Lack of robust analysis for stages 1,2,3 leads to inappropriate product design/excessive cover/excessive premiums
Do you have any of the problems below?
| Covered by | Problem | Detail | Impacts | What we can do |
|---|---|---|---|---|
| Step VI. The Review Process | Should we buy run-off cover? | Insurer has offered to buy out our excesses/tail risks | • Excessive cover bought (XS/AGGs/limits) | • Thorough consideration of likely cash-flows, investment income and balance sheet materiality of self-insurance alternative |
| Step V. Your Money | Where does my money go? | Premiums often flow through third parties (i.e. neither the broker nor the insurer) | • Who is your actual insurer? • Did you carry out sufficient AML (Anti-Money Laundering) checks on all of the brokers (retail and wholesale) in the broking chain? |
• Clear communication of who your insurer is / what their solvency margin is • Clear understanding of premium flow |
| Step IV. Your Best Providers | Opaque broker insurer security committee | “Black box”/lack of visibility of all published information available | • Not knowing actual insurer solvency margin / risk of failure | • Access to all published insurer information • Helps to negotiate with weak insurers |
| Step III. Your Custom Made Product | Off-the-shelf EL (&PL) policies | Failure to understand precise meaning of “event” limits | • Excessive cover limits bought (per claim) | • Thorough decomposition of policy wording into limits per claim, per event and per year • Leads to split limit policies |
| Step II. Your Future | Insurance Manager does not talk to Asset Manager | Failure to understand existing asset volatility usually far exceeds insurable risk volatility | • Excessive cover bought (XS/AGGs/limits) | • Thorough assessment of existing balance sheet volatility. • Insurable risks are usually less volatile than previously thought • Leads to more realistic AGG levels |
| Step I. Your Past | Poor analysis of claims data | Failure to understand how predictable large claims are, despite their rarity | • Policy excesses too low, hence low competition, for even good risks | • Thorough assessment of frequency and severity of historic large claims; typically they are predictable: 1 every N years. • Leads to more realistic XS levels |
Benefit
Lowers your premiums, substantially, safely and strategically
| Covered by | Problem | Detail | Impacts | What we can do |
|---|---|---|---|---|
| Stage III: Your Custom Made Product | We don’t want to give up our freebies | Insurers often add “free cover” items, but they are included in the premium, ie they are not free, and cannot be free due to Solvency II considerations. | • Unnecessary extras • Unncessary cost • Easy profits for insurers • Lack of understanding of what makes a good risk under Solvency II |
• Design bespoke “core”policies • Leads to new insurers offering cover |
| Stage II: Your Future | Insurance bought in isolation from rest of balance sheet | Lack of consideration of balance sheet/risk financing timeframe | • Failure to understand benefits of self-insurance alternative • Policy excesses too low, hence low competition, for even good risks |
• Thorough assessment of insurer profitability, including investment income, on your risks: what would have happened had you self-insured? • Leads to more realistic XS levels |
| Stage I: Your Past | Unused extensive claims data | Long-standing charities have extensive claims data, going back many years/decades | • Failure to understand how predictable large claims are, despite their rarity • Policy excesses too low, hence low competition, for even good risks |
• Thorough assessment of frequency and severity of historic large claims; typically they are predictable: 1 every N years. • Leads to more realistic XS levels |
Benefit
Lowers your premiums, substantially, safely and strategically
| Covered by | Problem | Detail | Impacts | What we can do |
|---|---|---|---|---|
| Stage III: Your Custom Made Product | How can we use ELCI/RTA exemptions? | All public bodies exempt from EL & Motor TP cover, but still buy “off-the shelf” policies | • Excessive cover limits • Unnecessary wordings (eg unlimited cover per year) |
• Design of bespoke EL & Motor policies • Leads to new insurers offering cover |
| Do we need PA/Travel cover? | Cover is cheap, but rarely incurs serious losses for public bodies. | • Insurers make easy profits • Brokers make easy commission |
• Custom made PA/Travel indemnity solutions • Fully costed – cheaper than insurance |
|
| Advising Academies | Advise Academies to buy the old cover they used to have | • No consideration of central government alternative | • Unbiased advice on all options | |
| It’s a hassle buying multiple policies each year | Time consuming renewals and data preparation for multiple classes of business | • Excessive overall premium and IPT spend • Excessive use of scarce council resources, better spent on risk management, not risk transfer |
• Custom-made whole-account cover • Fair premium estimated before broking • Fully-costed impact assessment |
|
| Stage II: Your Future | Insurance sold as a “safe bet” | Failure to understand that insurers do fail and no FSCS compensation for public bodies | • Possible excessive risk for public funds / lack of understanding of real probability of insurer failure • No consideration of maximising self-insurance to minimise insurer failure risk |
• Thorough assessment of self-insurance alternatives • Leads to more sophisticated insurance buying solutions |
| Stage I: Your Past | How much money have insurers made from us? | Failure to calculate insurer profitability, including investment income, on your risks | • Failure to understand benefits of self-insurance alternative • Policy excesses too low, hence low competition, for even good risks |
• Thorough assessment of insurer profitability, including investment income, on your risks: what would have happened had you self-insured? • Leads to more realistic XS levels |
Benefit
Lowers your premiums, substantially, safely and strategically
| Covered by | Problem | Detail | Impacts | What we can do |
|---|---|---|---|---|
| Stage III: Your Custom Made Product | No premium visibility before broking | Premiums usually substantial, but no decision range in advance of broking | • Limited room for negotiation • Lack of time to investigate alternatives |
• Fair premium range before broking |
| Stage II: Your Future | Risk inconsistency | Have off-shore captive for customers’ extended warranty risks (i.e. a risk taker), but low XS EL/Motor cover etc. | • XS/AGGS too low | • Thorough assessment of all existing insurance exposures • Leads to more sophisticated insurance buying solutions |
| Stage I: Your Past | Historic insurance cover often missing | Lost policy documents | • Increased balance sheet provisions | • Insurance archaeology to find old policies • Reduced balance sheet provisions • Frees up funds for future risk taking |
Benefit
Lowers your premiums, substantially, safely and strategically