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?”…..!