The future of commercial insurance? - Business Works

The future of commercial insurance?

Danny Cooper

M ost people regard the insurance industry as a bit “old fashioned” and staid in its ways. Also as one that does not necessarily meet its customers needs – rather, they have to fit in with what the industry provides. Danny Cooper of The Insurance Manager shows that there is another way - as they say.

A couple of times a year for as long as I can remember, another industry conference comes along to tell us what we should be worrying about this time round. It always seems to be the same talking heads at each conference regurgitating the same messages so, I guess, there must be freebies to be had or, at the very least, CPD points.

Quite often we’ll have the head honcho of a large insurance company and sometimes, just to add a bit of glamour, he may be American or European. I suppose this sort of gig comes with the territory but how far from reality and the day to day workings of the industry can you possibly get?

We learn about the threat posed by large firms buying up all the good local brokers, closing them down and turning the technicians into salesmen. This is called consolidation and the threat is to market stability. The threat to you and your business isn’t discussed but, if you had been invited, you would have learned what you want from the market in the future. Clever aren’t we? We didn’t even need to ask you.

Twenty five years ago, motor insurers and brokers were relieved to hear that they didn’t have to worry as Direct Line couldn’t possibly last and was bound to go the same way as Vehicle and General had fifteen years previously. The merits, or otherwise, of price comparison websites on that “new fangled internet thing” now seems to be a favoured topic for the first session after lunch. As the majority think that this is something to do with the IT department, it’s a good opportunity to doze off.

I don’t get out very much, so I don’t really know, but I can’t believe other industry conferences are the same as ours. Maybe it’s because of the insecurity that comes from the knowledge that our customer base doesn’t really like us. We also know we struggle to deliver an acceptable service which, for a service industry, isn’t a particularly good start. Perhaps it’s because insurance people are introspective and seem to like navel gazing and scare mongering. Personally, I think it’s because we are all pretty conservative by nature and would prefer the comfort that comes with repetition and tradition rather than the worry and excitement that comes with innovation.

In a way, this is quite comforting. We don’t really want our insurance company or our brokers suddenly opening a nightclub or taking a year out “to find themselves”. What would be nice though, is an insurance industry that supplies what their customers need when they actually need it. For example, look how long it took to get industry guidance when the unpronounceable Icelandic volcano caused chaos. All very well, but with an almost guaranteed income into the sector, cosy historical relationships and very little supplier differentiation where’s the incentive to change a winning, yet unsatisfactory, formula?

Logically, the only incentive for a market to offer something different is the threat of competition or a change in the way or degree customers buy.

From the perspective of the insurance market, consider the growth of on-line facilities from traditional motor insurers to counter competition from new players and to meet the demand they created. It is still, basically, the same product only sold in a different way. Provided you fit into the appropriate size box, you can now even buy your business insurance online, but it’s only the method of purchase rather than the product that’s changed. It’s still what the insurer market wishes to sell you, rather than what you might want to buy.

The insurance buying power of the business community is enormous, but how can this be harnessed for your benefit? At the moment, what you pay for insurance is down to what sort of deal your broker can get. This will be influenced by a limited market choice, a preference for a “partner” insurer and half an eye on commission targets.

There are plenty of other brokers desperate for your business who will prepare a report showing how they can save you money and why they’re much better than your existing broker. Unfortunately, our new broker works in the same market and with the same limitations as our old one – the words frying pan and fire come to mind.

Whilst we’re harnessing our buying power, maybe we could also find a way for the price of our insurance to reflect the quality of investment in risk management and loss prevention. It is accepted that many insurer requirements are merely restating Health & Safety legislation, but has your premium gone down since you employed outside consultants, implemented structured training and spot checks? No, I thought not. The CCTV, offsite back-up servers and ISO didn’t help much either did they?

In the last issue of BusinessWorks there was a good article about “Risk” from the Association of Insurance and Risk Managers. Here’s a very good example of harnessing buying power and using their combined clout to achieve some concessions and improvements from the insurance market as well as raising standards in Risk Management. The unfortunate bit is that you have to employ your own Insurance Manager to join and, after umpteen years in existence, they still haven’t been able to produce a risk management to premium spend standard. How much the status quo is maintained because of insurance market sponsorship and financial support is a discussion for another day.

What we really need therefore is an “AIRMIC for the people” geared to the needs of businesses in the SME sector that do not have the resources to employ their own insurance and risk manager. “Hang on a minute”, I hear you cry, “If we can’t afford our own Insurance Manager how are we going to form them into an Association”? Good, pleased you were paying attention. Check out FIIRM – The Federation of Independent Insurance and Risk Managers.

Right, we have our mouthpiece for standards and a voice for the buyers of insurance and risk management services in the SME sector. Ready to go. Ready to rock and roll … except we don’t have any members … yet.

In recent years, obviously due to gaps and deficiencies in the traditional lines of supply, a number of firms have sprung up offering a range of related services to their clients. Some of these may have historically been available from brokers, others sold by them as “add-ons”. Their current market share is likely to be relatively small but there are some bigger firms contributing to rapid growth and expansion.

Maybe this is where the insurance industry is actually quite similar to others in that businesses are growing up to fill a void, albeit one that is self inflicted. Of course, the insurance market has always had variations in cover, service and price, allowing insurers and brokers to take their turn as flavour of the month. What is now being added to the mix are firms, usually ex-brokers, able to provide commercial insurance buyers with truly independent advice based on market knowledge and experience.

Some firms are taking it a stage further by replicating the role of an AIRMIC Insurance Manager – risk management, insurance administration, premium negotiation, claims negotiation etc - but on an outsourced basis for a number of companies. It now starts to get interesting with the responsibility for establishing and then purchasing the insurance portfolio resting with independent experts. In the old days, something you might have expected from your broker, but now less of a certainty. Are you beginning to feel a shift in the balance of power and some control returning?

As desirable as all this sounds, there must be a cost implication. Absolutely right, but ignoring the obvious savings in management time, sufficient premium savings and commission rebates from brokers are usually enough to meet the costs of your outsourced Insurance Manager and still have some change. Once you factor in a properly structured risk management, insurance and business continuity programme that isn’t influenced by commission earnings then you’re quids in.

As far as I know, the growth of this new wave of advisers and consultants has passed our conference organisers by. From an establishment perspective, the fact that so many businesses have been able to spring up suggests this is more of a longer-term threat than a price comparison website. You might argue that it isn’t easy for something as large and disparate as the UK insurance industry to get itself back on course and I would agree. However, I would also argue that this new system of insurance management may well be the key to improving industry standards and professionalism.

The Future of Commercial Insurance could, therefore, rest with insurance buyers if they choose to take the options now available to them. The Future will also be helped if the industry adopted less of a “Mother knows best” approach to their customer base. How do we know – we asked!

Danny Cooper can be contacted at:
The Insurance Manager Ltd
t: 01795 890 804

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