The influx of new insurers and increased market capacity are driving heightened competition and a noticeable softening across many insurance lines. As premiums fall, many small and medium-sized enterprises (SMEs) – the lifeblood of the broking industry – are enticed to switch providers in search of lower costs. Yet, as trusted advisors, brokers know that the cheapest option isn’t always the best for their clients. Beyond price, factors such as the reliability of an insurer’s claims process and the value of a long-standing insurer relationship can have profound implications. Overlooking these elements in favour of short-term savings can expose SME clients to greater risks and potentially undermine the very protection they rely on brokers to secure.
For broker Anthony Smit (pictured above, left), WTW’s cyber risk and insurance consultant, the claims question is paramount.
“I’ll answer in one word: claims,” said Sydney based Smit. “Apart from the claims process, insurer selection is important as some recent entrants do not have large portfolios to sustain large losses so key questions are the insurer’s claims paying capability and or how quickly they will pay.”
Scott Wilford (pictured, above right) pointed to another potential claims issue with a new insurer: does the claims team have local authority?
“If an underwriting agency comes in the market and they’ve got an external claims team, that is something brokers really need to consider,” said executive director of Oracle Group Insurance Brokers.
Smit urged caution when looking at different insurer options for a client based on price and warned that when capacity seems “too good to be true,” it may be just that. Smit said the price of insurance cover is still a very important driver in client conversations but suggested the bottom line is really whether any new insurer will actually be a viable long-term partner.
A long-term partner and the mutual trust that relationship creates means the insurer is also likely to be more sympathetic at claims time, said Don McLardy, executive director of McLardy McShane Insurance Group.
“Because if you do have a $5 million loss, they [the insurer] pick up their file and they say, ‘He's been insured with us for 12 years, and we've never had a problem but he's now got a problem,’ – well, human nature is going to tell you that they'd be much more amenable to looking after that client who's been loyal to them,” he said.
McLardy said particularly with bigger or complex risks, if he’s confident that the incumbent insurer understands the risks and is a reputable company, he “generally recommends” staying with them – even if a cheaper premium is available elsewhere.
This experience and understanding is essential, said Wilford. In cyber, he said it’s important to partner with someone who “lives and breathes cyber” – there’s no point in recommending a move to save $150 on a premium.
“It’s more about, the insurer's ability to respond when we there’s a claim and I think that's important because anything we do as a broker has to be around that, because that's a moment of truth, and you've got to have the confidence that they can manage it,” said Wilford.
The Oracle leader said policy wordings can vary dramatically so it is also important to establish if there’s really no sacrifice to the cover. In cyber he said this is particularly important because of the critical cover and protection it provides which means price can’t be given the same focus.
However, he’d be more willing to leverage price across other lines such as property or public liability.
One way the broker can head off this price issue with a client, said Smit, is to have a discussion with the incumbent insurer to negotiate more competitive terms.
“Most of the top cyber insurers we deal with want continuity in relationship and they recognise the current soft environment is pressurising them to offer larger than normal discounts to remain competitive and keep the client,” said Smit.
In the cyber market, he said any decision to remarket or move the client to another insurer, should be based on: Coverage, track record, claims paying ability, incident response and the insurer’s pre-loss risk management services.
How do you approach the challenge of SME customers changing insurers based on price? Please tell us some of your strategies below.
