Risk Insider: Carol Murphy

Changing the Game

By: | May 17, 2016

Carol Murphy has more than two decades of risk experience and currently leads U.S. Casualty sales and the Loss Portfolio Transactions practice at Aon. She can be reached at [email protected]

If the market is so competitive, why are there more challenging renewals this year?  The reason is that global volatility of risk is increasing.

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Volatility arises from multiple factors: insurer challenges, re-underwriting, exposures, products or coverage placements that are newly considered difficult, financial and collateral challenges.

Best negotiating practices help, especially during turbulent times. When the renewal game gets difficult, change the game by knowing your options, managing the timetable, preparing harder, communicating and then over-communicating.

Several years ago, I worked with a large client for the first time. High costs of collateral were a strain on the company and the risk manager felt trapped.

In listening harder, we found that what the risk manager and his bosses wanted was to be able to understand and quantify their options at all times.

They wanted expansive and unconventional options for consideration. Once we could quantify both the nominal costs and opportunity costs of different options, then we could consider trade offs.

The change of mindset from trapped to having options completely changed the game with the insurer, who then came to the table and negotiated a better win-win result that saved the client both costs and collateral.

I’m fanatical about preparation. Listening harder to understand concerns, using analytics to establish the counterparty’s negotiating position, anticipating questions, and articulating your story are more important than ever.

I’ve seen risk managers work through successful coverage renewals on difficult products many times. Many times, the insurers’ starting positions in the negotiation were to exclude coverage for a specific product that had caused significant known losses.

In listening harder, we found that what the risk manager and his bosses wanted was to be able to understand and quantify their options at all times.

By explaining the product and any difficult aspects in a very deep and technical way, the risk managers were often able to negotiate a reasonable result.

Having options matters here too — is there an opportunity to carve out a portion of the risk to a specialty market or an opportunity to change retention without increasing total cost of risk?

Managing the timetable to allow maximum optionality and stakeholder communications is one of the most effective tools any risk manager can deploy.

Many risk managers ask for guidance into what to build into budgets way in advance and then hold counterparties accountable for the budgetary goals. This doesn’t mean “settling” if you could achieve a better result than budget but certainly means preparing management and stakeholders for the best and worst case options.

Risk managers can also facilitate an effective timetable by providing renewal underwriting information as early as possible. By providing a timely and accurate submission, you can often hold insurers accountable for a timely quote.

Early quotes afford you more optionality with ample time to negotiate improvements, follow up on new or increased data needs or underwriting questions, or negotiate with alternative solution providers.

Recently, a wise risk manager was facing a difficult renewal. By knowing the options, preparing for the most effective negotiation and managing an effective renewal timetable, he was recommending a change to achieve substantial cost savings and more program sustainability. He had already talked to his boss, the Chief Financial Officer but he needed more time to get in touch with other stakeholders.

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“Communicating and over-communicating” turned out to be essential given the fast-paced, global nature of the organization.

In a well-managed organization, surprises, even “good” ones, are often unwelcome. By communicating early and often, we can avoid surprises.

Changing the game can be unsettling for insurers who may be accustomed to a traditional renewal dance where they are holding the cards.  But changing the game may result in a home run without sacrificing strong relationships.

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The R&I Editorial Team can be reached at [email protected]