The insurance industry may seem like a haven of stability, but buyers should not be lulled into a false sense of security
At Airmic, we recently held a roundtable to explore beneath the surface of the insurance market.
So what conclusions did we reach? There is little doubt that now is a great time to be a commercial insurance buyer. Whatever may be going on in the wider economy, the industry remains a haven of stability. Rates are low (except in a few pockets), terms are generous and the choice of providers is more than adequate.
Yet it would be a big mistake for buyers to be lulled into complacency; soft markets do not last forever. Moreover, the apparent calm hides strong currents of change. Risk managers must adapt if they are to add value to their organisations, while insurers and brokers need to address the new challenges their clients face.
Let’s begin with a topic that induces both fear and boredom, but cannot be ignored. Solvency II is increasingly influencing behaviour.
It is costing insurance companies a fortune to implement, even before the extra capital requirements – and the money has to come from somewhere.
More importantly, Solvency II is changing the rules. The ratings agencies and regulators are demanding that insurers prove they have a precise understanding of the risks they face.
In this environment, they have no choice but to penalise uncertainty.
The implications for buyers when they gather data and make presentations to underwriters are immense.
Although the recession left the insurance industry relatively unscathed, our roundtable experts agreed there had been a lasting effect on the attitudes of insurers and customers.
It might not have directly reduced willingness to pay claims: an insurer’s good name and long-term client relations make this element of their service as crucial as ever. However, buyer beware. You must have a detailed understanding of your programme and the wording that underpins it – and how that would affect your response when needed.
Insurers are scrutinising contracts as never before when claims come in, as they are required to do for compliance reasons.
They will stick to the small print when they might once have given clients the benefit of the doubt. They are much less likely to make ex-gratia payments to retain goodwill, especially on large claims. It is incumbent on every client, broker and insurer to have a rigorous pre-inception discussion.
At the same time, risk managers are under increased pressure to cut insurance spend.
Long-term underwriter relationships and the added value they may bring have little influence with a finance director trying to find savings of millions of pounds.
In some ways, this pressure can be positive. Buyers have an added incentive to study policies line by line to ensure they do exactly what is required, and no more. But there is also the danger that it could lead to companies taking shortcuts with their insurance, which will prove costly in the longer term.
Airmic is working to encourage its members to develop their soft skills so that they are able to make a powerful case for best risk management practice within their companies. Never have these skills been more needed. IT
John Hurrell is chief executive of Airmic