Corporate memories can be very short…a breeding ground for risk-aversion…

 

Learning from the Past I

  • Do you regularly look back at your previous data to see what’s relevant for your next renewal?
  • Historic data can be very relevant, especially, if like public bodies and charities, your business does not change much from one year to the next
  • If you have regular M&A activity, it is even more relevant to separate your “core” claims experience from any mergers or acquisitions
  • Of course historic data needs to be adjusted for inflation etc, but this can be complicated into a real smoke-screen – the basic facts are usually quite plain:
    • Large claims are usually rare
    • If you have not had a large claim for a few years, it does not necessarily follow that one is due (next year, ie you don’t need a low XS)
    • If you have recently had a large claim, the risk of another one (ie the premium) should fall, not rise, as less likely to re-occur (lessons learned etc)
  • Our thorough process starts with “Your Past” – is your potential exposure to large claims so large and volatile that insurance is desirable in the first place?
  • Of course, the past is not necessarily a good guide to the future, but it is a good starting point, and the only one we have
  • If the future was so unpredictable, the insurance industry would not exist!

Learning from the Past II

  • Do you regularly look back at your previous renewals to see if, with hindsight, “Project Fear” turned out to be real?
  • You buy insurance usually (when not statutory) to protect your balance sheet from “Project Fear” (ie all sorts of nasties which may happen)
  • Do you review your purchases at the next renewal to see if these nasties actually did happen? If not, perhaps there is a better way to finance them?

Informing Your Future

  • Our thorough process continues with “Your Future” – what is your exposure to potential nasties and how material would they be?
  • In many cases, for large companies, they are not material at all to either your P&L, Balance Sheet or Investor Metrics
  • If they are material, they are often too remote a possibility to justify spending public money on (public bodies/charities).
  • If they are material, and justifiably insured, how do you know that your insurer can withstand the loss, if you can’t?
  • We have seen many cases, particularly in the public sector, where large local authorities are transferring risk to very small insurance entities
  • Since insurers are certified to 1/200 year event insolvency, it is more likely that the local authority (constitutional permanence) would survive the claim than the insurer!

“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”