What are the headline topics in the Commercial Insurance Space in 2016? Certainly Cyber exposure and coverage, Catastrophe loss, Insurance tech disruption, and M&A activity have all been prominently featured in the trade press. These topics are important, to be sure, but are they distracting us from dealing with the underlying challenges in the industry?
On a scale of 1-10, how are we doing with helping Canadian businesses achieve greater value through risk mitigation and transfer? At a time of heightened uncertainty for business, our opportunity as an industry to create increased value for clients has arguably never been higher.
How do we determine if we are increasing client value? Are we making it simpler and more cost effective for clients to protect their businesses? Are we helping clients know what to expect from us when they experience trauma? These questions are difficult to answer in any definitive way.
Another way to examine customer value is to look at the percentage of a client’s premium that is ultimately returned to customers in the form of claim payments. By this measure, Dowling & Partners insists that both Distribution and Underwriting costs must decline (10-20pts in their view) such that customers can receive back approximately 75% of premium in the form of loss payments.[i]
But certain practices that persist across pockets of the Insurer and Broker communities are obstacles to delivering improved client value and reaching this 75% target.
On the Insurer side, here are some simple examples of behaviours that destroy, or at least diminish customer value:
- Providing renewal quotes at the last minute as a means to retain clients at higher prices
- Re-underwriting customers each renewal as staff changes
- Claims decision makers located outside of Canada. This delays response time when the client needs us most
- Insisting on full underwriting applications each year, complete with basic client information that remains unchanged year over year
- Treating new and renewal business differently for price and coverage terms
- Using the same renewal process on small business as on mid size and large risk
Value disablers persist in the Broker community as well. Here are some examples of unsustainable practices:
- Designating “Preferred Insurer” status to a select group of Insurers who pay enhanced commissions to gain preferred customer access from the broker
- Broker networks which push retail customers through their owned MGAs in order to consolidate business and maximize distribution revenue
- The practice of aggregating types of clients or products into large volume facilities that are placed into the market at commission rates above retail levels
- Brokers owned in whole, or in part, by Insurers where this ownership is not disclosed to clients
- Sending submissions to many Commercial carriers in order to “block” the market
- Brokers collecting the same commission percentage year over year, regardless of the variance in work effort between a full marketing exercise and an “as is” renewal with the same markets
Together, these value disablers create increased costs, limit transparency, or grab a larger portion of the premium dollar, rather than returning it to the client.
To generate increased customer value, we need to improve access to our products, create new solutions for emerging risks, be clear about the protection that is (and is not) being purchased, and backstop sales with exceptional local claim service. And at the same time, we need to return a larger share of the insurance premium to customers.
By teaming up to drive more effective delivery and response, Insurers and Brokers have a tremendous opportunity to pass greater savings and value to our clients. What part will you play in re-defining client value?