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Financial Advisers
Saturday, November 1, 2008
Balancing cost and cover

Arranging short-term cover for large corporations and companies is seldom an easy task, but for those brokers who are prepared to build long-term relationships with their corporate clients, the benefits can be very substantial. And the best way to build relationships is through the implementation of risk improvement programmes that involve a sustained and systematic approach towards addressing potential risks and meeting the client’s needs.
Quinten Matthew, Head of Specialist Business at Santam, says that the greater complexity of the risk faced by corporate clients is precisely the reason for engaging the services of professional brokers; they care best placed to assist clients in terms of risk control and improvement.
“Most large brokers offer a technical risk evaluation and survey service, which will assist the client in identifying and addressing potential losses, whether through physical risk improvement such as improved fire defence, or through additional management action such as improved operator training programmes.
“As it is seldom possible to implement all the required actions simultaneously, a longer-term risk improvement programme is required. The implementation, however, requires sustained effort on the part of the broker year after year, as well as commitment from the client,” he adds.
Matthew acknowledges that the high expectations of corporate clients in respect of premiums and benefits may be difficult to meet, but points out that over the longer term, implementation of a risk improvement programme can only be to the financial advantage of the client, as not all losses are fully insured.
“In response to risk improvement, clients frequently expect an immediate and direct benefit in terms of a reduced premium, bearing in mind that risk improvement usually requires some additional investment on their part. Unfortunately, by virtue of the normal ‘hard’ and ‘soft’ market cycles in the corporate insurance environment, this is not always achievable.
“However, within the normal market mechanism there will certainly be a longer term financial benefit to the company both in terms of more favourable insurance terms and rates and also in terms of the reduced losses that the company is likely to suffer,” he says.
Matthew notes that, in building relationships with corporate clients, it is important that brokers clearly explain the trade-off between the risk retained by the client and the cost of insuring the remaining risk.
“Clients have to understand that it is difficult and expensive to insure all possible loss or damage, and that inevitably the client will need to retain some of the risk. The important point here is that it is not only the retained risk that needs to be managed and controlled, but also the insured risk. Ongoing large losses over the course of a few years will result in increased deductibles or increased premiums or both, and in the worst case, insurers might ultimately decline to insure the risk,” he notes.
“In addition, clients need to be made aware of non-insured and non-insurable risk exposures, such as reputational risk, the risk associated with employee relationships and so on. For each loss, there is always an uninsured and uninsurable component.”
While premiums and benefits are clearly a function of the nature of the client’s operations and its historic loss performance, Matthew says that the quality of its risk management programme will always play an important part.
“By assisting clients to manage and improve their risk is a sustained and systematic way, brokers become an important part of the client’s business strategy and stand to reap huge benefits in terms of client retention and the increase in their commercial book. Santam, for its part, remains committed to improving its products and services to assist and support brokers in this role,” he concludes.

Copyright © Insurance Times and Investments® Vol:21.10 1st November, 2008
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