The hardening market is a prime opportunity for insurance buyers to build long-lasting relationships with insurance partners, says Allied World Asia Pacific’s Carolyn Shreeve.
As price hikes begin to grip all insurance lines globally, now is the time for risk managers to rethink the way they buy insurance. Latest figures from broking giant Marsh show global price increases of 2% in the final quarter of 2018, with composite pricing increasing in all global regions. This is the first time that all regions have reported an increase in the same quarter and could be the first time many risk managers have witnessed a hardening market.
Different factors have contributed to the changing environment, from the Royal Commission into Australian Financial Services to catastrophic events such as Typhoon Jebi in Japan and Australia’s Townsville floods. Macro-economic and geopolitical instability impacting investment returns have also squeezed profitability. Aft er years of soft market conditions, the insurance industry is naturally responding by re-assessing rates, tightening terms and decreasing appetite across many lines.
Rather than see this as a challenge, insurance buyers should view this as a great opportunity to re-pitch the value of insurance to their C-suite at upcoming renewals. In an environment where it will become increasing diff icult to obtain the capacity and rates that have been more easily available in the past, communication, relationships and having a strong understanding of your policy are going to be key. While critical in a hardening market, developing these skills now will also help a risk manager balance price and quality of coverage during a soft market as well.
Lead the strategic conversation
There is a significant opportunity over the next 12–24 months for risk managers to be proactive. With so many industries experiencing disruption from new distribution methods, competitors and consumer expectations, risk managers have an exciting window to lead a constructive and collaborative conversation with their CFOs and CEOs.
Certain product lines may harden at a faster rate than others and risk managers should seek to gain a comprehensive understanding of the external factors that may have an impact on their insurance portfolio. Starting this conversation early will provide the time needed to manage expectations about price internally.
Build a quality relationship with broker and insurer
A strong tripartite relationship is crucial. Plan in advance so it is possible to debate options, both with your broker and C-suite, for achieving the right coverage at the right price. A lasting relationship with your insurer is vital. Often in Asia Pacific, we see companies change insurance carrier each year. While this can be advantageous in a soft market, it may not be as eff ective in a hard market because building knowledge and understanding in order to provide the best terms takes time. If insurers find themselves making assumptions about a risk, this has the potential to impact the quality or price of cover.
Consider also whether your insurer or broker can provide industry-specific risk management services to help you get comfortable with new rates and terms. Here at Allied World, we have a large team of in-house risk management specialists, ranging from civil and mechanical engineers, logistics and security experts, mariners, nurses and physiotherapists. These are skilled individuals with first-hand industry experience who work directly with clients to propose economically feasible recommendations to mitigate and minimise a loss.
Other options to consider in the tripartite relationship include bundling product lines within the same partnership, regular tripartite relationship meetings and collaborative planning for longer-term risks.
Really get to know your policy and how risk is being transferred
It’s also a great idea to sit down with your broker and insurer and work through realistic scenarios that could happen, or that has occurred with a peer. Stress test and understand how your specific policy might respond in the event of these scenarios. We’ve run workshops with many of our clients and it’s surprising the number of times there are aspects within the coverage that are either not understood or not triggered as expected in a loss scenario. Understanding these terms and conditions ahead of time helps to smooth the process in the event you need to make a claim.
Hard markets have traditionally struck fear among insurance buyers, but this ignores the benefits, which actually provide risk managers with an opportunity for growth. By leading a strategic conversation within their business and building a lasting broker and insurer partnership, risk managers may find the next phase of the insurance cycle to be a perfect time to demonstrate the true value of risk management to their firms.
Carolyn Shreeve is chief underwriting officer at Allied World Asia Pacific.
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