Of Insurance Procurement

Transcription

1 Of Insurance Procurement

2 Time to break the spell How much? The way public money is spent is crucially important to the most vulnerable people in our communities. Our research indicates that of every 1.00 you spend on insurance, approximately typically goes to actually insure the risk and in some cases less. Money that you save could instead be spent making a real difference to their lives. An organisation spending 1,000,000 on insurance could be spending around 530,000 on insurance, and 470,000 on distribution chain earnings and tax. Most of these earnings are not commission and so are rarely declared to the client - they are silent. What could your organisation better spend that money on? Fortunately, there are things you can do...

3 Get an independent audit Control your data If your adviser is being paid more by the suppliers than they are by you, there is a potential conflict of interest. If they earn a percentage of what you buy, there is an implied incentive to retain or expand current programme structures; using insurance rather than integrating other available means of risk transfer and mitigation. If you don t control your data claims experiences, triangulations and profitability you can t effectively market your risk, or calculate what risk you are better off carrying yourself. Get someone independent to audit your covers, opportunities for self-insurance, limits of indemnity and alternative risk transfers available; someone who isn t going to earn commission or other payments from insurers in the process. It is relatively inexpensive, and you are likely to get the cost of the audit and more back from the changes suggested. Or perhaps the auditor will work for a percentage of the income they can save you. Ensure that you obtain the official Confirmed Claims Experience as issued by your insurers each year, three months in advance of renewal. You can ask for an update at any point during this period. It is your data it belongs to you. Keep your own list of all the claims and payments made including below deductible payments. You need to record how those payments develop over time to make best use of the data.

4 Time and cost do a sense check All private organisations have to be commercial otherwise they would not exist. But customers pressure brokers to offer competitive broking fees. If you don t push for transparency of earnings then you may encourage subsidy of earnings from other sources together with conflicts of interest. The invisibility of these hidden earnings means there are no checks and balances on whether you deem the overall cost of advice to be value for money. Be realistic about adviser time and costs. Compare their remuneration for their time against your own earnings and if this is substantially less then question the value this adds, or the potential that this fee is being subsidised elsewhere. Neither outcome is favourable for you to obtain best value. Consider issuing your broker ITT to include projected hours for broker services you currently use. Most advisers time record internally and you will easily be able to compare like for like. If on a fixed fee basis then use your knowledge of the brokers time taken to consider what a truly transparent earnings schedule should look like. Demand transparency It isn t unreasonable to want to know where your money goes. If you don t know where your money goes, you can t know if you are getting value for money. Decide what you consider to be a reasonable rate of broker earnings. Ask your broker to declare the earnings they made on your business from the insurance companies to their whole business not just the servicing office. Include commission, Insurers Supplementary Brokerage (ISB), growth bonuses, work transfer fees, marketing funds, over-ride payments & profit shares. Ask about the pay to play style information sharing fees and check these through the chain of placement. Some earnings may be going into another part of the trading group particularly with wholly owned MGAs or underwriting agencies.

5 Do you need a broker? Increase your options You may need help to know what insurance you need, what level of cover to take, to understand the wordings of the contracts and understand wider risk mitigation techniques. If you have that expertise internally, perhaps you can go it alone. But without FCA authorisation, you will be limited to the insurers that will deal directly with you. In an already limited market, it makes no sense to restrict your choices further. The number of insurers and brokers who respond to ITTs is already very low and new entrants to the market are rare. More options and more competition will benefit you. If you choose not to have a broker, you can outsource or supplement your in-house insurance manager role to an FCA authorised firm who can work solely in your interest, provide expert advice and place the cover directly for you without incurring costs of commissions or other payments. Make your ITT approachable, accessible and easy to respond to. Don t make the process or questions unnecessarily complicated. Investigate the option of supporting your own insurance manager with an outsourced FCA authorised expert. And consider the services you truly need to more properly define your adviser contracts. Don t allow any restrictions to different business models that may respond to insurer tenders. All UK Insurers, MGAs and brokers with closed schemes are capable of providing you with an insurance option and they are key to increasing competition and broadening your options. You should understand the availability of all forms of risk transfer and mitigation and the total cost of your insurable risks before choosing a programme design and fixing your appetite for wider insurance and risk transfer models.

6 Change your ITT process Control your ITT content Don t allow insurer contracts to subsidise broking contracts. This can raise fundamental conflicts of interest and restrict competition from non-partner Insurers. Understanding what has gone into your ITT is crucial to controlling its value. Option 1: Exclude your adviser and their subsidiary companies from responding to the insurance tender. Pay a fair fee for their advice and ITT content support, thus removing the potential conflict of interest. Option 2: Include the broking services as an additional lot within your insurance ITT. Allow all brokers / MGAs / underwriting agents / insurers to respond to it. That way you can compare the overall costs of each broker and their preferred insurer market. Option 3: Don t use a broker with their hidden costs embedded in the premium. Use an FCA registered adviser instead who will work solely for your fees, and who will be able to facilitate the insurers dealing with you, without adding additional embedded costs. Do evaluate it internally before it is published. Don t put all your covers in one lot this excludes several specialists and limits responses. Do investigate the effect of increasing your excess and starting to self-insure attritional, low cost claims. Have a statistical analysis performed to inform your choice. Don t be put off by an advisor who may earn less, if you buy less insurance. An aggregate cap will protect you by limiting the total excess payments you could contribute in a year. It isn t always possible to declare the insurer market selected at PQQ stage if you haven t yet provided full risk details. Advisors that are not tied to one market, and search the market for you will need to fully understand your risk before selecting the right insurer(s) to work with.

7 Potential savings Notes BROKER CHAIN TRF MODEL TRF model is based on being paid by the client not the insurers. Therefore, both declared commission and silent embedded earnings are. TRF + 6 YEARS Illustration assumes broker earnings as declared: 2.5% and embedded 37.5%. 1,000, ,000 BROKER CHAIN TRF MODEL 1,500,000 2,000,000 TRF + 6 YEARS No account of the Pay to Play fee favoured by some brokers, is made in this chart. TRF model works to reduce both advice fees and insurance premiums over time (subject to comparable claims experience and assets). Achieved by training the client team, automating more processes, and increasing elements of self-insurance. Advice Fee 10,000 75,000 60,000 VAT is reclaimable for most clients. Declared Commisson 41,667 Silent Earnings 625,000 Assumptions on broker model / brokers with owned MGA or underwriting facility are based on FCA reports and our collective experience in the industry. Insurance 1,000,000 1,000, ,000 Tax Vat 13,125 10,500 Tax IPT 200, ,000 96,000 Delivering a potential saving of 668,542 As you can see in a separate OJEU Tender process, the difference in fees would mean that the broker model would win the broking contract, whilst the insurance costs remained unknown. But when considered together, the TRF model would save over 660,000 pa.

8 One last tip Ask for help If your properties are geographically spread, you need a scientific way to evaluate how much to insure for. For more advice and guidance on any of the matters raised in this booklet, just pick up the phone and we ll be glad to help. It would be almost impossible for everything to be a total loss from the same incident at one time. Insuring for the full value is a waste of premium, but estimating a reduced first loss figure that is too low would leave you exposed. Call us today on During your independent audit, ask for a loss scenario analysis to be completed. This is a visual means of assessing the likely size of an incident and how the values of your assets grouped in certain areas could be vulnerable.

9 The Risk Factor Ltd Insurance Alchemy Since 1995 THE RISK FACTOR Ltd. Adam House, Ripon Way, Harrogate, North Yorkshire, HG1 2AU Call us on , or visit Authorised & regulated by the Financial Conduct Authority (FCA). Registration Number