Insurance Claims

Do not hide your elephant in an avalanche – insurance market briefing.

A presentation to underwriters needs to give a fair representation of the risks and not hide uncomfortable information in an avalanche of data and glossy corporate publications.

Acknowledge there is an elephant in the room, and it is far less likely to trample on the claims process. This advice was one of several lessons from the Lloyd’s-Marsh breakfast briefing in which a lawyer, an underwriter and a broker gave their perspectives on the value of good presentations.

Herbert Smith Freehills partner Paul Lewis began by putting the issues in the legal context. The presentation has become an important part of the insurance contract negotiations. Whether the business is new or renewal, the obligation remains the same, to disclose and not misrepresent any information that might affect an underwriter’s judgement of the risk.

He pointed out that this duty doesn’t end with the presentation. It continues until the contract starts, and now that negotiations often take place well ahead of the inception date, there are pitfalls. A risk manager should ensure that nothing has changed between the time of the presentation and the conclusion of the contract. A scheduled announcement just before the contract date, for example, could result in a need for further disclosure. Changing the timing of the renewal could be worthwhile to ensure scheduled announcements do not clash with the last few days of the renewal process.

Lewis also warned against the temptation of going down the ‘data dump’ disclosure route. It could backfire, he said; the insurer was not expected to be a detective. Martin Hudson, director of underwriting for Mitsui Sumitomo picked up this theme.

The first issue, he said, is the relevance of the information. An avalanche of corporate financial statements and glossy marketing brochures might be interesting but a barrier to understanding the risks rather than an enabler.

He began his presentation with a poem by the American poet Robert Frost, the Mending Wall, as a metaphor for the thoughts going on in the underwriter’s mind as he looks at a submission and presentation. The poem concludes with a reiteration by the neighbouring farmer: “Good fences make good neighbours.”

Insurers like clarity. They want to know who is making promises and what they are going to do. An effective and open presentation should be much more than a distilled recap of exposures, but tell the insurer in quite concise terms what to expect from the risk.

Uncertainty in the presentation will most likely result in more uncertainty when claims arrive. Settlements will be delayed when the business needs money, and if real disputes arise, costs go up and the relationship starts to erode.

Insurance is described as a promise to pay and the promise has to be a good one. The question for risk managers is: “have you selected insurers who have made a good promise based on a thoughtful and knowledgeable appreciation of your risk?” Hudson said.

Marsh’s Adrian Jenner believes that insurance buyers should build the relationship with the underwriter to help create value in the transaction and differentiate their risk – which they know better than anyone else.

Not unexpectedly, insurers aren’t only looking only for data but they also want to know how the company assesses its risks and how it’s going to work through them. “Properly done, a presentation will increase understanding of the risk and create a risk differential.”

His recipe for success was:

• Start early and create an effective presentation of the risk. Data rooms where insurers can access clients’ information are a help in making the information manageable.
• Meet the markets and involve the right people. It might not always be the risk manager or the finance director.
• Record suitable evidence of presentations, answers and file. An account agreed by all the participants is good to keep on file.
• Consider inviting underwriters to investors’ meetings and open days. It’s not time consuming and a good way of building the relationship, since insurers are in a sense, investors in the business.
• Don’t try to bury the elephant in the data room.

Robert Frost’s very short poem about the elephant did not feature in the discussion, but as it took place just a few hours before the polls opening for the US president election, the allusion to “promises to keep” was especially suitable. It’s a reference to another Frost poem, Stopping by Woods on a Snowy Evening.

Insurers like clarity. They want to know who is making promises and what they are going to do.

Martin Hudson
Director of underwriting for
Mitsui Sumitomo

Meet the markets and involve the right people. It might not always be the risk manager or the finance director.

Adrian Jenner
Marsh