Arranging your business insurance can be a time consuming and stressful process in normal circumstances, but with the UK insurance market hardening at a rate not seen for almost 20 years, this will become more challenging.
Challenges in the business insurance market
A hard market means that insurer capacity is withdrawing, competition is reducing, premium rates are increasing, and policy coverage is narrowing. Insurers are also being more selective about which risks they choose to insure.
The main drivers of this are:
- Substantial insured catastrophe losses in recent years, which have increased global reinsurance rates for primary insurers
- Claims inflation or increased claims costs
- Specific sector issues in a number of key areas, including property/real estate, liability, Professional Indemnity, Management Liability, Motor, Marine and Trade Credit.
- Historically low investment returns on insurers’ retained premium income with low interest rates exacerbated by the stock market losses sustained due to Covid-19.
- Major market withdrawals both in the insurance company market and at Lloyd’s of London, alongside unprecedented M&A activity has reduced capacity and competition for risks.
Effects of Covid-19 on business insurance
The specific effects of the emerging Covid-19 pandemic are as yet unknown, but the already very challenging Directors and Officers market is expected to be hit hardest. Company directors could be left personally liable for stock market losses and business value erosion and insolvencies, facing legal action from regulators, creditors and shareholders.
Gaining effective business insurance
These themes are not applicable to individual circumstance, but are typical of many. However, if you follow these 10 steps you can ensure the process runs smoothly.
10 steps to help best arrange your business insurance
1. Shortlist up to three brokers, including your current one
There is little point in asking a large number of companies to quote for your business. There are a limited number of insurance markets available for many commercial insurances in the UK so a carefully selected panel of brokers will provide just as much coverage as a larger number of prospective candidates.
Try to select your shortlist based on referrals or recommendations and ask them about their expertise, scale and knowledge of your sector. Consider their location (if relevant) and ask them for relevant testimonials from similar clients to you.
There are a number of market reviews brokers can undertake, such as conceptual audits (where a broker may not initially approach any insurer) or nominated reviews, where each broker selects a small number of insurers each. One thing to ensure is that any new brokers you engage are clear as to who your existing insurers are and do not approach them (unless they have your permission), as this can confuse the dialogue your incumbent broker is having.
Although it is true that competition will help keep rates keen, you are far more likely to get the best out of a potential broker when quoting if you make it clear to them that they are one of a shortlist of three, rather than one of half a dozen.
You should also ask brokers about their risk management proposition as insurers value the effort clients make in managing their own risk and this is reflected in the pricing and terms available.
2. Ignore price focused advertising from business insurance brokers
When selecting your shortlist, try to ignore brokers whose advertising focuses purely on price. It is impossible for a broker to guarantee the cheapest rate on the market, so any who make this claim are simply banking on the fact that you can’t check if they were the cheapest. Like most things in life you get what you pay for - the cheapest option is unlikely to be the best. The shopping around process is about finding a company who can provide you with the tailored solution that best meets the needs of your business for the fairest possible price.
3. Give yourself enough time
Ensure you have selected your shortlist four to six months prior to your renewal date. Inform each company (including your existing broker) that a) they are one of a shortlist of three and b) there is a clear deadline when you want to receive terms back to make your final choice.
To secure the very best terms, insurers may want to carry out a pre-cover survey to better understand your business, which is also a great opportunity for you to meet a representative from the company who is ultimately responsible for paying any claims.
4. Request a copy of your claims experience from your current broker
In running a business, you may be painfully aware of the significance of your claims experience in the shopping around process. Without it, competing brokers will not be able to get a genuine quotation from any insurance market. Any broker who provides terms to a business client without having received a copy of the claims information is likely to be quoting ‘indication only rates’ - i.e. it could be a genuine offer, but it will not be confirmed and will be subject to asking your broker to provide you with the up to date claims listing.
A good broker will also provide valuable analysis, insight and trends/patterns, assisting the picture that is portrayed to the market. Request a 5 year claims experience and tell your current broker they will lose your business if they are unable to provide this by an agreed date - this will make it clear to them you are not prepared to be ‘held to ransom’ by their releasing terms at the last possible moment.
5. Consider your business insurance priorities
Every business wants to reduce their insurance spend, but it is essential to consider other key factors. Think about the current processes for claims reporting and monitoring - do you get enough information on the status of your claims from your current broker or insurers?
Each broker, and each insurer, will have their own systems and processes for the reporting of and accessing of claims information - don’t accept a quotation which doesn’t deliver the level of service you need.
6. Avoid your business being underinsured
Do you know the current value of your insured assets? Many businesses in the UK are underinsured (i.e. the level of insurance cover is insufficient to meet costs in the event of a serious incident). Under the Insurance Act, you have responsibility for fairly presenting your risk and providing the correct values (it is the duty of your broker to point out any shortfalls).
If you don’t have access to a valuation service, your brokers should be able to introduce you to their RICS approved company, either directly or via an insurer.
7. Ask for advice on emerging & evolving risks
In our ever-changing world new threats to your business emerge frequently. Your insurance broker should advise you proactively on the growing risk of cyber and data attacks, crime and terrorism; the importance of credit insurance; the latest information on environmental issues, as well as options relating to health care and employee benefits.
Ask candidates how they will keep you up-to-speed with legislative, technological, economic, environmental, political, and socio-cultural changes that could impact your business or requirements.
8. Discuss risk management with your shortlisted brokers
Each broker on your shortlist will present the information you have provided about your business to the insurance market.
Generally, insurance underwriters will put a keener price on an improving risk than one which is proven to cost the same each year, as proved via the confirmed claims experience. Talk the shortlisted brokers through any new training initiatives, security, risk management or health and safety that you have invested in and ask how they can help further.
Some insurers are willing to fund investment by the way of risk management bursaries and many good brokers will have their own risk management services they can talk you through.
9. Choose your provider based on service
The winning company should be the one who demonstrates an understanding of your business and its needs best. If the best service proposition is being offered by a company which is slightly above your preferred price, talk to them before ruling them out. If they understand that you are looking for a long-term business relationship they may be able to re-approach the insurer in question to shave a little off the rate. Check if your shortlisted brokers have customer service awards or accreditations that may sway the decision.
10. Look for a long-term business insurance broker
Unless you have a specific issue, you shouldn’t change provider on an annual basis. Insurance underwriting is all about stability and long-term relationships with customers. Insurers will often put more attractive terms forward for a company who has a minimum three-year review process, rather than one who switches provider every year.
Business insurance from Towergate
At Towergate we don’t just offer traditional insurance broking: we believe that prevention is better than cure. That is why we have our own risk management consultancy focusing on pre-loss mitigation and business continuity, and have developed our own business interruption calculator.
We engage actively with insurers and our clients to obtain protection for businesses of all sizes. Our wide range of covers help protect your organisation should the worst happen.
We are passionate about tackling the unprecedented levels of underinsurance in the UK: watch our video on how to avoid this for your business.
About the author
Mark Brannon Cert CII is a respected industry leader with over 17 years’ industry experience in a variety of roles within the business insurance sector. He works across a wide spectrum of insurance product and policy development, delivery and optimisation for clients, including claims, insurer relationships, marketing and communications, and risk management.
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The information contained in this bulletin is based on sources that we believe are reliable and should be understood as general risk management and insurance information only. It is not intended to be taken as advice with respect to any specific or individual situation and cannot be relied upon as such. If you wish to discuss your specific requirements, please do not hesitate to contact your usual Towergate Insurance Brokers adviser.