses.
If brokers and insurers want to retain favourable relationships with clients, they should be prepared to respond to the challenges facing risk managers. Companies will be looking to squeeze as much free risk engineering or claims management assistance from their service providers as they can. Important facts that risk managers will want to have at their fingertips may include a figure representing the sum they have saved the company over past years, although it is not always easy to show how many risks or potential disasters have been avoided. Despite this, insurers and brokers should be able to provide their clients with the information they need to show how they add value.
It is going to be tough. It will be hard for risk managers to continue to secure premium decreases from the insurance market. With buyers increasingly shopping around for the best deal, underwriters and brokers will have to work hard to hold onto business. Those trying to maintain their key relationships should be sympathetic to the issues facing businesses today. They should work with their clients to find innovative ways of reducing the total cost of risk and demonstrating the specific benefits that risk management brings.
- Risk managers need to show they are indispensable to avoid the chop
- As the market hardens they will find it harder to achieve consistently cheaper insurance premiums
- Brokers and insurers should be prepared to help them face up to this challenge by providing them with the information and services they need