In the last post in this series, we talked about some of the main choices available in designing an insurance policy.
In this post, we talk about how to take a risk to the market to obtain the designed coverage.
Approaching the market asking for agreement to a designed policy is, not surprisingly, quite different to approaching the market for an “off the shelf” or “spreadsheeted” policy.
An “off the shelf” policy application is designed to get exactly whatever the insurer is readily willing to offer a homogeneous group of buyers (the target market) with the least hassle for both insured and insurer. The application process therefore involves trying as hard as possible to look as much like the insurer’s target audience as possible, where less is more. A “spreadsheeted” policy also involves trying to look as much like a target audience member as possible but this time, also trying to get from the insurer to give the broadest terms they are willing to offer ‘preferred customers’ within their target audience.
For whatever reason a policy has been designed, the fact of its design alone puts it outside most insurers’ target audience. There are however insurers, most commonly though far from exclusively at Lloyd’s, for whom designed insurance is their target audience.
When approaching these insurers, whoever and wherever they are, and bearing in mind the objective is to find an insurer willing to offer the required coverage in a form that is sustainable, there are really only two things that matter, though it is their interplay that is most critical. The first is the quality of the formal submission; the second is the nature or personality of the buyer. The interplay is how well the buyer – without too much help from their broker or consultant – is able to explain what the submission is asking for and why. The ‘why’ is the key because explaining this is how the buyer starts to build their relationship with their insurer.
Submission
Ideally, the submission should include all the information the underwriter needs in order to say “yes” to the requested coverage. So, the submission should describe the buyer’s firm, the relevant information about the risks the designed policy is meant to cover, how the buyer manages those risks – their relationship with their risks – and why and how the coverage has been designed to accommodate all these. The submission should also include the full proposed policy wording and, if the claims handling provisions are not fully described within the policy (the specific protocols may be more fully described in a separate document), they should also be provided.
If there is a target premium, which there often is, this should be included. A justification for the premium should also be included. Some people prefer not to include a premium in case it is set at a higher level than the insurer might have come up with on their own. We generally prefer to include a target premium. This is because, in addition to establishing the clear intent to proceed with the designed coverage if terms can be agreed upon – and therefore demonstrating to the underwriter that the work they are going to have to undertake to understand the submission is worth it – having a target is effective in framing the underwriter’s expectation for premium.
A brief word on data. Insurers love data; it is the core on which their entire business model is built. The submission must therefore include all the data necessary for an insurer to run different forms of analysis, to verify the claims that the submission is making. So, in presenting data, it is important not just to include it but to explain what it is you are seeing in the data that leads you to the conclusions you have come to – and which you also want the insurer to come to.
Buyer interaction with the underwriter
Deciding when – not if – buyer and insurer will meet is important.
Before getting to “when”, the “if” question needs addressing because many brokers and consultants advocate strongly against buyer and insurer ever meeting. We think this is usually a mistake. That said, for all “off the shelf” and most “spreadsheeted” policies, there is no need for buyer and insurer to meet. Since few “off the shelf” insurers have either the time or the inclination to meet their customers, never mind applicants, there is very little point in a meeting. Meetings between “spreadsheet” insurers and buyers can be helpful, as long as it is convenient for both to do so and there is a clear agenda that everyone sticks to.
We think it is essential that designed insurance buyers and their prospective insurers meet. There are many reasons but four important ones are:
- If I am going to buy an insurance policy that was important enough for me to design from scratch, I want to look in the eye of the insurer who is going to give me the all-important coverage. Equally, if I am an insurer being asked to offer unusual (at best) and maybe unique coverage, I want to meet who I am being asked to insure. My terms are likely to be more favourable if I have not only read that, for example, claims will be handled a certain way, but I have also talked this through in detail with the person who is going to be doing the handling.
- When buyer and insurer have met to discuss the intent of the coverage, there is far less likely to be later misunderstandings about what the policy was supposed to cover or how claims were meant to be dealt with.
- The insurance contract won’t include the broker or consultant; it will be directly between the buyer and insurer. For any major acquisition – and designed insurance can often be a major budget item for the buyer – it makes no sense for the contracting parties not to meet.
- The purpose for the first meeting is just that – to have the first meeting. This then means that, after the contract is hopefully in force, and when things inevitably change or, more important, there is a claim, there will hopefully have been one or more previously positive meetings that will set the tone for the potentially more challenging change or claim conversation.
Moving now to “when” the first meeting should take place, it shouldn’t be so early that a deal may not yet be certain and there may be too little of substance to discuss. Too late, and either buyer or insurer may have developed expectations that cannot be met, killing a deal when these are revealed. Ideally, the meeting should be after the underwriter has expressed a willingness – in principal – to offer terms close to what has been requested and before final terms have been established.
Naturally, the nature of individuals involved in the meeting – both buyer and underwriter – may also impact when a first meeting is preferable. Who the buyer is may also be important. In most cases, the risk manager is ideal; in some cases, the CEO is better. It is also important to remember that, in most insurers now, there is a clear division between underwriting and claims – as between church and state, if you will. This means that, as important as it is to meet the underwriter who will decide on and manage the policy, it is just as important to meet the person responsible at the insurer for deciding claims matters.
In either case, preparing for the meeting is important. The buyer should be able to describe their business, explain what their risks are and how they manage them – all in detail. This should lead to a discussion about why the coverage has been designed in the way it has. A buyer is not expected to discuss all the intricacies of the insurance, and certainly not the options not chosen (that is the broker’s or consultant’s job), but they should be able to explain and justify why they have asked for the more unusual aspects of the requested coverage. An ability to discuss prior claims in detail is also valuable.
A solid submission, and a buyer who is comfortable explaining its contents, are two key elements to the successful placement of designed insurance. When this process is handled well, and coverage is placed that meets both the buyer’s and the insurer’s needs, the scene is set for the long-term success of the resulting insurance program.
In the next and final post of this series, we will talk about how to manage the designed program for the long-term.
Note: This series of posts concerns the design process for one company’s professional liability policy. We use professional liability to demonstrate the process because it is the most common policy we design. We use the same process for every policy we design.
Disclosure: We specialize in designing insurance policies. In addition to professional liability, we also design – for example – sexual abuse liability, cyber, employment practices liability, financial institutions and crime coverages.