There are opportunities for the insurance industry to give more financial information to buyers

Since the financial crisis severely tarnished the reputation and reliability of credit rating agencies, most companies now do their own checks into the financial health of their business partners – including their insurers.

Risk managers are pressured to prove that they are making sensible decisions when it comes to insurance partners. Before the collapse of the financial world, they could select insurers based on their credit rating and avoid any difficult or probing questions from their bosses. But chief financial officers are now much more inquiring and uneasy. It is no longer good enough to stay with an insurer purely to maintain a precious long-term relationship.

Companies are also under a lot of external pressure with institutional investors increasingly showing an interest in a company’s main insurance carriers. That is only set to increase as shareholders become more sophisticated. Monitoring the security of insurers therefore has become more important than ever.

But conducting a detailed and meaningful financial assessment is hard and time-consuming. That’s why, in the past, companies relied on a third party to do it. However, given this trend, there are opportunities for the insurance market to respond.

Companies measure the volatility of their business partners by using third party analysis, their own investigations and the stock market. But one of the most important sources of information is their peer group. That means good communication from insurers is essential.

Brokers can help by providing financial information and services to their clients; global brokers already have begun offering a much more detailed financial analysis. Risk managers have even called on some to validate who they elect to deal with. But brokers will always fall short of making specific recommendations about which insurer a company should go with, for fear of opening themselves up to professional indemnity claims. Ultimately that decision will always rest with the insurance buyer. Brokers should set up teams to undertake analysis on behalf of their clients. This should go beyond reporting public information and brokers should be able to leverage their knowledge and understanding of specific insurers to provide deeper analysis.

There is an opportunity here too for insurers. Established relationships are no longer enough to stop new players from breaking into the scene. To start with companies want to enhance their programmes by syndicating the risk among more than one insurer, so that if one has solvency difficulties there are others ready to take up the slack.

Diversification is the best form of risk management. There also is now much more scrutiny on the decision to go with one carrier over another. That means if an insurer can show that it will do a better job – by delivering the coverage buyers are looking for with better service and speedier settlement – it may be able to acquire new business. Buyers are also increasingly interested in meeting their underwriters face-to-face to understand their risks better and gain reassurance around any exposures. If insurers are willing and able to do this it can help cement trust in the relationship.

The brokers and insurers that step up their game and help risk managers meet the challenges they face are the ones who will be rewarded with new business.

Key points

• Given the failure of the rating agencies, companies are monitoring insurer security like never before

• Partly this is driven by internal and external pressures to validate insurance carrier choices

• Word of mouth is one of the biggest information sources; good communication on the insurer’s side is vital

• There is also an opportunity for brokers to provide clients with deep financial analysis

• New insurers may also be able to acquire new business if they can show that they can do a better job