Financial officers are all too familiar with the pressure to exercise tight cost controls. This article provides guidance to those looking to safeguard their business, achieve optimal premium outcomes and cost containment.

Key considerations

The dual impact of a more challenging insurance market and the COVID-19 pandemic has seen premiums rising across a number of lines of insurance, and declining insurer appetite to underwrite certain risks. Securing optimal insurance protection is currently more challenging than it has been in recent years, requiring longer lead times ahead of renewal discussions. Now, more than ever, insurers will view businesses that can effectively demonstrate their proactive risk management provisions more positively.

By investing the time to evaluate and challenge your current insurance program, you can define where changes can be made and understand where gaps in cover exist, to help you financially protect your business and ensure a positive outcome for your insurance.

1. Reappraise your business risks strategically against the balance sheet

  • Insurance is only one part of a risk finance and risk management process. Wherever possible, risks to the business should be mitigated or ideally removed. The majority of risks can usually be transferred to insurers as part of a risk management exercise, while others can be managed through the balance sheet based on your business's capacity to do this.
  • If there are changes to the scope of your insurance cover, it's important to check the policy wording as part of any review or renewal of your insurance program. For example, insurers may elect to charge for cover extensions which previously had simply been included in standard cover. Understanding what this means for your business is a critical part of discussions with both your insurance broker and the insurer, to give you the information you need to assess whether to adjust or remove some elements of your insurance.

Also consider the range of innovative insurance products available that may enable you to improve the cash flow position on your balance sheet, such as risk finance and contingent liability insurance cover.

2. Level of business cover and insurance program structure

  • Each year, scrutinise the levels of cover required by your business as they may differ to when they were originally set. Establish how your insurance program should be structured in order to obtain the necessary limits at the best price.
  • Explore insurance products that you may not have considered before that are appropriate for your business e.g. trade credit insurance, which enables a business to feel secure in extending credit to their existing buyers or to pursue new buyers that would have otherwise seemed too risky.
  • While care needs to be taken that loss limits are suitably, it may not always be necessary to insure to full values or existing levels of cover. Review the impact of furloughing staff in relation to your employer's liability coverage, as this may need to be reflected differently in the way your cover is arranged.
  • One area to focus on is the potential impact on the business following a major loss, considering potential mitigation factors and contracts with suppliers and customers. Loss limits adjusted to fit risk tolerance and financial scenario planning can both have a positive impact on overall insurance costs.

3. Robust management of claims

As market conditions force higher deductibles on organisations, never has it been more important to work with a broker with in-house claims expertise, to help manage costs and support you through every stage of the claims process to

  • robustly defend employers' liability (EL) and public liability (PL) claims
  • access the services of in-house qualified loss adjusters who are there to represent you, in the event of a large property or business interruption claim
  • take a proactive approach to motor claims, early notification and management of claims can make a considerable difference to settlement costs
  • help you avoid common pitfalls, improving your chances of a faster resolution.

4. Defining your insurance strategy

In the current market environment, a close partnership with your insurance broker and insurers is more important than in recent years. As insurers place increased scrutiny in renewal discussions, early planning and preparation makes a significant difference.

Here are three ways you can enable a positive discussion:

  • Being fully prepared to present your insurance and risk exposures to insurers along with a willingness to engage is often integral to a successful outcome.
  • Demonstrating robust risk management practices, strong contractual disciplines and being able to highlight how the business has adapted to meet trading and lockdown restrictions during the COVID-19 pandemic while maintaining good risk discipline is of particular value and interest to insurers. For example, implementing enhanced health and safety measures for employees and customers, adapting cyber policies to minimise exposures for home workers handling payments and other client information, as well as managing cash flow and creditors.
  • If you have a claims loss history, the presentation of a clear remediation plan is essential. Your broker can assist and guide on what is required.

5. Insurance premium payment and adjustment

  • One simple way of improving cash flow is to look at spreading insurance premiums over a number of instalments, either via a monthly premium option agreed with the insurer or through a formal premium financing arrangement. While this is now subject to more stringent underwriting criteria, both options are still readily available.
  • Other options to consider include adjusting the scope of insurance cover based on estimated figures (turnover, wages, gross profit) onto an adjustable basis and setting minimum and deposit premiums at less than 100% of the estimated cost, which will help the initial up-front costs.

Taking action — the next step

Speak to us about a confidential, no obligation review to stress test the fundamentals of your insurance program. This process sets out where changes or improvements can be made which will deliver better value, and demonstrate that it is fit for purpose.

100% confidential review
Having a fresh perspective and second opinion on your insurance can make a big difference. We are happy to conduct a review of your current insurance and risk management program confidentially, avoiding disruption to existing relationships.

Avoid renewal chaos
Our Gallagher business insurance specialists can undertake a review of your insurance program at any time within the term of your current insurance arrangements, irrespective of whether you have a long term agreement or whether you renew annually.

It's all about partnership
We're here to help. While undertaking a review of your insurance requires your input, we'll aim to make things as straightforward and simple as we can so you can focus on the day-to-day running of your business.

Disclaimer

Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers' control.

Gallagher publications may contain links to non-Gallagher websites that are created and controlled by other organisations. We claim no responsibility for the content of any linked website, or any link contained therein. The inclusion of any link does not imply endorsement by Gallagher, as we have no responsibility for information referenced in material owned and controlled by other parties. Gallagher strongly encourages you to review any separate terms of use and privacy policies governing use of these third party websites and resources.

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