Broker’s to play an important role in risk management

Although the local economy weathered the storm cause by the 2008/09 global financial crisis quite admirably, it doesn’t mean that the local economy isn’t tight. The public is under increased financial pressure and are looking for ways to cut unnecessary costs. While many may look to the insurance industry, it is up to broker’s to prevent these cuts.

But increases are inevitable. Insurance companies also have to cover costs and have done well in the past not to implement dramatic increases during the worst times of the crisis. However, the time has now come for increases and a premium increase of about 15% is likely. While increases are on the cards from insurers, the secret to manage this to for brokers to encourage the public to become proactive in risk management and regularly analysing their insurance portfolio’s.

The weakening Rand, an increase in the number of natural disasters locally such as flooding and violent hail storms and the increase in vehicle accidents are key drivers behind announcements by leading insurers that premiums are set to increase.

Knowing your clients’ needs

Insurance should be approached in the same manner as meeting a new person for the first time. They have their own personality’s and characteristics which define them. A well-conceived insurance program is achieved by consulting with a professional broker who can assess their clients unique needs, risk profile and budget, and tailor-make an insurance offering that gives them peace of mind knowing that their hard earned assets are safeguarded and that they paying the right price for the right amount of cover.

“With the increased number of motor vehicles on the road and deteriorating road conditions, motorists are more likely to have an accident than in the past. For insurers, repair costs have increased significantly due to the depreciating Rand which impacts the cost of spare parts. In addition, the price to replace parts is resulting in a substantial increase in repair costs. Despite the fact that a vehicle is a depreciating asset, the reality is that the cost of repairing a vehicle this year will be substantially more than the same time last year,” explains Mandy Barrett, Marketing and Sales Manager: Personal Lines at Aon South Africa.

For the majority of the public, insurance is often seen as a grudge purchase, so often it’s the first thing to get chopped when under financial pressure. But one must bear in mind the key reason that insurance policies are taken out. This is where the role of the broker is important. By asking key questions you may be able to make it clear that insurance is seen as a necessary purchase as opposed to a grudge purchase.

It’s human nature to believe that we won’t ever face a worst case scenario, but if a home burned down to the ground, would the affected party have enough savings to rebuild it, replace all household contents such as furniture, appliances and clothes while maintaining a certain standard of living? Would an affected party recover if a financed vehicle was written off in an accident while being able to cover outstanding debt, plus replacing the vehicle?

This is why insurance is important and it is the role of the broker, advisor or service agent needs to make it clear to the public.

Managing Risk

One of the most important factors in managing your own premium levels is to improve your risk levels through effective risk management and take steps to prevent or minimise losses.

“The drive to save costs in the current environment is totally understandable. Insurance is one area where consumers often believe they can save. But the emphasis must be on right-sizing covers and seeking economies where they are to be found, and to avoid under-insuring,” advises Barrett.

There are a number of guidelines that brokers can follow when helping clients review their insurance cover:

  • Accept an increased excess on your policy that one can afford.
  • Accept a risk in its entirety, in other words not to insure at all, an item which is readily replaceable or stands very little likelihood of being damaged, lost or stolen.
  • Consolidate your homeowners, household contents and motor cover with one insurer rather than paying separately for covers with different insurers.
  • Motor claims in the South African insurance scenario make up some 60% of all short term claims. Make sure that you put the security measures in place that insurers require. Also, make sure you maintain your vehicle in good working order.
  • Ask about any security upgrades which could reduce cover.
  • Your property itself has to be accurately insured for replacement cost and in this respect don’t fall into the trap of believing you can lower your cover simply because the market value of your home has been reduced by current market forces. It’s entirely possible that settlements could be as little as 50% of the claim if you are under insured.
  • It’s important to encourage that portfolios are analyzed professionally at least once a year.

“By working with brokers, the public will benefit from sound risk management advice that will help you to reduce the incidence of losses and thereby benefit from a segmented rating where low risk clients enjoy lower premium levels than those with higher risks. While premium increases may be unavoidable in some instances, they can be managed,” concludes Barrett.

Editor’s Thoughts:
Under the current economic conditions, the role of the broker is becoming increasingly important. The public is under significant financial pressures and it is only natural that they look to cut costs where they can. By making it clear that cutting costs in insurance may be damaging instead of beneficial will both save the industry and prevent the public from incurring irreplaceable losses. How do you convince your clients not to cancel? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts to jonathan@fanews.co.za.

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