Managing risks, reducing losses

The industry consensus seems to be that risk management to reduce losses and contain premiums, requires strong co-operation between clients, brokers and insurers.

Implementing a high standard of risk management to prevent losses and control premiums requires mutual understanding, increased co-operation and improved three-way communication between broker, insurer and client to maximise all risk management possibilities.

Benefits of risk management

In addition to preventing losses or reducing the severity of losses, which will contribute to less disruption of a client's business, clients may also benefit from premium reductions as risk management initiatives improve their risk profile.

Brokers benefit from improved loss ratios and the ability to negotiate better deals based on a solid track record over the long term. Insurers can contain claim costs and maintain profitability on their books.

Simple process

Managing risks involves a simple four step process, as detailed by Santam.

1.Identify all potential exposures, broadly classified as:
* Natural disasters (wind, storm, hail, lightning, etc)
* Crime related disasters (burglary, armed robberies, theft or hijacking of vehicles, etc)
* Accidental damage (motor accidents, damage to computers, etc)
* Legal liabilities (due to products being sold or repaired, negligent driving, etc)

2.Evaluate these exposures in terms of the likelihood of the event happening and the size of the potential loss.

3.Implement risk control to eliminate or reduce the risks (e.g. installing an alarm and burglar bars to reduce the risk of theft).

4.Finance the residual risks that can't be eliminated or reduced to an acceptable level through insurance.

Specific approaches

Several insurance companies have implemented approaches to assist brokers and their clients to manage their risk more effectively.

Santam's internal risk surveyors assist with risk identification and provide recommendations regarding risk reduction requirements. This means brokers add value by providing technical advice and assistance to their clients.

HIU, facing particular challenges with regard to fire perils especially on thatch risks, surveys each risk to identify the various risks and then advises on risk improvements. Policyholders are also educated regarding important aspects of building regulations and SANS codes.

Astra Maritime Underwriting Managers continually review their policies and claims, and work closely with surveyors to implement remedial action where required. On Stock throughput policies, Factory and Industrial (Pty) Limited survey all Storage Facilities and the reports highlight recommendations to be implement by the client within a certain time period.

MUA has a rather novel approach to identifying and mitigating risk by offering a professional building and contents valuation service at the time the policy is written. The valuation includes identifying any shortcomings in physical risk protections and ensures that all items that may require insurance are brought to the client and broker's attention for consideration. The broker knows the client is correctly insured and reduces his exposure to professional indemnity claims.

Etana has invested significant resources into delivering risk management techniques and advice to brokers and clients. Etana's survey reports indicate a Loss Control Evaluation score, which covers all the risks protections and maintenance of a risk, which is used to discount rates.

Brokers: the crucial link

Russell Spring, Chief Underwriting Officer at Compass highlights the broker's role: "Brokers are crucial in risk management, since they directly interface with their clients. The underwriters must be willing to assist in training the broker to understand the underlying risks. Where conditions apply to policies, the broker should take responsibility to assist the client in adhering to these requirements, and to ensure the client understands the consequences of non-adherence."