DOES your company (like mine) face heightened complexity, a more challenging financial environment and a growing regulatory burden? I assume the answer is yes, and as a result you are also experiencing a change in the risk profile of your organisation and having to answer a number of questions. Which risks need to be covered and to what limits? Can we afford to ‘self-insure’ in some areas, such as cyber risk? If so, what are the potential downside risks to reputation or from business interruption? And what levels of deductibles can the business carry?
Pity the poor risk manager who has to provide the answers. For most businesses it is not cost-effective to insure up to the hilt; they have to seek a balance between full cover and self-insurance. And there has been a shake-up in the way claims are managed and processed through the system.
As everyone must know, the landscape for claims has been affected by the Jackson reforms. The EL/PL portal and the associated new claims protocol are now a year old. From a practical point of view, the portal appears to be fit for purpose but there is increasing evidence that, viewed nationally, an excessive number of claims are exiting the system, often unnecessarily.
So, in my view, the new claims landscape is not being shaped by the faster resolutions and lower costs promised, but by the growing complexity of insurance, by new risks and by changing attitudes to risk management. And as an FD, this increased complexity and uncertainty makes me very uncomfortable. So how should we manage it?
Faced by a major claim, the first port of call for many corporates is their solicitor. This was the case before the advent of the portal and, for many, nothing has changed, as many businesses believe a law firm offers them a one-stop shop solution, with access to litigation. But this is not always the best way forward and it leads to spiraling costs.
We need instead to look at claims and losses on their own. I should say that this is my first role in the insurance sector and I’ve been on a steep learning curve, gaining an appreciation of the complexity of claims. This has convinced me of the importance of having a professional who knows the market when faced with a claim. This is true if the potential loss is insured or self-insured.
A major claim against any business can affect cashflow, corporate reputation and shareholder value. If a business is hit by a large claim, it will often have little control over how the process is managed by the insurer and if the risk is self-insured, it could face an expensive legal process. From the perspective of the FD, this is an uncomfortable place to be. Uncertainty over timing, settlement amounts and legal costs puts a burden on cash flow and business planning.
I like to be in control. Surprises unsettle me. So I look for a balanced view. I want certainty in relation to insured risks. I want to know how the policy will perform. And I look for a strategy for managing self-insured losses. In both instances, there is an enormous advantage in having a professional partner to help manage a loss.
A partnership with a claims administration specialist who knows your business risks can add value. With day-to-day, attritional claims, the words you want to hear are: Don’t worry; we’ll handle the process and keep you informed. Major losses call for more specific solutions – whether to fight a claim, when to engage counsel, which legal firm to choose. And with each step there’s a cost implication and a saving that a claims partner can make for you. By handing over the process to a team that know the ropes, I can turn my attention to commercial solutions. It allows me to step back and look at the bigger picture.
In this rapidly changing arena, we need a focus on costs and quality of outcome to derive a strategic approach to losses. If you don’t have these resources in house, it may be time to consider alternatives that are more commercially astute and lead to enhanced shareholder value. ?
Tony Debiase, finance director, Davies Group