This is part two of our white paper – The six trends affecting risk management that you must consider
We’ve been fortunate over the last couple of decades in the UK that the insurance market has been a soft one. What that means is that there is a lot of competition in the marketplace and, as with any other kind of market, where there is a high degree of competition, lower pricing and more advantageous terms to the customer follow. If you have 10 insurance companies willing to underwrite a certain client’s policy, then you’re likely to find a very competitive price.
The flip side is a hard market where demand outstrips supply, so capacity is low and prices are high. If you have only two insurers willing to underwrite a particular policy, clearly, they are able to set higher prices and / or less favourable terms.
What we are seeing of late – a trend which industry observers agree is only going to continue – is that insurers are now pulling out of certain types of markets and so the market is hardening. For example, we have seen in 2019, both AXA and AIG withdraw from insuring casualty policies in the hospitality and leisure clients in the Republic of Ireland. In 2020, MS Amlin will exit the UK property and casualty markets.
Now, you wouldn’t withdraw from the marketplace if you were able to be in that marketplace profitably. Therefore, this suggests that the rates historically
have been too low to enable the insurers to achieve a profit on their activity. To some extent then, it’s no surprise that this isn’t a sustainable situation.
Whilst insurers’ profitability has been poor in a soft market, as the market hardens, rising prices can have a dramatic, sometimes fatal, effect on businesses. Again in Ireland, we have seen examples of leisure facilities having to close down because their quoted premiums were 3-5x that of the previous year.
As far as the commercial aspects of an insurance policy there are two main levers:
- The premium. This is the committed price that must be paid throughout the year for the insurance to be place. Clearly if an insurer is able to charge a higher premium, they would expect to make a higher profits
- The excess (also known as the deductible). Take your car insurance as an example, it’s likely that you have an excess of perhaps the first £50 to £250 of any damage. The insurance company then picks up the remainder. Now, if you were to get two comparative quotes for that car insurance and one of them has an excess of £25 and the other has an excess of £250, the premium is going to be very different with both options
…so in the hardening market, what we can see are one of two things or a combination. Firstly, premiums are increasing. Secondly, the terms are becoming less favourable.
Let’s say you had a premium of £50,000 and an excess of £10,000. But you’ve suffered a number of claims that you may find that within the following year, the premium might go up to £75,000, but also that the insurer wants the excess to be
£15,000. For every claim the insurer is de-risked because there’s an extra £5,000 that you’re having to pay yourself before they have to put their hand into their pocket.
So, what can you do about it? Well, almost everybody agrees that the only real way to mitigate the risk of your premium and or general terms of insurance going against you is to have better risk management in place.
Let’s consider a scenario with companies who both operate 10 manufacturing facilities:
Clearly, company B is much more attractive for an insurer to cover than company A, so company B is going to be able to get much more favourable terms from an insurer.
Therefore, what you must do is try to position yourself – through your risk and safety management – closer to being company B than company A. So, irrespective of where you are now, if you can demonstrate with strong evidence that you are taking steps to improve your risk profile, then you’re in a very good position to achieve better – or at least not worse – terms from an insurer.
“You are not buying insurance, you are selling risk.”
(Anthony Wilson, Proximity Risk & Assurance
In the context of slip safety, what does that mean? Well, we have done articles and interviews before where leading brokers, insurers and claims lawyers have said, for example, that doing regular pendulum testing would be beneficial. This gives both constant evidence of your commitment to proactive safety management, but also documents compliance over time. It’s one thing to have evidence that you chose a slip resistant floor 4 years ago, it’s quite another to also have proof that every 6 months this floor has been certified as safe again and again.
I note though, that pendulum testing is only valuable when you have positive results. Of course, if you have a pendulum test with poor results, that’s a difficult position to be in. But burying your head in the sand and not gathering the evidence if
no excuse nor does it present a defence in the event of a claim. It’s reasonable to slip test in environments where the risk of slipping exists, therefore you should do it. See poor results as an opportunity to make positive changes to reduce your risk.
If you can show that you’re doing regular testing… but also (critically) taking regular steps to achieve good results, then you are, in our experience going to see: fewer accidents, fewer people getting hurt, and fewer claims. Therefore, overall, you will be in a much stronger position to achieve better terms from your insurer, mitigating the challenges of a hardening market.