Commercial Insurance

Most businesses of all sizes are facing tough economic conditions. This puts added pressure on short-term brokers who have to ensure that their clients remain sufficiently covered while being vigilant regarding cost-cutting on risk management and increased fraudulent claims. In addition, there seems to be upward pressure on premiums on all fronts.

During 2007/8, we saw a remarkable growth-curve for SME business. Capital was readily accessible and everyone was expanding and/or upgrading infrastructure and equipment. The result was a high demand for risk protection. Generally, the cost of risk was on a steady decline, because of a number of factors but particularly due to the competitive forces within the Commercial Insurance market and the positive results achieved by most Insurers.

Most, if not all, businesses have been affected by the economic down-turn which has had a marked effect on the demand for insurance; coupled with an unprecedented spate of significant fire losses and a generally poor loss-trend, the challenges have shifted for the underwriters over the last year. There is an increased pressure to correct rates to more sustainable levels and to underwrite risks more cautiously.

Being sensible business people, clients are being more cautious with their cash-flow and are consequently reviewing all their expense items, delaying orders for capital items and/or expansion projects, all which reduce the demand for insurance. This is where a broker can play a significant role.

Reducing the overall cost of risk without affecting or risking the long-term sustainability of a client’s business is the objective. Reducing insurance premium for the sake of an expense saving could be the cause of severe under-insurance and might result in the cancellation of necessary cover. With the appropriate advice, a client can re-consider the need for high-frequency, low-severity claim covers such as money or business all-risk covers.

Structuring a portfolio in such a way that clients enjoy the benefit of insurance where they mostly need it is a skill provided by a qualified and experienced broker. Through continued discussion and an understanding of the clients’ business objectives, processes and appetite for risk, the broker can use his/her experience and know-how to negotiate the best possible solution for clients.

With underwriters being under continued pressure to grow premium, it is even more important that the broker spends more time explaining clients’ risks to the insurers and devising the rationale for suggested programmes. It is also important that in these times, brokers support the underwriters in making the solution sustainable for both the client and the insurer.

Brokers can also bring their risk management skills to bear on accounts where clients elect to carry and manage a high portion of their own risks. In this way, clients can at least be assured they have taken the necessary precautions and are making informed decisions as opposed to purely cost-driven ones. If nothing else, this will demonstrate to any stake-holder that the client has acted prudently.

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