KNOWLEDGE SHARE

Right-sizing your risk management programme

Matthew Hardaker

When viewed from the outside, the world of corporate insurance programmes can look like an intimidating and complex place!

Securing and negotiating insurance policies has long been the preserve of the Finance or Risk Director, with procurement teams having little or no involvement in the sourcing and supplier selection process.

However, ‘UKPLC’ continues to operate within an increasingly challenging business environment which sees (from an insurance perspective) greater regulations around data management and integrity; the adoption of cloud-based IT practices, creating a ‘new frontier’ of data management and security; and the push towards digitising the business-to-business insurance market – just recently, the CEO of Lloyds of London (Inga Beale) announced that 80% of their insurance trading will be digitised by the end of 2019!

These factors represent further barriers-to-understanding for the inexperienced buyer It also places an even greater emphasis on ensuring your insurance strategy is appropriately structured; uses the right insurance partners; focusses on the entire cost of managing your risk, not just the cost of a premium.

However, not only does the buyer have these technical matters to contend with, there is also the unquantifiable and immeasurable to consider – the cogs of the insurance industry turn by way of strong personal relationships, not just maths!

In such a challenging environment, strong and cross-functional sourcing processes have never been more relevant and by taking this approach it can help you ‘see the wood for the trees’ and get answers to the typical areas of concern;

  • What is the value of a broker and do I need one?
  • What are the cost drivers in our risk management programme and how do I manage them?
  • How do I tender such an area and how do I establish my actual business requirements?

In our experience the insurance category is one where significant value can be derived in both outright cost and a wider risk management programme.

Finding a Broker

The starting point is to gain an understanding of what your current insurance requirements are and in doing so establish the scope of the review. Whilst this may sound simple-enough, you really need to challenge yourself on whether you have an intricate understanding of your own insurance requirements. The ‘devil is in the detail’ here and the availability of accurate information and the support of knowledgeable business stakeholders will heavily influence the success (or not!) of your review. So, let’s look at some of the key information that you need;

  • Do you possess all your policy documents, including insurance certificates and policy wordings? This very much represents the ‘today’ of your insurance needs, and a benchmark to which you can compare any future programme against.
  • Do you understand how, where and why claims arise within your business, along with a detailed record of claims pending and arisen? Claims arise out of something going wrong, either systemically or simply during the running of your business. However, recognise that the insurance market operates on mathematics and relationships, as such insurers want to know that you have adequate checks and balances in place to give them confidence (for the future), as well as historical claims data (for the past), that you represent a ‘good’ risk to incentivise a competitive premium.
  • Do you have the time and the right level of sponsorship within your business? Ensuring you have enough time will allow you to go through a comprehensive procurement process. Ensuring you have senior sponsorship will make sure this review has the right level of commitment in terms of resource and embedding future changes to your insurance and risk management programme.

So how should we procure it?

At Oculus, we are huge advocates of working with skilled and knowledgeable brokers. Insurance brokers should be seen almost as an extension to your procurement process, working with you to find the best underwriters and helping you market your ‘risk’ in a way that is compelling and attractive to insurers.

Finding the right broker who can do the above is key, and the first step in the procurement process is to undertake a ‘conceptual review’. Your risk profile, claims history and all the associated data would be shared with a range of brokers whom would provide proposals on how they would market and manage your risk, along with added value services that they can provide in terms of supporting your claims defence processes. And importantly, at this stage they will share estimates on what your renewal premium is likely to be, without approaching the insurance market.

In selecting a broker partner, it is essential they have demonstrable experience in managing large commercial insurance programmes; working with and holding great relationships with ‘A-Rated’ insurers; and forming long term relationships with clients to become their trusted advisors.

Having selected a broker, what then?

Placing Your Risk

So, at this point, you should expect the broker to own the renewal programme and the client would become a facilitator, ensuring the broker has the most up to date and relevant knowledge to help them market your risk. The broker would approach the underwriter market and look to secure underwriters whom are willing to insure your risk. It is not uncommon for multiple insurers to work together and share the risk amongst a consortium of underwriters. Equally, it is not uncommon to split the risk into primary and excess layers.

Dependant upon your risk, the broker may look to establish relationships with your executive team and look to invite selected underwriters into your business to meet them. This relationship-forming stage is all about generating confidence, context and awareness of your business. An underwriter who relies solely on the claims history and simple mathematics will never get under the skin of your business and be therefore averse to taking on more risks themselves, to reduce your premiums.

From there, expect the broker to present their final findings to you. As with any procurement process, the broker would present you a market report – this report will take into account how the broking process has gone; whom your viable insurers are; and of course, the future premiums to be paid. And, in our experience, the skills and experience of the brokers can not be replicated by internal teams, whom do not possess the relationships with underwriters to the extent a broker would.

Once renewed, you can take a brief rest… Very brief!

The value of a comprehensive insurance programme and a strong broker partner goes further than your renewal, and the commitments you may have made to insurers in terms of managing your risk must now be enacted;

  • Work with your broker on undertaking root-cause and trend analysis on your claims. Share what you’re doing with your insurer, so they see you are committed to reducing your business risks.
  • Make risk management a part of everyone’s role, and ensure you have systems and processes to track, manage and correct risk.
  • Truly partner with your broker by running risk management workshops; collaboration events with other relevant suppliers (fleet providers for example); and maintaining senior level sponsorship to ensure risk stays front and centre.

Our Top Tips When Reviewing Insurance

  1. Data data data! The quality of your data will derive the quality of the result.
  2. Engage market leading brokers whom can demonstrate experience in running conceptual insurance reviews.
  3. Ensure you have clear sponsorship in both the review itself and a future risk management programme; form long term risk management strategies, rather than becoming focussed on an annual renewal event.
  4. Be cross-functional – the management of risk touches most departments and managing risk should become part of the culture, not just part of an annual insurance renewal.
  5. Take advantage of your brokers knowledge and learn from it.

Summary

Hopefully our article has helped you understand the area in more detail and will also help you create an insurance review programme within your own business, and, whilst we do love a Meerkat or an Opera Singer, partnering with an experienced commercial broker to compliment your own knowledge of your business presents a massive opportunity to derive value from what was an often-ignored area.

If you would like to speak to Oculus Procurement about your insurance spend or wider procurement support, please do not hesitate to make contact for a no obligation discussion on how we can help you

ABOUT THE Author:

Matthew Hardaker

Matthew Hardaker

Matthew is a seasoned procurement manager who has spent the last two years with Oculus leading a range of procurement transformation and maturity-assessment programmes.

Most recently, Matthew has led a procurement transformation programme for one of the UK’s largest insurance intermediary, insurance broking and underwriting groups.

Before forming Oculus, Matthew has held senior procurement positions within high-performing procurement teams across a range of sector-leading organisations across Transport, Logistics, and Financial Services sectors, including FCA regulated environments.