Large uninsured loss leads to urgent review – and 40% savings
The client – an ASX Top 100 Company – believed they had extensive insurance arrangements in place.
But following a large underinsured loss, they wanted an independent insurance review to ensure the best possible match between their insurable risks and available insurance cover.
Process and findings
We reviewed and documented at a high level the client’s existing insurance processes and procedures, including the link between how risks were identified, quantified and treated, and how the insurance program was procured.
We reviewed all of the client’s insurance related activities, as well as those conducted by outsourced service providers and appropriate service agreements.
We also undertook a thorough review of the client’s financial ability and appetite to retain risk.
We then compared the client’s existing insurance arrangements against benchmarks and industry best practice, and provided recommendations for improvement, including a step-by-step implementation plan.
- The client changed the mix between internal and outsourced activities.
- We facilitated an insurance broking tender, which resulted in a change of insurance broker, cost savings of approximately 40% and a better risk and cover match.
- Contracts have been developed with all outsourced service providers, which include the scope of services, terms of contract, fees and measurable financial key performance indicators (KPIs).
- We were subsequently engaged to manage the transition to the new insurance broker, and ongoing monitoring of the broker’s performance against the service contract.
- Risk workshops have also been conducted to identify, quantify and appropriately treat all insurable risks.
Premium going up fourfold? Time to get a second opinion
The insurance broker had not completed a review of the client’s risk tolerance appetite, or undertaken any analysis of the most cost-effective retention structure.
Following a series of significant insurable losses during the previous 24 months, the client – an ASX Top 100 Company – was in a distressed state, and had just three months until renewal.
The client’s loss history appeared far worse than it actually was – because many of the insurable losses had remained open for an excessive period of time with inflated reserves.
Even worse, the insurance broker had advised the client its upcoming insurance premium was likely to cost at least four times the existing policy.
No service contract existed between the insurance broker and the client.
Process and findings
The client asked Risk Advisory Services to undertake an independent insurance review, which unearthed the distressed nature of its existing insurance arrangements.
After the incumbent broker failed to provide a strategy to improve matters, we advised the client to conduct an insurance broking tender for the distressed class of risk.
We were then engaged to facilitate the tender process, and able to persuade the industry’s two most experienced insurance brokers, as well as the incumbent broker, to participate.
Individual risk workshops provided each broker with the best opportunity to understand the client’s needs, and allowed them to complete a risk tolerance exercise with senior executives. Key insurable risks were fully analysed and quantified.
- The two alternative insurance brokers presented the client with clear insurance program designs and placement strategies, and cost savings.
- The successful broker reviewed open claims prior to renewal and was able to reduce the majority of reserves.
- Premium and deductible increases were contained to less than half the amount quoted by the incumbent broker.
- An insurance broker service contract was executed, which included the scope of services, terms of the contract, fees and measurable financial key performance indicators (KPIs).