GUEST BLOG: “Maximum effort...” What Deadpool can teach UK businesses about insurance

Taking everyone's favourite R-rated comic book character as an unlikely inspiration, Kevin Carrabine, Group MD, Confidential Solutions Group, outlines a new approach to insurance for businesses in the engineering and manufacturing supply chain...

“We’re going to have to do this the old fashioned way…with maximum effort…”

Deadpool (2016)

It’s not normally a good idea to bring swords to a gun-fight, and yet when it comes to insurance, standing apart from the crowd is the ONLY way you’ll ever achieve the optimum result.

Why? Because the way that nearly all businesses transact insurance in the UK is broken.

UK businesses – including engineering and manufacturing companies, large and small - are making the same fundamental mistake when it comes to reviewing their insurances; costing them both potential savings and better coverage. All because they don’t fully understand how the market works.

To explain this fully, we need to get inside the mind of the person who ultimately sets the price you pay. Not the broker, but the underwriter who decides IF they will cover a business, and if yes, then at what price. Let’s call this underwriter John.

And ultimately John’s only job is to win profitable business for his employer – an insurer.

When deciding on a price to offer, the more John knows about a business, the better the price is likely to be – as unknown factors carry a premium.

Understanding an individual business takes time and effort, which is where a broker comes in.

John needs time to study a business before he can offer his best price, and if he discerns that there is a lot of competition with other insurers for the business, then he may be more likely to decide against investing any more time on it. His view is that the business will either take the first price or it won’t.

Similarly, if the broker that presents a case has a poor history of delivering sales to John, then those businesses are likely to be bumped down the pecking order.  For John, the total cost and effort of making a sale once he includes all the red herrings is simply too high.

A problem of scale

It is therefore in both yours and your brokers best interest to maintain excellent relationships with insurers so that they want to invest quality time on your business.  But the businesses carry the can for the fact that it is very difficult for a broker to maintain excellent relationships and an excellent reputation, with more than say a half dozen underwriters.

And increasing the effort by using multiple brokers plus an incumbent actually makes it worse.

This is because in an open-market tender, competing brokers will reach out to all their partner insurers with a request for quotation, hoping to get at least the same, or a better price than the other brokers. Each broker will approach as many insurers as they can and it’s not uncommon for more than 30 Insurers to be involved.  Maximum effort.  

Crucially, once an insurer has given a price, if one of their underwriters receives a similar proposal from another broker, nine times out of ten they have no choice but to offer the same price to the second broker, due to what is known as the ‘logging protocol’. What’s worse is that the same will apply when the insurer has previously refused to quote at all – even if the underwriter has an excellent relationship with the second broker – they’ll likely be obliged to pass on a ‘no-quote’ to them to.

This is why in an open-market tender, you often have insurers that won’t quote, Brokers that all come back with the same price, and endless blame-tales about how someone got there first and the market is now blocked. The result is often minimal improvements for maximum effort.

What’s worse, when the prices obtained by competing brokers are all very similar, a last ditch attempt to win the business can lead to a ‘Dutch auction’ style frenzy with each broker lowering their price (not the insurers), either by reducing their fee or in giving up commission.

Whilst this may initially seem attractive, the long-term effects of the broker bun fight can have huge negative implications for sectors such as engineering that demand a keen knowledge of the business.

There is an alternative to this broken system.

A confidential process when done right, keeps businesses off of insurers blacklists, keeps coverage superb, and premiums low.

To take one recent example of a sub-contractor we worked with, it was clear from the initial assessment that the premium levels being paid were more than excessive.

Our insurance broking firm Confidential Solutions Ltd were worried that if the insurance market became aware of the current expenditure, then there would have been less motivation for alternative insurers to provide their very best price. This was because a ‘good’ price would probably be ‘good enough’.

So instead of going to the open market, an objective price target including a significant saving was agreed along with a highly personalised service plan, and in this particular case the company appointed Confidential Solutions as their broker before they received final renewal terms from the existing broker.

"I only have 12 bullets, so you are going to have to share”

Look at what Deadpool does and (only sometimes) what he says. The trick is to work smarter and not harder. 

If you want to learn more about the truth behind the UK insurance market, or are ready to try something new, visit our website, or come and meet us at Subcon and learn about the alternative – The Confidential Review. Maximum effort is not required.