4 minute read
Making the most of your upcoming renewal
by AICM
MANAGE RISK How to
Making the most of your upcoming renewal
Dan Chapman MICM Director, Credit Solutions
At the start of the COVID-19 pandemic insurers were quick to perceive significant risk (with flashbacks to 2008), and responded with a contraction in risk appetite and increased policy premiums.
As we now know, 2020 and 2021 didn’t see the cascade of insolvencies that many had predicted. In fact, government stimulus and temporary changes in insolvency laws ultimately resulted in a benign loss environment.
Whilst insurer appetite has largely recovered from the initial shock of the pandemic, with premium rates falling and risk acceptance rates back at prepandemic levels, peak renewal season approaches and insolvencies are once again slowly increasing. To help your organisation get the best possible outcome from your upcoming renewal, some key considerations are outlined below.
Barbara Cestaro MICM Dan Chapman MICM
Estimated Turnover
Insurable turnover is one of the key pieces of information in the renewal form which helps the insurer to price your policy. Typically, a higher turnover drives a rate reduction, and vice versa, but it is important to remember that all turnover isn’t equal.
Consider what else you might want to disclose about your sales that could also impact your insurer’s underwriting. For example, has the distribution of your risk changed? If you have a
greater proportion of your revenues with wellrated and known customers this has an impact on your risk profile. Your policy has a maximum TOP, but that doesn’t mean you are using this with all clients. Where you have clients on shorter terms make sure the insurer is aware.
Other disclosure considerations could include plans to exit poor-performing countries, buyers or lines, or your sales team’s strategy for the coming year.
Loss performances and future risk exposure
If your insurer has paid your claims, these will be considered as part of the underwriting process. Insurers expect to pay claims (that’s what they are there for) but when you have incurred losses, especially large ones, it is important to show the insurer what you’re doing to ensure it isn’t a regular occurrence. Perhaps you have exited a market, implemented new credit management procedures and your DSO has reduced. Maybe you have increased your debtor monitoring, shortened payment terms with your low-rated clients, started using the PPSR or have tightened up your T&Cs. If properly outlined to your insurer, all these factors could have an impact on your renewal rate.
In many cases, your organisation won’t have experienced any losses in the past few years. However, don’t let the insurer think that was all down to macroeconomic factors. Demonstrate your management of your debtors’ book and how these actions have impacted your results.
Risk acceptance
Check your current list of limits on your insurer’s portal, noting each of your clients will have an assigned rating. Make sure that well-rated clients have full approval and investigate the others, as you may be able to provide further supporting information. Ask your broker to benchmark your buyer grade and risk acceptance with the market and your sector, so you know where you stand relative to your peers.
Reviewing your limit listing is important to make sure you are maximising coverage. Increasingly, insurers are factoring the limits you hold (not just aggregate turnover) into your policy rate. Reducing or removing unnecessary limits will breed goodwill with the insurer who can allocate capacity elsewhere, reduce your premium rate and remove unnecessary limit fees.
Meet the insurer
Insurers are always available to meet their clients. If you haven’t met your insurer in person (or video call) yet, take the opportunity to do so. Underwriters genuinely appreciate the chance to know more about your business, and the more they understand, the better they can support you.
Work with your broker
Finally, work closely with your broker. Your broker shouldn’t simply pass information between you and the insurer. Their role should be that of a trusted advisor, supporting your business, sharing insight about the market, maximising coverage and optimising your policy structure to fit the evolving needs of your business. Take advantage of your pre-renewal meeting to discuss how your business is going to change over the next three years, what your risk tolerance and premium goals are, and let them guide you on how your insurance program can be adjusted accordingly.
Barbara Cestaro MICM, Client Manager, Credit Solutions Dan Chapman MICM, Director, Credit Solutions
AON T: (02) 9253 7000, www.aon.com.au
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