Any cost-versus-benefit analysis will show property insurance continues to provide excellent asset protection to the corporate buyer. The inability of insurers to provide stability in pricing has devalued an otherwise vital product, says Michael Badger*
Buyers of corporate property insurance must be bemused, if not confused, by the changes continuing to affect the insurance industry. Some insurers such as AMP General and AXA have withdrawn from the market, while others have been hard hit by losses on business involving overseas locations affected by catastrophe events. While this is happening insurers, reinsurers and brokers are looking to grow through consolidation in order to expand their products and services. The aim of this is to provide broader based risk solutions for customers and embrace new technologies to streamline processes and reduce costs.
Pricing competition for corporate business has been intense in recent years fueled by an oversupply of insurers. Results for property insurers in Australia have generally been poor in recent years due to price competition and weather-related catastrophes, such as Sydney hailstorms. While we are likely to see a reduction in insurance capacity from continuing mergers the market should still be able to provide adequate capacity for business coming as it does from such an oversupplied base. Insurance premiums are on the rise and this trend is likely to continue in 2000 as insurers look to improve their results.
Bearing the above in mind, you may wish to consider the following issues before renewing your property insurance.
What is the financial rating of your insurer? Has it changed in the last year? This is probably already being addressed by your risk/insurance manager in conjunction with your broker, but ratings do change and financiers are particularly sensitive to insurers with a rating less than A.
If you have not had any direct contact with your insurer recently you should do so this year in conjunction with your broker. With the rapid changes sweeping through the insurance industry, there are likely to be benefits in discussing issues of common interest. Is the insurer moving in a new strategic direction? Will this help or hinder your own business goals? What will happen to the price of your insurance? If an increase is suggested then let the insurer justify his action. If your business is expanding, will your insurer have the global network to cover countries where a locally-licensed insurer is required? Does your insurer have claims service standards? Does the insurer have any new capabilities which may add value to the relationship?
Insurers will be keen to work with customers who have a positive risk management philosophy and a willingness to improve their risk profile. Many companies have adopted Australian/New Zealand AS/NZS 4360: 1995 Risk Management Standards to guide their direction and this document may be worth reviewing if your business has not already completed a review. If you have an interest in property risk management, you may be interested in benchmarking the various divisions of your business and comparing them to each other and against industry best practice. A suitable benchmarking program allows you to compare different locations involved in different occupations and identifies common problems such as housekeeping, hot works procedures and contingency planning. Many of these issues do not require much expenditure to improve the risk and, upon completion, present a positive picture to the insurer. Another hot topic for the insurance buyer to consider is ART or alternative.
One example of ART may involve the blending of property insurance with liability and other classes to form a package with one larger deductible over the entire package. Although achievable, the benefits are open for debate as the individual cost of each policy is currently very competitive and even if premiums increase the cost/benefit analysis would need to be carefully considered. It is fair to conclude that buyers of corporate property insurance will face new challenges and opportunities as a result of the changing insurance market. A dialogue between the various stakeholders will maximize the potential benefits for all concerned.
* Michael Badger is property underwriting manager in Sydney for ACE Insurance Ltd. The ACE Group of Companies is one of the world's largest providers of property and casualty insurance and reinsurance. (02) 9335 3270, e-mail: firstname.lastname@example.org
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