Too large to benefit from government initiatives but too small to employ their own risk managers, mid-market businesses can inadvertently find themselves taking on unexpected levels of risk. As these businesses grow and face new and increasingly complex risks, expert support is essential, as Sam Barrett explains
Failing to identify and mitigate a risk can be an expensive mistake, no matter what the size of the business. And something mid-market brokers should be as much aware off as their corporate equivalents.
“Ignorance is no defence,” says Ashwin Mistry, executive chairman at Brokerbility and BHIB Insurance Brokers. “If they fail to meet their legal requirements, they will be treated exactly the same by the courts as a firm that knowingly cut corners.”
Keeping on top of their risk exposure isn’t easy. As well as lacking a dedicated risk manager, these firms are often focused on business opportunities. As a result, resources can be too stretched for insurance issues to make it on to the agenda.
But this dynamic makes risk management even more important to these businesses. “Mid-market businesses don’t want to experience a claim,” says Howard Lickens, chief executive of Clear Insurance Management. “Although the insurance will put things right, the damage is already done. They need help preventing the loss from happening in the first place.”
As an example, a manufacturing business suffers a fire, causing extensive damage to its premises and production line equipment. While its insurance covers the business interruption as well as paying out for new equipment and repairs to the building, the six months it takes for operations to restart is sufficient for it to lose two key clients, forcing it to go into administration.
Plenty of risk management information is available to these businesses, often in the form of online libraries. However, Mistry argues that this type of resource isn’t always suitable. “There’s an abundance of knowledge out there but how useful it is will depend on the question you ask,” he says. “In some cases, a mid-market business won’t even know they have a question to ask.”
The difficulties mid-market businesses face accessing appropriate risk management has also been recognised by the insurers. Dave Carey, head of mid-market UK business at Aviva, says that these businesses need something more bespoke. “These businesses need the right risk advice at the right time,” he explains. “Brokers are already doing an excellent job in this space but we believe insurers could play more of a role. We want to dovetail with brokers to provide the risk management services mid-market clients need.”
Technology is particularly important in this space, with new innovations helping to reduce the time, cost and hassle of more hands-on solutions. A good example of this is an aerial inspection, as Carey explains: “Rather than having to put up scaffolding to gain access to the roof, a drone can be flown over the building instead. This is a much simpler way to gather the information.”
As well as making risk management easier, technology can also transform risk. A good example of this is leak detection, where by monitoring water flow, a device can alert the property manager at the first signs of a leak. This prevents further damage and, as the technology can pinpoint the leak, makes fixing the problem easier. “Escape of water is a big problem for insurers, and for property owners of all sizes,” says Mistry. “Some insurers are already offering this technology to larger commercial businesses but we’re pushing to extend this to mid-market clients.”
Technology’s ability to detect a potential loss at an early stage isn’t limited to water and roof tiles. Customers’ creditworthiness can be monitored, with alerts given to mid-market clients to enable them to take steps to minimise financial exposure.
Even reputation can be tracked, as Andrew Gibbons, managing director of Mason Owen Financial Services, explains: “Take RiskEye for example. It is a piece of technology that will monitor a business’s online presence to detect whether there are any negative posts. This can be really useful for businesses that depend on their brand and reputation.”
Businesses can also use technology to reduce health and safety risk within their own workforce. Carey explains: “Where employees on a production line suffer a lot of musculoskeletal problems it can result in high levels of absence and health insurance claims. Wearables are available that enable the employer to pinpoint what’s causing the problems and take the necessary steps, such as retraining employees or adapting the workplace, to address them.”
Brokers are also keen to use more technology when dealing with their mid-market clients. For instance, Mistry would also like to see slicker technology being deployed at the point of claim. “Clients should be notifying insurers directly when they suffer a loss as this ensures the remedial process begins as quickly as possible,” he says. “However, brokers are intimidated by this as they feel they are giving up control. Using blockchain to record what’s happening on a claim could address this, allowing the broker to support their client where required.”
With so much technology available to support mid-market clients, there are a number of challenges. Overload is an obvious one. “At the moment people are designing technology because it’s easy and because they can,” says Gibbons, who believes one consequence of so many solutions could be password fatigue. “The trouble is, although there are some brilliant pieces of technology out there, it’s not all helpful. You need to ensure you’re offering value or the client will push back.”
This is something that’s also recognised by Carey, who sees the timing of advice as the biggest challenge for take-up of these technologies by mid-market clients. “These clients will only be interested when it’s relevant to their business needs,” he says. “Brokers are really good at understanding their clients’ businesses and identifying these points.”
There’s even technology available to simplify this process. Commercial intelligence tools, which use data from an insurer’s clients as well as broader industry sources, can help a broker determine the most appropriate package of cover and risk management advice.
Cost is another potential issue, especially as these technologies usually come with a sizeable price tag. Matching solution to risk could help balance this equation. “Where a piece of technology helps to reduce risk, it could pay for itself,” says Lickens. “It’ll also help insurers to differentiate themselves: if they offer something different, even if costs a little more, it will attract customers who want that service.”
While there are obstacles, many expect the benefits technology brings will help to remove them. As well as creating a more resilient mid-market sector, bringing in these technology solutions could even lead to a fundamental change in product design.
Lickens points to cyber insurance as an example. “This is sold as a policy that will respond when a cyber incident happens. Having the support of forensic and communications experts at this point is great, but for mid-market clients, prevention is even more important,” he explains. “A service that reviews a business’s cyber exposure and makes recommendations to mitigate the risk, with insurance very much in the background, would work well.”
Meeting mid-market client needs, whether through product design or risk management advice, is key to building more resilient businesses and developing stronger, long-term relationships that benefit all parties.
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