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

• 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?”…..!