Can your business RISK not reviewing your current programme structure?
So as 2024 draws to a close and a new year beckons, what have the ERA Group insurance procurement team learned in 2024 and what are they seeing signs of in the market for 2025?
Consistency... What consistency?
It has been absolutely staggering to see the completely different customer experiences that our clients have, (often suffer!) not only between different brokers and insurers…. but often between different offices of the same broker.
We have two clients operating in the same fairly high-risk area of animal feed manufacturing – both represented by the same major global insurance broker.
The office in the Midlands have been unable to find any competition for the risk they place with RSA who wish to exit the risk/reduce capacity – not even being able to encourage Axa and other alternative insurers to complete a survey with a view to quoting….despite there being no history of claims.
By direct contrast, we worked with another office of this broker based in the Southwest who have “served” their client for over 10 years. We were able to introduce competitive forces and assist the team at this office to create a “Dutch auction” between Axa and guess who? RSA!!
Despite the Southwest based client having suffered a £500k fire loss at one of their mills and a vehicle fire that closed a motorway for a couple of days, we were able to find >£300,000 of savings for them compared to last year’s £1.7M spend – and fixed business critical gaps in Cyber and Management liability cover that our client had no idea existed.
Afterall – they have engaged one of the world’s largest brokers for the last 10 years so why should they have concerns over cost or scope of cover?
Conclusion: CFO’s and management teams can assume nothing. A review by your incumbent broker is like asking a turkey to vote for Christmas – you need independent support and advice.
Insurance & Risk Strategy
Once again, our client in the Southwest was relying upon the expert risk management services of their broker – and yet their Motor Fleet claims experience continued to deteriorate, driving up Fleet insurance costs year after year.
The ERA team conducted detailed analysis of claims trends, costs and patterns and devised a remediation plan involving:
- Revised levels of Excess/risk retention
- Technology based driver aids utilising AI to reduce driver distraction – the greatest cause of Road Traffic Accidents
By presenting the ERA designed risk improvement strategy to Insurers, brokers are often able to mitigate insurance rate increases/sustainably reduce rates.
But many brokers (and Insurers) – decimated by a post-Covid brain drain as senior staff took early retirement rather than return to work – simply don’t have the talent/ resources/experience to innovate and plan strategically. Service has become reactionary – not proactive.
It has therefore never been more important for management teams to have access to independent expertise – people with aligned interests who can help their business plan and develop co-ordinated, risk management led strategies designed to sustainably minimise the total cost of risk….and communicate the story effectively to the market.
Market Cycle
There are occasional glimmers of light in the insurance “hard market gloom” and a feeling we are entering a period of increased capacity and lower rates.
However, with geopolitical and environmental (weather) risks casting a continued cloud, insurer appetite remains inconsistent and patchy.
There are certainly no signs of “softness” in the Motor Fleet market where double-digit claims inflation continues to drive rates higher. Improved risk management and protections means there are opportunities to reduce rates for well managed Property and Liability risks…but companies need to differentiate themselves from the crowd to get the attention of Underwriters who are over-worked and under resourced.
And many brokers are just not delivering the differentiation – due to their own scarce resources, inexperience, apathy and oftenlimited skillsets.
Sceptics would also suggest it is not in the interests of most brokers, and certainly all the major global brokers – to drive down rates. These S&P500 quoted monster organisations have enjoyed sustained earnings growth postCovid….a golden era for the insurance broking sector as a consequence of the hard market and their remuneration model which sees the majority of their income and 100% of their profit derived from “disguised commission”; revenue that moves up or down in queue with rates.
Whilst most corporate buyers of insurance remunerate their broker by way of a fee nowadays (seemingly a very modest sum in most cases)….that’s only because the real income is being earned from “Insurer Service Brokerage” and “Work Transfer Fees” and “Product Development” fees not to mention “portfolio volume overriders and profit overriders”….all of which align brokers interests with the insurer rather than their client – where there is actually quite a bit of conflicted interest.
But there is value to be found when supported by expertise and a business model which aligns the advisor’s interests exclusively with those of the business retaining them.
ERA Group’s UK Insurance team of poachers turned gamekeepers, boasting over 100 years of experience in the corporate insurance market, much of which was gained working for global brokers, have delivered £5million of savings for our clients in 2024 on an annual spend approaching £25million, and much of that saving has been achieved without the client even having to change broker or insurers.
Whilst excited the market cycle and our ever increasing “gravitas” in the market presents the opportunity to achieve even more extraordinary outcomes for companies engaging us in 2025, sadly the majority will continue to rely on their broker and/or try to create competition with alternative brokers who they are unable to control/lack the knowledge to manage and consequently mess up the market they’re trying to reach…often getting disappointing, or at best distinctly “ordinary” outcomes.
So if you’d like to know what extraordinary looks like for your business in 2025 from a risk and insurance perspective, contact Paul Gravatt, UK Head of ERA Group Insurance Procurement Services.
