What’s included in your Premiums? Could you use this money more efficiently to finance risk?

 

Why are you Buying Insurance?

We are serious. Not many clients can articulate a balance-sheet consistent rationale.

Your Ideal Coverage

In an ideal world, our sophisticated clients tell us they want the following:

  • A single policy, providing protection from overall Balance Sheet/P&L volatility
  • Same insurer from year to year, no onerous renewals/switching process
  • No counter-party risk (risk of insurer failure)
  • That’s it.

Your Actual Coverage

In the real world, your insurance inventory typically looks like this:

  • Multiple policies, one for each class of business, each with their own dozens of pages of terms and conditions
  • Varying insurers from year to year, onerous renewal/switching process
  • Very old policy documents often lost, coverage cannot be verified
  • No guarantee of insurer security

So what is Holistic Insurance Purchase?

  • Holistic Insurance Purchasing is Insurance Purchasing which recognises that:
    • it is usually very difficult to find or place such single (whole account) policies, although some do exist, and
    • insurers do fail, there can be no guarantee of future solvency
  • In order to purchase Holistically, you must:
    • Understand where premiums come from and hence how to optimise (minimise) them (and hence minimise irrecoverable IPT)
    • Understand which risks on your own balance sheet can be retained versus being transferred (ie which are already hedged and which are not)
    • Understand how Solvency II generally precludes whole account policies, but helps you understand what would be attractive to insurers instead
    • Understand how Solvency II gives extensive public information on insurer solvency
  • Due to the scarcity of insurance capital (and IPT, a mandatory transaction tax) a good general rule is:
    • Only insure what you cannot afford to lose. Everthing else should be risk-managed.
  • This then begs the question: “What’s the point of Risk Management?”…..!

“Ask John to perform his version of search and destroy on your premiums”

“Ask John to perform his version of search and destroy on your premiums”