If your client are the Owner, Managing Director or the Financial Director, of a company, the risks that they trust you with for transfer have been identified and earmarked and as such the process has to commence with a certain amount of haste. The individual who is looking to invest in the safeguarding of his or her hard-earned and expensive property, as a broker, you surely want to hand over the financial risk to a company who takes the time to understand the client’s unique situation?
In both these instances, you have the duty to present your client’s portfolio and use your expertise to relate to the insurer the information as provided by your client in order to receive the best terms.
This is where Quanta wants to be part of the solution! We are refering to the day that a claim happens; to deliver a seamless claims process to the client. In order to do that we need to know a few things and here come all those questions!
"This is where Quanta wants to be part of the solution! We are refering to the day that a claim happens; to deliver a seamless claims process to the client."
Let us deal with the individual first. Apart from the normal information like values, addresses and risks, it would be good to know where the client works, who is at home during the day, when they leave home, is it locked and the alarm activated? Are they members of the neighbourhood watch, do they have children, where do they shop? How does the house look, is it well maintained? Is the vehicles clean and looked after, Do they have a safe? All general information that you probably can pick up when you talk to the client or see when you visit their home for the initial visit.
Now, when we discuss the Company, we need to cast the net a little wider and as such we will be looking at the Risk Management process and how that impacts the insurer. The normal risk management process that a Company uses to determine the risks and the actions that they want to implement in terms of managing risk can be summarised as per the flowchart below:
You, the broker, and us, as Quanta, is obviously talking about the Risk Transfer button, since these are the risks that we need to price and accept to insure. Now we get to the Questions part, in order to understand the Company’s risk appetite we need to understand the business risk retention and the risks that they flat-out avoid.
We will discuss Risk Avoidance first, by way of an example.
Your typical woodworking company, say WoodCo, may decide to not offer glazed wood panels for sale and therefore Woodco will not be storing or working with highly flammable resins and varnishes. This information will be a BIG plus in the rating department, but if we do not know this information, we will rate the risk as if Woodco is selling glazed wood panels!
This button clearly defines what decisions WoodCo make in terms of their risk management plan. It is important to note that risk management is not the management of risk per se, but how Woodco decided to act if and when certain risks that they identified occur.
Woodco for instance decided to insure only for the fire risks inherent in the business and no insurances will be bought for burglary exposures. This decision then requires Woodco to make the following decisions:
1. How are we going to Control this risk?
2. Are we going to accept this risk?
3. How are we going to finance this risk?
These decisions will determine Woodco’s actions if and when a burglary occurs at their premises.
The risk transfer decision, opens the door to you, the broker to weave your magic and assist WoodCo in their Risk Management process by removing the financial risks associated with the physical risks identified by WoodCo. Quanta decided to make our broker accreditation exclusive to ensure that the Quanta Accredited Broker/Brokerage have the necessary skill and expertize to play a key part in the WoodCo’s Risk Management process.
The schematic below outlines the basic Insurance framework for ease of reference and Quanta and invite you to build on this, we would love your input.
WoodCo instructed you to offer insurance terms in order to transfer the financial risk, which brings you to the process of determining the size of the financial risks that needs to be transferred. It follows that you need to understand the valuation used by WoodCo to determine these amounts. This basis of valuation needs to be compared to the Basis of valuation of the various policy sections that you want to offer WoodCo, but we are running ahead of the process.
The high level offers that you have to consider are the following:
- Self Funding, On-Balance Sheet
- Self Funding, Off-Balance Sheet
- Conventional Insurance
This is a two part series, you can continue reading here: Why insurers ask so many question (Part 2)