We are excited to introduce to the blogosphere our Aurora Blog. This blog provides an ongoing forum for information, insights and discussion pertinent to the world of insurance underwriting. All are welcome to contribute and check back often for the latest postings and articles on insurance topics.
What's wrong and right in the broker market
7 July 2009
No matter how much the insurance market changes there are always some fundamentals that stay the same, although this seems to be an incredibly difficult lesson for some parties to learn.
Despite a changing market environment, pressure from regulation and consolidation and the ever-tighter squeeze on margins, brokers have retained the lions’ share of the commercial market, continued to be significant players in personal lines and have relationships with their clients that are the envy of many insurers.
Just as the broking channel remains a constant, so too is its desire for simple, straightforward good service, especially in commercial lines. Brokers want to deal with skilled underwriters that can assess the particular needs of their clients and price a risk quickly and effectively.
If an underwriter does not want a risk, then brokers want to know quickly so they can move on. Brokers want consistency from underwriters so they know where to go with risks and what sort of terms to expect. They also want to discuss risks with people with knowledge, experience and authority and if terms are agreed, receive documentation that is accurate and timely.
When it comes to claims they are looking for a fast reaction to first notification of loss, prompt payment of simple claims and good communication on complex ones, leading to fair settlement. Is this really too much to ask?
It does not seem like it, although from the industry surveys that we continually see it is invariably service over price that tops the brokers’ wish list. If an insurer is so difficult to deal with that it creates problems for brokers and their clients alike, then the saving made on the premium generally turns out to be a false economy.
Many insurers took a gamble that the changing market conditions would leave them dealing with a handful of mega brokers and because of this they shut down their regional networks, created call centres, off shored much of their administration, de-skilled customer facing roles and turned to computer rating and rules based underwriting.
Not all of these are bad things per se, but when added up and delivered in the way they were, they left the majority of brokers out in the cold and hankering after some old-fashioned flexibility and service. One broker said recently that if insurers got the policy documentation out right even most of the time that would be an improvement!
It is no surprise, therefore, that the more dynamic and customer centric insurers and broker only underwriting agencies have scooped up business by providing exactly what these established brokers with their longstanding client relationships were looking for. In many cases they have been very successful. Quality of service will out and it is as simple as that.
Indeed, having seen that the smaller broker market has stood the test of time, some insurers are now looking to court it again and with consolidators’ war chests almost empty, perhaps small is the new big!
However it is also interesting that there has been so much debate over the viability of these new underwriting agencies and there is now a strong consensus that only those that add value, have financial strength and a long-term strategy will survive. There is little appetite for the short term, commission hungry, broker-turned-underwriter model.
When brokers are asking only that the simple things get done well, it is shocking that they are still waiting for the decent service that they and their clients crave. In this area at least, change would be very welcome indeed.
This commentary was provided by Jonathan Davey is a director at SSP. SSP is the international expert with the broadest spectrum of knowledge, talent & technology for insurance & financial services.
While this commentary relates directly to UK, it does provide some interesting food for thought here in Australia, and particularly the role that Aurora plays in providing service to brokers who require unparalleled service for their SME clients!
Non-Insurance in the Small-to-Medium Sized Enterprise Sector
12 January 2009
In 2007, the Insurance Council undertook analysis into non-insurance in the household sector. This research is deliberately targeted in the small to medium sized (SMEs) business sector.
The Insurance Council survey of SMEs was conducted by Woolcott Research in early September 2008. The Insurance Council made use of Woolcott’s monthly omnibus survey which covers 1,000 registered Australian small businesses defined as those with less than 20 full-time employees.
Sole traders accounted for around 25.0% of the sample population while businesses with 1-4 employees, 5-10 employees and 11-19 employees accounted for 42.0%, 22.1% and 10.4% of the sample population respectively. The distribution of participating SMEs on an industry basis is shown in a graph contained within the report 'Non-Insurance in the Small to Medium Sized Enterprise Sector'.
The key findings of the report were:
- 26% of all small to medium sized enterprises (SMEs) do not have any form of general insurance.
- Sole traders have the highest rate of non-insurance with 40.0% operating their business with no general insurance.
- Of the SMEs that purchase general insurance, 94.0% indicated they considered that they were adequately insured. Taken together with the rate of non-insurance, this means that under two thirds of all SMEs have adequate insurance.
- Over 80% of SMEs who indicated that they were inadequately insured cited the cost of insurance as a barrier to purchasing. Reform of taxation on general insurance products would therefore reduce the cost burden to SMEs and contribute to a reduction in the incidence of non-insurance amongst SMEs.
- For the majority of small businesses, profit expectations do not appear to impact on planned insurance coverage, at least in the short term. 50.0% of respondents indicated they would leave their insurance coverage unchanged despite the expected change in profits over the coming year.
Here is a PDF version of the report Non-Insurance in the Small to Medium Sized Enterprise Sector from the Insurance Council of Australia.
Aurora have responded to these findings by arranging a new facility at Lloyds of London to underwrite general liability for small to medium enterprises.
Insurer’s liabilities set to increase: Probable impacts and basic responses
10 August 2008
A recent article by Insurance News tells a story of rousing political moves. A new bill has been introduced into the Victorian parliament which has the potential to increase the liability of insurers of third parties joined to a Victorian Workcover Authority and remove rights granted by the Alcoa decision. If passed, the Bill will effectively limit arguments regarding the calculation of indemnity, improve Victorian Workcover Authority’s bargaining power in a situation where its interests are already heavily favoured, and necessitate the revision of related claims.
These possibilities do not bode well for insurers of this category. Expert Jon Broome from Proclaim comments how over the last five years the insurance world has witnessed a consistent increase in the number and value of claims being effectively shifted from the no fault workers compensation regime to liability insurers. With the trend towards specialisation and the increased outsourcing of labour, the consequent increase in exposure to liability claims is destined to have an increasing impact on liability insurers.
So what does this all mean for us? With legislation continuing to shift risk from the worker compensation sector to contractors and occupiers, underwriters and insurers alike need to create sound strategies to combat this movement. Thus, we can expect a fight against liability exposure on two fronts. Mr. Broome states that:
“underwriters will need to price better, with higher deductibles and increased rating for a contract labour component. On the other front, companies will need training on how to identify and manage the risks arising from contract workers injured on site”.
Ultimately, Mr. Broome says, the consequence could be the inverse of current trends; that it becomes too expensive to source contract labour and it is cheaper to do it in-house. We welcome your comments and opinions on this bill and its possible ramifications.
