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Broking and client service post-COVID: a guide

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The time has arrived for brokers to move from “price to advice” in a greatly changed insurance market.

That’s the advice of broking and risk management veteran Stephen Hamill, who says the pandemic, climate change, a hard insurance market and a sudden shake-up of global supply chains are altering risk appetites and requiring a complete rethink by brokers as insurers adjust their risk appetites and acceptances.

Brisbane-based Mr Hamill, who is Risk Management director at Austbrokers Comsure, has worked as a broker for more than 30 years. He says brokers must help clients wade through the market changes they are experiencing to source appropriate insurance coverage, engaging in detailed discussions to help their clients ascertain their exposure and get ‘buy in’.

“During the past 10 months of global upheaval we have had a reshuffle of the attention and importance of corporate risks,” Mr Hamill says in a “white paper” he has published.

He says brokers need to get clients thinking about their risk tolerance, question why they buy certain classes of insurance and consider how risk mitigation could alter the impact of the peril.

His advice: Start the conversation by having small business clients decide what their hazard and exposure is, and using this basic “heat map,” work with the client to set the parameters.

“That provides client buy-in to the process and identifies risk management that can be implemented,” Mr Hamill says, recommending also that brokers replicate terms the business to be insured uses internally.

“If a client cannot understand the language their broker is using and how it applies to their situation, the message and the solution will fall flat.”

While the standard insurance renewal review is a “tick a box” process involving only basic information collection, he warns that clients are now facing greater scrutiny from underwriters, so brokers must “educate” their clients.

It’s no longer enough that brokers dictate what they think to clients. They must engage with them and make them feel a part of the insurance process.

“The client will soon have a substantial rating increase and will likely put their broker to tender unless the broker can change the client’s attitude to insurance,” Mr Hamill says.

He recommends brokers “expand their language and thinking” to include open-ended questions. For example, rather than asking “Do you need cyber crime cover?” they should be asking “How have the ramifications of COVID-19 changed how you deal with your customer base?”

Brokers must ask what they can do with the client’s premium dollar to protect their own business and prevent being attacked by another broker “or direct marketer purely on price”.

Health, cyber, the economy and employment-related perils are the current focus, though once the COVID risk is managed, it may revert more strongly to climate risks again, Mr Hamill says.

Brokers need to advise on managing “the intersection between climate change and company assets”. Businesses that rely heavily on water and power, or have operations subject to weather and pollution exposures, will experience rating and coverage pressure in the global insurance market. Waste removal and handling practices also threaten possible litigation.

Noting that global supply chains are under extreme pressure and it is crucial Australian businesses understand their exposure to international markets, he says the availability of capital will be key, and financiers will factor in sustainable supply chains in lending criteria. Therefore, many previous global options may be replaced with onshore options, forcing businesses to rethink how they price supply chain risk.

“What happens if you don’t rely on just one supplier for raw materials but two and in different regions? How does that change the overall consequence?”

A new challenge for brokers is the “interconnectivity between financial markets and people’s global mobility”, which Mr Hamill says is “as much a threat as an opportunity”. Business needs to come to grips with supply chain disruption.

“The speed of data and funds transfers around the world mean the nature of the hazard has changed from previous significant world events. The impact and velocity of change is faster and harder than a gradual swell of change when there was no cyber ‘real time’ connectivity.”

An analysis of losses that underwriters might not cover should include business interruption reviews, a look at supply contracts with onerous contractual conditions such as tight timeframes, asset value reviews and technology liability.

By examining these points, brokers can “build a fence around their client,” increase the client’s coverage and protect their own professional indemnity at the same time.

“As cyber crime and social engineering become the new forms of highway robbery and piracy, it is essential to underpin confidence in the supply chain and future proof cyber-trading platforms,” Mr Hamill says.

The guide urges brokers to create a risk register in which a business owner identifies their top five to 10 risks.

“It is important to recognise with clients that not all risk is insurable and brokers cannot ignore or shy away from that fact,” Mr Hamill says.

“However, what may be a risk can be modelled and managed.”