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Risk management for the commercial insurance broker

To all intents and purposes, risk management is an integral part of the commercial insurance broker’s role when assisting his clients to identify and manage their risks. The broker’s appraisal of the risk is crucial to ensure that the proper action is taken to reduce the impact of loss.

Whilst eliminating risk altogether is not always possible, loss control measures can be enforced to reduce the probability of loss or to reduce the severity of loss once it occurs. Despite this risk control mechanism, a residual risk may exist which is too large for the client to carry following a loss. In a case such as this, the risk is more often than not transferred to an insurer, unless the client is able to provide for it from company resources via a self-insurance fund.

The commercial insurance broker must be prepared to extend his advice beyond just basic insurance matters to the subject of loss prevention and alternative insurance methods.

The larger insurers normally employ a specialist risk manager who would certainly assist, or even alleviate the broker of much investigation into the insured’s commercial insurance needs. The risk manager will generally act as an interpreter of industry and its connection to insurance. The commercial insurance broker is, however, not relieved of responsibility to suggest new covers, alterations to existing covers, or to draw the insured’s attention to uninsured risks. After all, diverse links to the insurance market will place the broker in a stronger position to suggest innovative covers and ideas which consequently may produce a better insurance programme for the insured.

Large corporations affiliated to overseas partners or operations, will probably want to synchronize all the insurance arrangements of branches and subsidiaries around the globe. To this end, the broker will need to be in a position to extend his service by way of his own overseas affiliations, either in-house or through a network of broker contacts. The broker may find himself in a search for capacity to assist his corporate client to cater for the catastrophe risks which they feel under threat of.

Many large corporations show interest in the formation of a captive cell to fund losses, which has its own set of unique benefits if designed correctly. This further extends the broker’s role – he must now examine the feasibility of a scheme of this nature, offering advice on location, set-up, fund management and reinsurance programmes available for the captive.

Calculations of maximum possible losses (MPL) and estimated maximum losses (EML) are effective methods used when deciding on the levels of coverage and self-insurance (deductibles) to purchase under a Commercial Insurance Programme. Again, the broker will need to be au fait with the technique to adequately advise his client.

Over time, specialised risk management facilities have been developed by way of independent firms offering advice to the insurance market, insurer and broker alike, in assisting the accurate preparation of commercial insurance packages for the consumer.

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