What's the value of high-quality broking?

I’m sure you’re familiar with the term “putting the cart before the horse” . It’s an interesting analogy for something that relates heavily to the way that a really great broker can explain and evidence risk to a business.

Some good brokers will explain what your exposures are, how they can be covered, and for what sort of cost. That is brilliant, especially over the softer market that we enjoyed prior to the COVID pandemic. Good policies were easy to come by and relatively speaking, affordable for most businesses without any massive swings in cost or cover.

However, recently the conversations seem to be steering towards a different route – the market is hardening (meaning insurers often charge more premium for less cover), and inflation is running away, which puts a double downward pressure to businesses who need to budget for their insurance and risk management.

In these situations, many businesses might look to their broker to shave cost where they can and negotiate even harder with insurers to reduce the premium wherever possible. This is the first value of a broker; they can negotiate, and they can leverage insurers to reduce their costs in some cases., It’s a valuable skill, but I would expect that most brokers are capable of such things; but right now, we need more; so, where and how could a broker show they’re going the extra mile.

Policy Viability/utilisation

Critically great brokers might first take an additional approach. One of the clever things that brokers may do is to assess the utilisation of elements of each policy against other peers in your industry.  This means that you as a business can benefit from the experience of a broker and their own data to budget and plan for the highest potential claims, by them assessing frequency and severity of claims by competitors.

Back to carts before horses… essentially by assessing where the claims are most likely to happen and where claims might impact a business the most, a risk manager may want to apportion their insurance budget adequately in those specific areas foremost, thus leveraging the more thorough cover with the highest quality insurers in the areas you’re most likely to utilise it.

A case in point

Right now, the fastest growing claims type in the UK is around cyber. Knowing this, a broker might go to secure a cyber liability policy – which is brilliant for data breach and will indeed provide some cyber cover. However, to know the comparative market trends, we can see that the most common cyber claim is for funds transfer fraud and is in fact still growing proportionally in comparison to other claims types. Bad news if your cyber liability policy does not extend to cover such risks.

Where a manufacturing risk doesn’t hold many personal records, a high cyber liability limit may be unnecessary. However, claims patterns show that manufacturers are much more at risk of funds transfer fraud, crime, and ransomware. So high limits under these are crucial to protect the business from the most likely risk exposures. This works on both a granular scale and for much broader brush strokes and can help to trim underutilised cover to give provisions to pay for funds transfer fraud.

This is what a great broker will do; they identify risk, they offer policies, they  explain what value each one might add, and recommend what they see as critical priorities from their data and their experience.

Risk management

At Aston Lark we’re lucky enough to have a brilliant risk management team. The clever people in these teams can assess the risk management of the business, and how funds might be secured from insurers, and utilised by the business to improve the risk. They also have the foresight of trends in the market to put your business in the top percentages of business that insurers want to cover. This makes your business the one that insurers fight over to give better cover and lower premiums. Great brokers can ensure you get the best return from your risk management investment through data and experience to know what insurers like to see, and how much it costs. This again comes back to viability; it’s great to know what investment costs might be for risk improvements, and what the payback period is for the business in terms of insurance savings.

Putting this into practise

You have a large fleet of vehicles which results in a few claims every year– none of which are  particularly serious. But low-speed collisions are really ebbing away at your claims history and increasing your premiums proportionally every year. And it’s also costing you in excesses.

The risk manager knows that typically fleets of this type have an average premium of £x amount on a good experience, and £y amount on a bad claims experience. They also know that by installing Lightfoot, the claims frequency on average drops by 15 per cent, and insurers are likely to give a 10 per cent discount on the renewal premium. By undergoing the immediate cost of installing these improvements, the business will see a return on investment within the first four years on average.

Claims

I often tell customers that the proof is in the pudding with insurance, and this is ultimately when your business suffers a claim. We’re lucky enough to have claims’ specialists, who deal with this every day, many having specialisms. These colleagues are great, because although I am an expert in broking and insurance placement this by no means makes me an expert on complex employer’s liability claims.

Great brokers with great claims handlers and execs collaborate with the claim’s teams in a few ways. A large part of this success is handling claims quickly, communicating well with businesses and business owners, and working with insurers through the claim on behalf of customers wherever they can.

So, when it comes to broking, the brilliant brokers with excellent claims handlers ensure that claims progress quickly so that your businesses claims history is kept accurate and up to date.

And one final point… insurers use reserving to estimate the potential cost of claims, therefore high reserving can lead to insurers increasing their premiums, which isn’t good considering reserves might be far higher than the eventual potential settlement. By managing reserves and helping brokers to build more of a story around a claim, you can explain more accurately to underwriters what happened, how it’s being managed, and offer a more recent and realistic reserve to ensure insurers keep their premiums sharp when it comes to renewal time.