Tailoring the service

At a recent meeting of insurance professionals, the chief executive of a major manufacturing plant in the West Midlands outlined some of his anxieties and irritations with the insurance market. His firm spends around £500,000 a year in premiums and he estimates that his premium spend has more than doubled in the last five years, so it is little wonder that he feels somewhat aggrieved.

Employers' liability was at the heart of his troubles, and he was scathing about the 'claim and compensation' culture prevalent in today's society, as well as the negative impact of high legal fees. But, he also said he was seeing no benefit, in terms of his premium levels, from his risk-management activity. He argued that manufacturers need more incentive and more reward from their insurance partners.

This was an experienced and successful businessman with a grasp of general commercial realities, so he was willing to express sympathy for the plight of underwriters in recent years. He knew about the impact of the events of 11 September 2001 and the cost of extremes of weather, but he said that life is tough for everyone. In his sector, for example, clients routinely ask for fixed-percentage cost reductions year on year - and if this cannot or will not be delivered, there is always another firm that will.

He argued that insurers must find ways to provide policyholders with the cover they need and on affordable terms. He was not necessarily demanding lower premiums at renewal. Rather, he wants consistency and transparency of pricing and a renewal process that is ordered and efficient. He wants to build long-term relationships and get value for money.

He also suggested that, if insurers are to flourish, they need to change the way they approach the market in the first place. They must be innovative, both in terms of the products and services they provide and in the quality of service they offer. Buyers are becoming more discerning and demanding and less willing to accept whatever the insurer puts on the table.

Expert advice

In other words, the buying process is not merely a quantitative measure of competing premiums, but a qualitative assessment of what various broker/insurer partnerships have to offer. Manufacturers will no longer be satisfied just with a bare-bones set of indemnities and a couple of helpline numbers.

They want expert, bespoke advice, which not only improves their risk profile but also enhances their operating efficiency and contributes to their overall profitability.

That implies a fresh approach from the broker and the insurer. Quotes must be accurate and based on detailed research. Recommendations and requirements must be submitted in advance of the policy going live so that the insured knows exactly what is involved. The relationship must be ongoing and interactive throughout the term of the policy to react to changes in the business.

Claims must be dealt with promptly, courteously and constructively to improve the proposition still further. And renewals must be handled in good time, not as a last-minute panic.

Central to this approach is the notion of partnership. The vast bulk of the manufacturing sector uses the services of a professional broker.

But brokers differ widely in approach and aptitudes - as do insurance companies. If the aim is to provide a tailored service to the policyholder, the broker's decision as to which insurer to use is therefore of prime importance. Relevant experience and specific expertise must be brought to the fore.

Just because one carrier is ideal in a particular case does not mean it will be appropriate in the next. It is up to the broker to select the right insurer for the job based on the unique circumstances of the client.

It is important that the broker, the insurer and the client agree how they will all work together to deliver what the client needs. It needs to be determined what sort of contact will be maintained, whether it will be be in the form of regular or ad-hoc/emergency meetings; the level of staff that will be involved; and whether there will be an element of consultancy in specialist areas of risk management. For example, should the insurance partners be proactive in terms of communicating changes in health and safety practice?

Some firms have dedicated insurance buyers/risk managers. In others, it is the finance director who deals with insurance, and they may have little awareness of risk management. In some cases, insurance may be viewed as a once-a-year necessary evil to be signed off by the boss. Whatever the circumstance, the broker must devise an approach that conveys the importance of seeking independent professional advice.

When it comes to devising a contemporary insurance programme for a manufacturing business, there are many issues to take into account. It is not simply a case of finding out the trade, the wage roll and the value of stock and plant and coming up with a rough figure. These are certainly important elements, but they must be considered in the context of business viability, competition, customer satisfaction, regulation, liability and risk appetite.

The purpose is asset and earnings protection, so this should be the starting point, with the actual insurance purchase just one - albeit important - element.

Programme constituents

Risk management will be at the fore, with health and safety compliance an obvious priority. Also, a wide-ranging programme needs to ascertain the client's tolerance of risk and the scope for increased use of deductibles, or even full-blown self-insurance. Plus, is there a disaster recovery plan in place that addresses the many and varied issues that come into play following a catastrophic incident?

