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.
