Avoiding Renewal Shock in a Hardening Market

In the past 24 months insurers have been asking for increasingly detailed information from our clients, and we are seeing an increase in calls from businesses being caught out with ‘bill shock’ days before renewal. These are typical features of a hardening insurance market.

Over the past 12 years RAS has provided renewal assistance to many Australian businesses. Professional oversight from an experienced RAS consultant can help our clients to minimise rate increases and coverage reductions.

Here are some pre- and post-renewal tips to help your renewal go as smoothly as possible.

Pre-Renewal Tips

1. Ensure adequate risk information is presented to insurers

It is the responsibility of your broker to collect risk information from you in order to obtain terms from insurers, but no broker can know your business as well as you do.  Many brokers rely on generic information gathering templates; these are a useful tool but do not delve deep enough.  The annual renewal is an opportunity for you to demonstrate your company’s hard work in developing risk controls, OHS procedures, business continuity plans, proactive maintenance plans, the list goes on.  More detailed risk information will result in more insurer interest, and potentially lower premiums.

2. Carefully manage the in-house collection of renewal information

We know that sinking feeling of receiving the renewal questionnaire.  Collecting, compiling and returning that information is a major project and can feel overwhelming.  We recommend delegating responsibility to a single person within your organisation with insurance experience, and ensuring that person is given the authority to collect information from all departments.  Maintain a register of responses and check in regularly to make sure nobody is slowing down the process.

3. Ensure your broker is obtaining alternatives from different insurers

Building relationships with your current insurers whilst maintaining competitive tension is a delicate balance.  It is certainly not optimal for your broker to obtain quotes from 5 or more insurers every year, for every policy, as the alternate insurers will lose interest and current insurers will not feel there is any loyalty with their customer.  However, simply “rolling over” your policies with the same insurers each year without testing the market will not achieve the best outcome either.  A clear strategy should be agreed with your broker, which may involve working with existing insurers one year to tighten up the terms, and a full marketing exercise the next year to ensure your programme remains competitive.

4. Rigorously verify the accuracy of the values and limits to be insured

Insurance for fixed property is most often based on replacement values, which do not remain static as the cost of materials and labour is always changing.  Mobile plant and equipment is usually insured for market value, which also changes constantly.  Business interruption insurance is calculated on the gross profit and fixed costs of your business, and so on.

Liability policies, such as Public Liability or D&O, are often purchased with an arbitrary limit of, say, $20 million or $50 million, and renewed each year with little consideration as to whether it is appropriate.

We regularly encounter policies that have had the same values and limits for the past few years, or have used the wrong basis of valuation.  It is important that all insured values are scrutinised and verified every year, with the assistance of licensed valuers if required.

5. Agree and document the renewal strategy with your broker at least 3 months before expiry

All too often the insurance renewal process will go something like this.  Your broker will contact you to let you know that your policies are expiring in, say, 6 weeks, and will give you a pile of documents to complete and return.  You laboriously complete and return the documents, and don’t hear back from your broker until a week before expiry when you receive the renewal terms.

RAS advocates a structured renewal process that gives the insurance buyer much greater control.  This process begins at least 3 months before expiry with a strategy meeting, where a renewal timeline and marketing strategy are discussed and documented.

6. Manage your broker’s activities to ensure they stick to the agreed strategy and meet agreed deadlines

This connects back to the previous point about agreeing on a renewal strategy.  Keep in regular contact with your broker, request updates on milestones, and ensure there are no last-minute surprises.

Post-Renewal Tips

7. Ensure invoicing is finalised quickly and accurately

Insurance invoices can be complicated and mistakes are often made.  Taxes and charges should be checked and confirmed ahead of time, to avoid surprise costs when the invoices arrive.  Final invoices should be supplied within 14 days to allow finalisation of premium funding.

8. Ensure policy documentation is delivered on time and checked for accuracy

That coverage summary attached to the invoice from your broker is NOT your insurance policy.  Formal policy documentation is provided after your invoices have been paid, and come on your insurer’s letterhead or with a stamp and signature.  They often get overlooked so need to be followed up with your broker.  Like everything else these can contain errors, so it is important to check them carefully.

9. Request an Insurance Manual from your broker

An Insurance Manual provides a consolidated summary of all the insurance policies purchased by your organisation, as well as key broker and insurer contacts and a guide to making claims.  If you haven’t been provided with one within a month or two of renewal, don’t be afraid to ask.

10. Have an agreed Service Level Agreement and KPIs with your broker

Don’t allow your broker’s Financial Services Guide on its own to dictate the terms of engagement.  RAS uses a standard service agreement which is accepted by all major brokers and promotes professional service standards and transparency.  The inclusion of Key Performance Indicators ties broker performance to remuneration and encourages a more open dialogue.

11. Monitor your broker’s adherence to the Service Level Agreement

This links back to the previous point, and is particularly important if KPIs are included.  Broker servicing plans should not be “set and forget” but need to be regularly monitored and updated.

12. Agree on written claims protocols for each type of foreseeable claim

Claims are time-critical, and figuring out who to call and what to do when a loss occurs can waste valuable hours or even days.  Written claims protocols should be agreed and understood before a claim occurs, and included in your organisation’s Insurance Manual.