Clearly, if the programme is to be comprehensive and appropriate, it requires the full co-operation of senior management and the provision of detailed information about the business and its risk profile. The quid pro quo of obtaining this information, as far as the insurance providers are concerned, is that they are able to deploy staff with sufficient experience and expertise to use it fully in pricing the insurance element of the overall programme.

It is an insult to the people running manufacturing concerns to expect them to deal with those who do not have the necessary skill or responsibility to communicate effectively with them.

It is vital that all these requirements are established and agreed well in advance of any insurance coming into effect. All too often, clients buy insurance without knowing what they are getting or understanding how it works. Cover is often put in place without the detailed documentation setting out the terms and conditions being available. A batch of risk improvement requirements is then notified weeks after a survey, which itself takes place months after inception.

Clients should not have to wait until they are on cover before they see the whites of the insurer's eyes. It simply does not make sense for manufacturers to buy 'blind', just as it is crazy for insurers to pretend that they can underwrite a risk properly and accurately without full information.

Yet that is the normal course of events at the moment. No wonder insurance buyers are disillusioned.

How many times do brokers and insurers effectively make themselves unaccountable during the term of a policy, only putting in an appearance if there is a claim (when they often send a loss adjuster instead), or it is time to consider renewal? Clients need to hear from their professional contacts during the term of the policy, because risk is organic. It lives, breathes and grows with the needs of the policyholder. As the policyholder's risk profile changes - increased payroll, new premises, new stock, new plant, regulatory developments, changes in market conditions - the insurance partners need to react swiftly and appropriately.

They should both take the initiative in finding out what is happening, and they should make it clear that they welcome communication initiating from the client.

Claims handling

Claims handling remains the ultimate test of credibility of any insurance arrangement. It is about much more than determining the merit of the claim.

Every incident should be scrutinized so that those involved can learn what went wrong - and how it can be prevented from going wrong again and how the impact of future events can be controlled and reduced.

When incidents occur, the insurance providers should be on hand to help the client get back to business in the swiftest, most efficient manner.

But claims handling should begin at inception with a fully fledged disaster recovery programme to protect the policyholder's viability in the event of a major problem.

The greater and more successful the client's involvement in the management of risk, the more favourable their insurance terms will become - which has to be positive in terms of developing a mutually rewarding, long-term relationship.

It is important to think in the long term, because productive risk management work may often require substantial initial investment and it may take some while for the benefits to become apparent. There will also be a need for trust, which is not automatic and may take time to establish. For example, the policyholder may take some persuading that self-insurance and policy deductibles can make policies more effective. They may not immmediately understand that 'pound swapping' for smaller claims is a costly and fruitless exercise where money travels one way in premiums only to travel back in the other direction to pay for irritating and largely avoidable claims.

It makes sense to raise the deductible in such instances and help find ways to prevent the losses in the first place. Again, it is a question of timely and effective communication backed up with practical and effective risk management.

Price reductions

Another innovation that clients might appreciate is the suggestion that they should, over time, spend less on their insurance. This will certainly appeal to those in the manufacturing community who are obliged to achieve price reductions every year on the goods they sell. So, insurance professionals should recognise the importance of value for money. If they offer a true and realistic price for the indemnities they provide while, at the same time, pursuing a risk-management agenda that will reduce the amount of insurance required, the result should be reduced expenditure on premiums, a more consistent approach and a safer and more efficient work environment.

Today's policyholders should be able to look forward to a new kind of relationship with their insurance providers. One in which they are treated with the respect owing to a client, not one in which they are given the administrative run-around and do not know what premium they will be paying from one year to the next. In modern insurance transactions, promises should be kept. Deadlines should mean something. Simple things like correspondence and documentation should arrive on time and in good order.

None of this is rocket science. The provision of decent insurance programmes to commercial clients can be hugely complex, but it need not be unnecessarily complicated. If the simple things are done well and if the partners communicate honestly and in a timely fashion, the result should be satisfactory for all concerned.