Use insurance to take more risks, IoD and Airmic urge directors

Business leaders must stop seeing insurance as a ‘grudge purchase’ and start using it to enable them to take risks as they grow their business, the IoD (Institute of Directors) and Airmic have urged company directors.

The two organisations have brought together industry leaders in a new guide for company directors, urging boards to view insurance not just as a necessary precaution, but as a way to help them launch into new markets and expand their business.

In his introduction, Airmic chief executive John Hurrell stresses the importance of buying the best insurance policies – not necessarily the cheapest. “All too often companies assume that policies will pay out when needed. While most policies do indeed pay out, such complacency can be costly. When a large risk materialises that is uninsured, or where a claim against it is delayed, unpaid or only partially paid, the consequences can be disastrous.

Simon Walker, Director General at the Institute of Directors said: “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.

“The right business insurance acts as a strategic enabler, underpinning companies’ ambitious and allowing them to seize new opportunities. The size and complexity of insurance contracts alone means they demand board-level scrutiny to ensure that cover is ‘fit for purpose’ and that it also represents good value.”

The new report, Critical Business Insurance, identifies four reasons that boards should take an active interest in their insurance programmes:

• The modern risk environment is constantly changing and becoming more diverse, with the emergence of new and less tangible threats such as cyber and supply chain disruption
• Insurance policies are among the largest commercial contracts many companies enter into, and boards therefore have a duty to understand them
• The Insurance Act comes into force next August, providing greater protection for commercial policyholders, but also placing greater obligations on them
• Insurance can act as a strategic enable, underpinning companies’ ambitions and allowing them to seize new opportunities.

The document, which is being distributed free to IoD and Airmic members, says that many boards never discuss their insurance programmes even though they can sometimes represent their companies' single biggest capital asset. Not only might they put the entire business at risk as a result, they are failing to appreciate the role of insurance in enabling firms to seize new commercial opportunities.

The guide has been produced with support from ACE, PwC and Willis.

"The good news is that having the right insurance and risk management programmes in place can support and enhance businesses’ ability to achieve their strategic objectives.The fundamental value of good quality insurance can be seen in the certainty it brings, which in turn opens up a plethora of opportunity, and ultimately helps to build a resilient and sustainable business," said Ailsa King, head of sales at Willis GB.

“Insurance is a fundamental enabler for Boards to realise their strategic objectives. The responsibilities of determining appropriate cover and procuring it cannot be 'outsourced' by the board but must form a key part of the risk management discussion around the board table. This guide outlines the drivers which make that effective. We are increasingly seeing successful companies as those which embrace insurance and their insurance providers as key business partners supporting the ambition and strategic drive of the organisation." said PwC partner Alpesh Shah.

Phil Sharpe, Chief Operating Officer of ACE’s UK and Ireland retail business, said:
“In many cases there is either insufficient engagement at board level on the design of insurance programmes, or more emphasis on cost than value. If boards want to mitigate the potential impact of the risks that worry them most – including emerging threats such as cyber, environmental, terrorism and political violence risk – they must proactively engage with risk managers on risk identification, risk evaluation and risk control. A focus on these three areas will not only help to protect the company’s balance sheet but also underpin its survival and growth.”