Every business owner can see why having their premises burn down would seriously impair their enterprise's chance of survival. Likewise, they understand that having an employee badly injured at work could be extremely damaging. But mention intangible risks like human rights breaches, director disqualification, product recall, brand damage, pension trustee failure or fraud, and many faces will be blank.
This is a situation that AIG Europe is trying to remedy with the launch of its Financial Protector product. Management liability corporate manager Damian Coates has been touring the UK for the past two months, seeing up to 60 brokers at each presentation.
Coates is evangelical about the worth of the product, which is a version of one he saw become hugely successful in the Australian market 18 months ago. Coates figures that there are about 127,000 small to medium-sized enterprises (SME) in the UK. Each one of them has a turnover of between £1m and £75m, but about 95% of them don't buy management liability insurance.
Financial Protector combines all management liability covers into one package. Coates says the product is unusual because it is the first time third-party covers such as directors' and officers' insurance are being offered in combination with first-party covers such as fidelity.
“There's been a convergence in insurance policies in recent years,” Coates says. “The market has historically protected SMEs through single, modular products. For example, property insurance and liability insurance were offered on a named-peril basis. Now, the whole essence is to move away from the modular approach and deal with it in a package.”
The package approach makes it easier for business owners to understand the product and lowers the costs of management cover, when compared to property or injury cover. So far, the approach has gone according to plan.
“A particularly pleasing aspect is that, of the business we've written since the launch, over 70% is from first-time buyers of any management liability cover,” Coates says.
“It's not often that a product gets brought out that develops new business opportunities.”
The time is definitely ripe for such sales, which will bring the broker a 20% commission on minimum premiums of £2,000, because business owners face more intangible risks than ever.
“There's been a significant increase in management exposure through Department of Trade and Industry (DTI) investigations, where there's been a 100% increase in the number of directors disqualified over the last four years,” Coates says.
“We've seen an increase in the maximum payout for unfair dismissal from £12,500 to £50,000 and 66% of SMEs reported a fraud in their business over the last 12 months.
“The risk landscape is becoming more real – it's not just hypothetical exposures any more.”