Despite falling rates and a tick box mentality among customers, there is still a role for experienced brokers and underwriters to play, says Alan Dixon
The insurance market is changing and likely to become far more challenging, but we still all need to make sure our clients have the right cover and the right policy limits.
Like most areas of the insurance market the casualty class has found itself ground down to low rates and a mentality of tick-box underwriting. This approach creates problems, not just for underwriters, but also for brokers and clients.
To state the obvious, there are many types of casualty risks, varying in complexity and ranging from low to high-risk. But during the long soft market the skill set to handle the complex, high-risk cases has been on the decline. The “one size fits all” underwriting model can encourage brokers to put forward presentations that are not representative of the risk being presented and are in danger of not providing a fair presentation.
Which means the terms provided by the underwriter can fall short of the cover required.
At Manchester Underwriting Management we have taken the route of having experienced underwriters and a risk management-led approach to our casualty book, working with brokers who know their clients and understand the risks and exposures they face. This is not rocket science or a “eureka” moment, but simply a sensible approach to make sure the product being provided fits the client’s and broker’s needs.
The insurance market is finally showing signs of change with the abundance of capacity starting to disappear. This will make the challenge of placing risks harder, especially those which are high-risk.
It is at times like this that experience really counts. That means brokers and underwriters who have experience of not just writing the high-risk cases but also of a harder insurance market. Having a risk management led approach means the more challenging risks can be underwritten properly, making sure that a client’s contractual requirements are met. Also the underwriter, broker and client fully understand the risk and cover being provided.
It isn’t just the breadth of cover that is key. The policy limits for employer’s liability/public liability (EL/PL) is also a major factor, especially with the issues surrounding Ogden. The increased cost of claims following the Ogden discount rate is significant. Most clients believe “it will never happen to me”, but we all know those claims do happen and the cost of the most severe claims will increase.
A good example of the impact is in one particular claim, an employee falling from height and suffering severe brain injury requiring long-term care. The claim increased from £5.3m to £10.6m, which is above the standard policy limit for EL policies. What was a worst-case scenario claim considerably became worse overnight.
This raises the question whether standard limits of indemnity are sufficient. Making sure the client has enough cover in place is not just important for the client, but also avoids a broker exposing themselves to allegations of negligence by not recommending a high enough policy limit to a client. The PI market has seen many claims in recent years from clients pursuing recovery claims from their brokers due to failures in procuring adequate levels of limits.
This is why it is imperative in a changing market that clients, brokers and insurers work together to make sure the cover and the policy limit meet the client’s requirements.
Alan Dixon, senior casualty underwriter at Manchester Underwriting Management