When the going gets tough get a broker!

The economic slowdown is already having material effects on corporate and commercial business in the short-term insurance industry; but there is a solution … when the going gets tough get a good broker!

That’s the hot tip in the current business environment from FNB Insurance Brokers, the First Rand Group’s short-term insurance specialists and a nationally represented authorised financial adviser with a growing base of business, even in the downturn.

Managing Director Barry Taylor says the stalling economy creates challenges in numerous sectors. Effects are first felt by the business owner, followed by ripple effects on activity levels within the broker community and on rates and premiums.

One result of mounting pressure on corporate and commercial clients is a growing focus on sometimes risky self-insurance and ‘cutting corners’ to save costs, even though some economies can increase a business’s risk exposure.

In an environment like this, a business owner or senior executives need to call in a knowledgeable and seasoned broker who can advise on cost-effective solutions.

“When the going gets tough you’ve got to get a broker if you want to develop appropriate solutions rather than create problems some way down the line,” says Taylor.

In the current slowdown some segments of the economy have been hit worse than others, say the trend-spotters at FNB Insurance Brokers.

Several mines have cut back production and retrenched staff while motor manufacturing and associated businesses face an especially difficult time.

“This is having a ripple effect into supporting industries both large and small,” says Taylor. “Businesses are closing. The number of liquidations is on the increase.

“This will undoubtedly result in a number of cancellations which will affect the earnings and activity of both insurers and brokers.

“Furthermore, in many instances customers are reducing, not increasing sums insured, thereby putting a brake on premium growth. Commission growth is similarly limited for brokers.”

Even in this challenging environment, Taylor estimates that current organic growth at FNB Insurance Brokers is in the region of 3% – an indication that opportunities to write business have not dried up for brokers with the expertise and risk management know-how to add value in today’s situation.

One result of current trends was the increased need for providing cost savings focused on essential covers – an emergency response that helps a broker retain the customer.

However, Taylor cautions: “In this scenario, it is important to know your customer’s business and to help customers effectively manage their core exposure and risk while reducing less essential insurance protection.”

In the economy’s present state the short-term insurance market is “not able to take on big premium increases”, says Taylor.

He adds: “Limited insurance protection is being offered as an alternative to cancellation in efforts to retain customers under particular financial pressure. Self-insurance is a consideration, but a risky alternative.

“Customers also look to cut corners on things such as proper maintenance or security. This worsens their risk at a time when they may have less cover in place than normal.”

Again, identifying key needs and obtaining optimum cover at the most efficient price is core competence for a skilled broker.

These challenges occur at a time when the incidence of corporate and commercial sector claims appears to be on the rise.

“We have experienced significant increases in the number of fire, weather and
commercial motor-related claims,” notes Taylor. “The number of fidelity claims has also ticked up.

“Other than in the commercial motor category, it is not our experience that insurers are pushing rates up across the board. On commercial motor, however, we have seen rates increase by between 10% and 15%. In other areas, focus is being placed on individual rating criteria per customer.”

This approach presents potential real benefits to the risk-aware business owner who effectively manages risk. As never before, managing risk means keeping premiums manageable.

Insurers are well aware of the need to retain quality business like this.

Taylor observes: “Some customers with good loss ratios on their portfolios are not prepared to take any increases.”