The insurance market is rapidly hardening, making it vital to control your company's total cost of risk.
How do you accomplish this daunting task? This blog addresses two crucial steps in achieving this goal: 1) establishing committed relationships with your insurance and risk management partners and 2) viewing risk as an opportunity to increase profitability.
The Traditional Insurance Buying Model
Let's examine the insurance buying model. It's all about getting the best quote, right? Traditionally, yes, but in a hard market for insurance, going out to bid can adversely affect your total cost of risk. When you allow several different brokers to quote your insurance, you are likely spending more time handing over paperwork and numbers than you are educating the broker on your business. Today, underwriters need more information than just loss history and financial information; they need to be convinced that underwriting your business insurance will be a profitable venture for their company.
Secondly, there is a risk of oversaturating the marketplace. If an underwriter sees your submission two or more years in a row without writing the insurance, he likely will decline it before even reading the submission. This is an indication that your business is always looking for a cheaper price and will not be a committed long-term partner.
Choosing an Insurance Broker in a Hard Market
As an insurance buyer, you have two decisions to make: selecting a broker and an insurance carrier. When choosing the right broker for your business, you want to ensure they have solid relationships with the carriers best suited for your type of risk. A solid relationship isn't necessarily defined by the sales volume a broker has with a carrier. An aligned risk management philosophy and a commitment to a long-term partnership carry even greater significance.
Finding a broker that specializes in your industry is also advantageous. A broker who focuses on a particular niche will be more likely to have unique solutions to offer that particular business segment. An "all things to all people" type of brokerage may not possess the knowledge necessary to help your business tackle the tough risks specific to your industry. This is particularly important to high-risk industries such as construction, transportation and manufacturing.
Managing Your Total Cost of Risk
Another criterion in broker selection, and possibly the most important, is finding someone who is committed to helping your business lower its long-term total cost of risk and addressing your wicked problems [not just promising solid relationships with markets to get you the best price]. The process should produce a quality submission that results in a favorable quote from the carrier and a detailed plan to minimize the risks that drive your company's total cost of risk.
The first step in this process is to identify the most critical risk factors facing your organization. This includes, but is not limited to: safety programs; uninsured risks; indirect cost drivers, and coverage gaps. Once you identify the critical risk factors, you must prioritize your goals, create strategies to achieve them and then create a step-by-step implementation plan to lower your total cost of risk. [We call this a GAMEPLAN at HNI.]
Another result of this process should be The Ideal Submission. The Ideal Submission is how you and your broker convince the right insurance carrier that insuring your business will be profitable. They need to understand your loss history and the strategies you're engaging to prevent those and other losses. An underwriter strives to balance the loss history, financial status and equally as important, the business culture and leadership attitude.
Risk Management Happens 24/7, 365
The process of risk management doesn't end after partnering with the insurance carrier. The GAMEPLAN you created should be a twelve-month rolling plan. The plan must effectively react to your risk management needs and be proactive in reducing the likelihood of losses. When selecting your broker, look for an organization that can provide both pre- and post-loss control services. Not only do you want to ensure that your claims are being handled properly, but you want to establish safety programs that prevent those claims.
The biggest danger facing your risk management team, (including your broker and insurance carrier), is becoming complacent. You can no longer afford to avoid risk; you must embrace it, and realize the potential opportunity.
Finding the right partners is the first step, but creating a plan to lower your total cost of risk will prove to be the most profitable step. Utilize your partners' strengths to identify the most critical risks facing your business and rather than just paying a premium to protect yourself from them, develop strategies to minimize their impact and implement the plan immediately.