As brokers face growing competition and a more difficult marketplace, they need to identify new ways in which to generate income and provide added value to their clients.
For commercial brokers, risk management represents one of the best opportunities for doing this. The recent Government announcement that it will introduce new legislation, extending the liability that companies and their directors have over their actions, has highlighted the huge potential growth of this service.
However, there is a great deal of work must be done to educate companies on why they should take risk management more seriously.
For example, 92% of businesses have no business continuity plan whatsoever, and of those that do have one, 50% are inadequate. Some 43,000 companies failed last year, but some would have provided competitive products and services had they been backed by strong management teams.
These firms may have fallen by the wayside because they encountered disasters, which perhaps could have been avoided, and they had no plans in place to take appropriate action when disaster struck.
This is a more extreme case of what can happen, but every year companies waste millions of pounds that could be saved if they spent time identifying the risks they face and took action against them.
Working with insurers
Fleet management is an excellent example of this. One third of company vehicles are involved in a collision each year and their drivers have 50% more accidents than others. This situation is unacceptable and could be addressed easily.
Perhaps a key reason why more brokers do not endorse this product is because they feel it is outside of their knowledge base and remit. However, in working closely with insurers, this should not be the case.
They must ensure that they see insurance as being synonymous with prevention and risk management. Insurers, brokers and customers must work together to create an accident-free culture.
The key to achieving this is the ability to conduct a comprehensive audit of risk that a company faces. One of the biggest mistakes brokers and insurers can make, is trying to sell packaged products and services that do not necessarily reflect a company's particular risk profile. The management of a company is often quick to pick up on this.
Audits are important for two reasons. The first is that they instill a degree of confidence in the customer, giving the impression that the insurer is developing a strong understanding of his business and it provides the logic behind the recommendations made. The second reason is that it enables the insurer to develop a strategy and programme that is specifically tailored to a client's needs. As customers become more demanding, this is an important asset that should not be overlooked.
In keeping the client's confidence, it is also important that they feel that they are being offered competitive products. Companies need to offer a range of risk management products, but also ensure that, where necessary, they provide the services of organisations that are leaders in their field.
The final ingredient for promoting risk management is providing evidence or case studies. This is often the best way in which to convince someone that you are right. Again, this is probably something insurers and brokers are not good at, but there is no reason why this should not change, for there is a mountain of success stories.
For example, one UK manufacturing company with 6,000 vehicles identified an incident rate of more than twice the UK average for motorists. It ran a test, providing training for a selection of drivers, which halved their accident rate but which cost only 40% of the untrained group's non-recoverable costs.
Following this exercise, training for all drivers, including directors, was introduced and a new management system set in place, which, for example, prevented drivers under the age of 25 from having high-performance cars and also provided training for all family-users.
Incident costs reduced over the four-year period of the programme, when they would have been expected to double on the previous trend.
Facing the challenge
There is no doubt that there is a real need for risk management services – the challenge is that we must convince businesses of this and this goal can only be achieved if insurers and brokers work more closely together.
The initial responsibility for achieving this lies with insurers. They must provide comprehensive support to brokers, such as educational seminars and literature for them and their clients.