The tripartite approach of client, insurer and broker working together is still the best route for commercial companies to get best value from the insurance market.
The hard market has strained relationships. Clients faced with large premium increases and restrictions in terms may feel that their efforts to establish long term working relationships have not been recognised or rewarded.
But Marsh's experience indicates that those who had successfully established such an arrangement fared better than others. Insurers treated them sympathetically and they experienced greater stability.
Such three-way relationships benefit everyone. Insurers have a better understanding of clients, while clients appreciate the issues insurers face. But a long-term approach involves commitment from client, insurer and broker. The successful tripartite arrangement works at several different levels. The risk manager handles the detailed negotiations relating to the insurance programme and the company's chief financial officer may become involved at a strategic level, meeting the senior management teams of the insurer and broker.
Insurers are not only concerned with assessing risk information, but also with backing the company's management style. Marsh sometimes asks its clients to give the same presentation to insurers that they would give to City analysts, explaining the company's strategy, direction and culture.
Marsh has also had success in bringing together operational risk managers and insurers. In one example, this revealed an in-depth risk management methodology of which the insurers had been unaware. It changed their perceptions and understanding of the client, generating a much more positive underwriting approach.
Providing in-depth high quality information is a critical factor in obtaining the insurance market's support. So it is important within the tripartite relationship that clients should understand why insurers are looking at certain aspects in detail. Part of the broker's role is to explain the reasons for this and to help the client differentiate itself from standard perceptions.
The tripartite arrangement also reduces – although it will never totally remove – the adversarial nature of negotiations. Going to the market early is a case in point. From the client's point of view, starting renewal negotiations early is often desirable to provide certainty. But insurers, concerned they may have a battle on their hands when they quote, may not be as enthusiastic. An existing close relationship where the parties are genuinely working together promotes better expectation management.
Similarly, when claims arise, the closer the relationship between client and insurer, the more likely that issues will be resolved easily.
Both parties, of course, have to act for the good of their companies. But the mutual understanding generated by a close relationship helps. The claims handling process can be considerably smoothed if the broker is able to sit down with client and insurers and discuss a claim, rather than the client merely instructing their broker to send written notification to the insurers.
Much depends upon the attitudes of the clients and insurers. Some companies may not seek this kind of approach – and some insurers may not respond. Increasingly, larger organisations are interested in working closely with their insurers and broker, realising each party contributes value. The client has the knowledge of its company. The broker brings the overview, knowledge and understanding of the market, and its relationship with the insurers can strengthen the way the deal is negotiated. And the insurer brings cover and support to this.
Despite recent problems, we have seen the tripartite approach provide a greater element of stability and certainty for all concerned. Such a relationship works best when a client is prepared to invest in comprehensive risk management structures and when insurers are prepared to recognise and reward such investment with informed, business-driven premium and cover decisions.
Mike Jones is head of UK retail placement at Marsh
