How to align your insurance programme to the business strategy

Businesses increasingly feel that traditional insurance arrangements are not sufficiently flexible, responsive and cost effective to cater for their changing risk profile. But how does an organisation begin to remodel its insurance programme? Kim Alcock of Davies Group offers advice on how to ensure your programme is contributing to business success.

Risk managers are faced with the increasingly complex task of identifying risk and understanding its impact on business. External risk factors, such as a challenging financial environment, technological innovation and regulatory reform, will influence day-to-day activities and in turn affect business performance.

A fresh approach must therefore begin with some clearly defined objectives, designed to ensure that an insurance programme is directly aligned with business strategy. 

Identify financial objectives

The key starting point is to identify the over-riding financial objectives: it is essential that any insurance programme meets the financial needs of a company. 

If saving money is the main consideration, then reducing the ‘up front’ cost of an insurance programme, by eliminating or reducing premium spend, may be an attractive proposition.  This could take, for example, the form of a large deductible.  The notion that a company is spending its own money on claims also gives greater visibility and a sharper focus on loss prevention.

Other considerations may include a captive, which allows an organisation to exercise greater financial control.  Self-insurance arrangements may particularly suit companies operating in environments where technological advances are creating new and emerging risks as traditional insurance arrangements may be slow to respond and premiums expensive.  Tailoring a bespoke programme based on a comprehensive understanding of your own sector can reduce premiums and provide more flexible cover. 

Regulation should also be a key factor.  Any insurance programme must be tailored to ensure compliance.  It must also have sufficient flexibility to evolve with the regulatory landscape.  A good example in recent years is the way in which businesses responded to the introduction of The Portal for Employers Liability and Public Liability Injury claims.  Those who made it a business priority to respond quickly are now benefitting from the financial reward of lower legal cost spend.

Align with business objectives

Any upfront savings need to be weighed against the longer-term impact of claims spend.  Therefore, claims handling must also be closely aligned with business objectives.  To facilitate this, organisations need to identify the factors which are most important to the success of their business.

Many companies will be seeking to drive overall indemnity spend down.  However, those who operate in very competitive and customer-focused markets will be aware of the impact of claims on their customers and the need to build an element of brand protection into their claims handling philosophy.  Satisfying the needs of their business will require swift handling of additional losses to reduce lifecycle and cost, minimise friction and avoid complaints, whilst underpinning a company’s service ethos.

In premium markets, brand enhancement may be the overriding objective.  The financial aim may not be to save money, but to deliver a best-in-class service.  By aligning insurance arrangements with pricing strategy, the additional ‘cost of claim’ can be passed on to clients at the point of sale, thereby protecting profit margins.

Understand wider claims implications

It is crucial to consider the ripple effect of claims throughout a business.

Where there is a high risk of major incidents, a claims management programme must deliver the right expertise – as soon as misfortune strikes – in order to protect reputation.  Those susceptible to surge will need flexible resources which can be up-scaled at short notice.

For organisations with a large workforce or employees who are critical to the delivery of its business strategy, rehabilitation programmes which return staff to work quickly may be a priority. 

For those whose business premises are fundamental to the delivery of its business strategy, a programme that ensures its premises are returned to full use at the earliest opportunity, minimising disruption and inconvenience to staff and customers, will be essential.

The role of the risk manager

The role and value of a good risk manager must not be underestimated.  They will be crucial to the successful set up of a new insurance programme and to its continued success.

Those who opt for self-insurance will have a keen financial interest in managing risk to reduce frequency and improve claims defensibility.  There are very strong arguments to suggest that businesses themselves are much better placed to understand risk within their own sphere of operation, than insurers. Early risk management advice will ensure targeted expenditure on risk improvement and health and safety, so that money is not wasted in the wrong areas. 

Finally, management information on insurance programmes should be aligned with reports used throughout a business and presented in a format which directors and employees are familiar with and understand. However, risk managers should be aware of the changes that will come from the use of Big Data which analyses and predicts trends, pinpoints root causes of failures and identifies solutions.  Risk, finance and operations managers alike will benefit from ‘management insight’ which informs their day-to-day decision making and their long-term strategies. 

In turn, this will underpin the success of their business and ensure that their insurance programme is fit for purpose.

Kim Alcock is director, strategic accounts & business development at Davies Group

Kim Alcock - Davies Group