The maze of risks

isk management has become one of cornerstones of modern business. But whereas larger companies can afford the resources to devise and implement risk management strategies, for many small and medium enterprises, making sense of the maze of health and safety guidelines and legislation can be an uphill struggle.

Some argue that brokers, given the nature of their business, are usually much closer to their clients than insurance companies and therefore are well placed to give risk management advice. However, others believe that insurers are in a better position to understand the risks involved in particular types of businesses.

Andrew Miller, risk control manager at Allianz, says that it is up to insurers to provide risk management information and advice. “The broker is there to give customer advice on their insurance contract cover and the type of policy they need. In terms of risk management advice, some brokers can look for insurers providing that. This means their clients receive cover over and above the standard.”

However, Mark Grice, head of the broking group at Mazars, says that brokers have the advantage of seeing a number of businesses in a sector and will be able to bring benchmarking-type ideas to the table. “They also have the claims knowledge of other clients to help identify risk and risk mitigation ideas.”

But he does point out that it is doubtful brokers know their clients well enough to cover all aspects of risk.

SMEs are increasingly concerned about risk management issues. According to the Hiscox SME Risk Barometer survey, nearly three in five SMEs (59%) are spending longer looking at risk management issues than they did two years ago.

This is good news for the insurance industry which is trying to get the message across that proper risk management can not only reduce SMEs’ premiums, but is also a key tool to protect their business.

“Brokers are well placed to advise clients on the consequences of not ‘ ‘ having proper risk management in place,” explains Philip Bird, director of non motor and SME at Groupama.

But he argues that a broker’s ability to give risk management advice depends on where they position themselves in the market.

“If brokers are doing general business and taking all types of trades it can be difficult, especially if they are smaller brokers,” he explains.

“However if they are involved in a specialist line of business, they ought to tailor themselves and if they present themselves as specialists then risk management is part of the services they ought to offer.”

“Insurers and brokers should work together,” adds Phil Grace, casualty risk manager at Norwich Union. But he also emphasises that insurers can be their own worse enemy when it comes to promoting risk management practices.

“People are not reluctant to take risk management advice. The key is explaining the issues in a straightforward manner. We can get too technical

Andrew Miller, Allianz

“When the market is soft we show less interest in risk management, and tend to talk more about premium than management of risks,” he says. “This can only send out the wrong signal to brokers. After the last hard market, we produced a questionnaire for policyholders on risk management. As the market softened we found it increasingly difficult to get these completed. It is not the brokers’ fault.

“If a broker has quotes from three insurers and only Norwich Union wants the questionnaire, can one blame him for taking the easier option?”

Some larger brokers have risk management surveyors and other tools to help their clients. But offering this level of advice can prove more difficult for smaller brokers, who are worried about running their business and may not be able to afford the time nor have adequate in-house expertise.

Grice says that another issue is one of remuneration. Would brokers charge their clients a fee for the services on top of the brokerage?

Some clients may well be happy to pay more for the services. And in an increasingly competitive market, where it has become more difficult for brokers to compete on premiums alone, Kevin Pallett, managing director of Fusion Insurance, says that brokers would do well to grab the opportunity of giving their clients more value for their money.

“If on one hand you have a survey of the Institute of Chartered Accountants saying that 51% of businesses are happy to spend more on risk management, and on the other you have brokers saying that managing the insurance cycle is one of their main challenges, this is a fantastic opportunity for brokers to differentiate themselves.”

He adds that although some brokers are embracing risk management, many still want to compete on price alone, a strategy that is not sustainable.

“Look at the way the broking market is going,” he says. “You have a small number of consolidation groups and if you are sitting outside and want to compete with these guys you need to seriously think about what you can do and show the client how you can make a difference.”

It seems that whether brokers should increase the level of risk management services they offer to clients largely depends on the set up of their own businesses. What the industry agrees, however, is that both brokers and insurers should do more to help SMEs understand the nature of the risks they face as well as giving them adequate tools to mitigate those risks.

Many insurers are trying to do their bit by offering information and advice on managing risks to clients and brokers in the form of fact sheets, web-based resources as well as risk management courses. But giving out information is not enough.

“People are not reluctant to take risk management advice,” says Miller. “The key is explaining the issues in a straightforward manner. We can get too technical.”

Bird agrees: “Insurers should do more. I’m not sure we give out digestible advice; we don’t always go beyond the technospeak. We need to think about the end consumer and not talk to brokers and their clients in the same way we talk to a specialist security company, for example.”