Making the most of your insurance programmes

Simon Walker, Director General of the Institute of Directors (IoD) never fails to pull his punches. In a recent guide produced jointly with Airmic, Critical Business Insurance, he wrote: “For some directors, insurance may traditionally have been a ‘grudge purchase’ – something they felt obliged to spend money on, but did so reluctantly, at the lowest possible price and with little understanding of the cover acquired. If so, the dynamic nature of today’s business environment demands a new approach.”

Phil Sharpe of ACE,a contributor to the report, outlines a rigorous approach to ensuring multi-national insurance programme efficacy.

It is important that risk managers encourage their boards to consider an insurance policy not merely in terms of its chargeable cost, but as having a value equal to the limit of the indemnity being purchased. Adopting this mind-set should help the company recognise insurance cover as the valuable asset that it is both on a local and global basis. As investment guru Warren Buffet famously observed: “Price is what you pay; value is what you get.”

In order to drive that value and ensure that an insurance programme is fit for purpose in every territory where companies operate, purchase decisions must be part of a broader risk management review comprising three distinct phases: risk identification, risk evaluation and risk control.

Risk identification: what do you want to protect?

Some risks will threaten the survival of your business whilst others, although undesirable, will have less impact. During this stage, risk managers need to establish what current and potential future assets – both tangible and intangible – must be protected. This means thinking beyond physical assets like buildings and stock, and taking into consideration the intangibles such as key personnel, reputation and brand. As part of their risk identification, we encourage clients to think through the potential impact of data loss, supplier loss or the breakdown of key customer relationships. At this stage, creating or reviewing a risk register can help to inform decision-making and provide a checklist for the final insurance programme.

Risk evaluation: what are the threats that you face?

Phase two is about evaluating the risks to the business. Here too it is important to go beyond the obvious and to identify the full range of risks and threats, which will be far more complex than the traditional fire, flood and theft.  As part of this phase, companies need to evaluate their risk appetite. What risks could the business potentially manage and what impact would these risks have on strategy realisation? Armed with a clear sense of the likely risks and their impact, risk managers and their boards can consider risk mitigation and start to evaluate the available options.

Risk control: what solutions exist?

This phase is about ensuring that businesses have coverage and mitigation for risks, without gaps or overlaps, taking into account  both insurance and non-insurance solutions in every market where they operate. Companies will need to assess the credentials of professional partners and take ownership of relationships with insurers and other partners, for example adopting a proactive approach to claims. Companies with global operations should consider the benefits of a multinational programme, combining an insurance policy issued to the parent company, with local policies issued to subsidiary companies in the countries in which they operate.

Of course business is never neatly compartmentalised, and ensuring an organisation is adequately protected from risk is a continuous cycle, with different elements of a programme co-existing in different stages at the same time. External factors can also shift components to a different place in the cycle without warning, requiring companies to stay vigilant at all times.

Although there is no ‘one size fits all’ template for ensuring an insurance programme meets every requirement for every business, experience tells us, that securing the board’s full engagement is essential. Decisive intervention at key stages of the process will ensure that the ultimate solutions are more resilient, helping to underpin an organisation’s ongoing survival and future growth.

A check-list for risk managers and their boards

Risk managers should seek to challenge the board in a number of areas to ensure the company is correctly covered and, therefore, that any claim will be paid:

• Are you engaging with your insurer in pre-loss planning?
• Is all the information you provided your broker/insurer accurate?
• Do you have a mechanism for updating changes about your business to your broker outside of renewal time?
• Do you have clarity on which covers are critical?
• Have you been realistic about the cover you can achieve with your budget?
• Have you thoroughly reviewed all documentation and challenged where appropriate?
• Have you and your colleagues met your insurer’s claims team (pre-loss)?
• Do you know what the claims culture of your insurer is?
• Are you familiar with your insurer’s claims processes?
• If you are partnering with more than one insurer, have you undertaken a gap analysis between covers?
• Have you documented where necessary?
• Have you, as a management team, considered all reasonable threats to your business – particularly emerging risks?
• Have you considered the benefits of a multinational insurance programme for your operations abroad? If you have one already in place, is it compliant with local laws and regulations?

Phil Sharpe is Chief Operating Officer, ACE UK & Ireland. ACE co-sponsored the report 'Business Critical Insurance', which was produced jointly by the IoD and Airmic. It can be downloaded free from www.airmic.com