Organisations that have neglected their Risk & Insurance Management over the past decade are about to pay the price.

The Decline of the Risk & Insurance Manager

During the 1980s, most large Australian organisations employed a Risk & Insurance Manager (RIM). Many of these RIMs were hired after the extremely hard market conditions at that time, when premiums were increasing and cover was becoming more restrictive. The role of the RIM was:

  1. To develop and maintain the insurable risk profile of the organisation to be presented to insurers, with the assistance of:
    • Internal operational management;
    • Engineers and other specialists to help with risk identification;
    • Valuers, accountants and actuaries to help with risk quantification; and
    • Lawyers and other specialists to help with risk mitigation.
  2. To transfer the optimum amount of insurable risk to insurers, with the expert assistance of a professional insurance broker.

When the next hard market arrived between 2000 and 2005, most of these RIMs were still employed. Insurance prices went up for most large organisations but the increases were manageable for those who had continued to maintain their insurable risk management function. During the period between 2005 and 2019 when the market was soft, with decreasing premiums and broad insurance cover available, many RIMs left large Australian organisations. Some were made redundant, some retired, and many were just not replaced.

Those soft market conditions allowed complacency to creep into many corporate insurance programmes, as only rudimentary risk information would be required at the annual renewal process and premiums would still go down. The internal risk related discussions dissipated, the RIM role was no longer considered worth the investment, and the specialists who helped maintain the insurable risk profile were no longer required.

Until Now!

The commercial insurance market is currently hardening at a rate not seen since 2001 and insurers are requiring detailed risk information from large Australian organisations. The problem is that the RIMs have all gone and the insurable risk profile has not been reviewed for years. This will result in a giant corporate insurance bill shock in 2021 and beyond.

In extreme cases we believe some large Australian organisations will not be able to obtain insurance at any price. This can have a knock-on effect of breaching bank covenants and contractual requirements together with other material compliance-related issues.

Many organisations are not going to see this coming until it is too late. The danger signs are:

  1. Your broker is asking you for risk information you can’t supply;
  2. Your broker is not prepared to estimate in writing the amount of your premium increase;
  3. You don’t have documented scenarios supporting insurance policy limit decisions;
  4. You don’t have a documented risk appetite statement supporting deductible decisions;
  5. You don’t have key performance objectives in your broker service agreement; or
  6. Your risk and insurance management function has been delegated to someone who has little or no experience in that role.

We have seen a significant increase in the number of new clients with the same symptoms, but the scale of the neglect in the risk and insurance function is not going to be solved quickly. We have hired two new RIMs in the last week and are actively searching for more. However, as the largest employer of RIMs in Australia, we recognise there is a significant skills shortage. That is, there are just not enough experienced RIMs to go around. Without this expertise, corporate Australia will experience considerable insurance problems in the foreseeable future.

Risk Advisory Services employs many of Australia’s most experienced Risk and Insurance Managers.  If you are worried about insurance bill shock, Contact Us for a confidential discussion on how we can help.

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