The insurance market is changing: do you know where your risks are?
Peter Chapman is one of Expense Reduction Analysts - Asia Pacific's insurance specialists. His background is general insurance broking, and has worked in the industry for more than 35 years with national and international broking houses both in the Australian and UK markets.
Peter has extensive experience in working with clients to evaluate the most effective approach to structuring their insurance needs and has achieved excellent outcomes for them resulting not only in premium reductions but, just as importantly, removing any gaps in their current insurance programme and improving overall coverage. His experience enables him to interpret and analyse complex and baffling insurance sector terminology to give his clients clear and concise information to enable them to make an informed decision around their insurance coverage and expenditure.
Peter, how do you see insurance premiums changing over the next 12 to 24 months?
According to the Marsh Insurance Market Update, global insurance markets generally remain favourable to buyers. The second quarter of 2017 marked the 17th consecutive quarter in which commercial rates declined, according to Marsh’s Global Insurance Market Index. But despite most buyers still being able to secure rate decreases, the size of those rate decreases is shrinking.
There are always opportunities for good, 'clean' portfolios. What I mean by 'clean' is a risk with a reasonable claims history together with risk management practices in place.
Where do you see the high-risk areas for premiums?
There are signs though that the Directors & Officers (D&O) market is starting to toughen. There has been an increase in the number of class actions in Australia, and this can impact the premiums offered by insurers. There has also been an increase in the number of Employment Liability Claims (EPL) – things like wrongful dismissal and bullying.
With the cost of claims creeping upwards and room for discounts dwindling, insurers have reached a 'critical mass' dilemma, and therefore are turning to more creative ways to stay competitive.
As a result, there has been an increase in bundle deals by packaging up multiple policies, allowing insurers to leverage a higher premium volume and be more competitive on a portfolio basis.
Are there any other volatile areas?
Cyber protection continues to be the 'hot topic' with many clients in the services industry. There has been an increase in the number of policies purchased as clients are more willing to understand their exposures in this developing risk area. Mandatory reporting of any cyber breaches has also been introduced with effect from the 22nd of February this year. This applies to all companies with a turnover of at least $3 million, most government agencies and not-for-profit organisations.
Can you give me an example?
I recently met with a client whose email account had been hacked. The hacker authorised payment of a fictitious invoice for many thousands of dollars, and the breach was only picked up when the auditors came in. This kind of cyber breach is called social engineering.
What about workers' compensation?
There are good opportunities for reducing workers' compensation premiums – by ensuring the correct classification of employees, and by having claims management procedures in place. There should be quarterly claims management meetings between you, your broker, and your insurers to ensure that reserves are reviewed and reduced where possible since this will directly influence the ongoing premium costs. This is particularly true in the managed fund states (NSW, Vic, Qld, and SA).
Do you think it’s essential for companies to use an insurance broker – can’t they go directly to the underwriters?
Using an insurance broker is imperative. They negotiate with the insurers, manage your insurance program together with assistance in negotiating claims settlements.
What is the best way for a company to ensure that they achieve the best possible premiums?
Our preferred model is for the invited insurance brokers to undertake a conceptual tender rather than a price tender. This gives our clients a response on a far more in-depth level. An insurance tender is very different from other tenders because there are so many variables involved, such as sums insured, claims history, and policy wording. A properly constructed conceptual tender would focus on the service offering of the incumbent and alternative brokers invited to tender as well as a robust review of wordings, limits, premium costs and the program structure.
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