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Testing times
An economic slide due to the coronavirus will put more pressure on brokers to demonstrate value as clients seek ways to cut costs By Wendy Pugh
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rokers will have their work cut out convincing Confidence levels looking ahead are mixed. SME business owners that insurance is not the When asked what specific impact slowing revenues area to cut as business conditions become inwould have on insurance, more than 60% of SMEs said creasingly difficult. they would make some sort of change to their insurance That’s one of the findings from the latest edition of mostly by reducing their cover, pushing Chapter 2 - Economic impacts on businessarrangements, insurance the annual Vero SME Insurance Index survey, which for better deals or changing the way they buy. took place last year when commentary about an ecoThat’s an ominous indication for brokers. Of parnomic downturn was already prevalent and the ticular concern should be the finding that 12% of SMEs Figure 2.5: SMEdirect. insurance tactics to handle declining business Medium-sized businesses are consider Reserve Bank was cutting interest rates. would purchasing prospects, by business size mostinsurance likely to say that they SMEs at that time flagged changes the in their Vero Head of Commercial Intermediaries Anthony would change their insurance arrangements as a possible response to sliding revePagano says brokers can assist clients in difficult times arrangements if their revenue nues, and events have since taken a sharp turn for30% the would by ensuring they appreciate the increased risks they are declined. Only do worse as social restrictions imposed due to the coronataking on if they reduce29% their insurance. nothing, while 24% would push 27% virus pandemic take an economic toll.back on their broker for a better “When things are tough the25% last thing you want to 25% 25% 24% 22% S&P Global Ratings says a deep recession the look beto doing is making yourself vulnerable to a large loss deal andacross 18% would 20% 20%by move their (see your balance sheet,” he tells Insurance News.17%17% Asia-Pacific region is guaranteed following aninsurance enor- direct exposing 14% Figure 2.5). This inmeans that“Reducing it is mous first-quarter shock in China and subsequent insurance cover can be a big risk for even more important for brokers ternational shutdowns. SMEs, which is why brokers need to be alert to their clito understand the situations of A Roy Morgan snap SME survey of 621 Australian ents’ situation and provide them with support through their medium-sized clients. businesses last month found more than half believe the the various lifecycles of their business.” nation is in its first recession in nearly three decades. Medium-sized businesses, an important clientele Reduce Reduce numbertheir insurChange Push back on The Vero survey shows revenue declined over the for brokers, are particularly likely to change of of things covered insurer current broker past year for 41% of respondents, while a similar proance purchasing amount behaviour, and the report says their cover for a better deal portion say they experienced growth of less than 5%. requirements may need special attention.
past year Figure 2.5: SME insurance tactics to handleThe declining business prospects, by business size has been quite difficult
so nowprospects, by business size SME insurance tactics to handle financially, declining business
o sh er
29% 27% 25%
25%
25% 22%
ee t is ers of
ult
Chapter 2 - Economic impacts on business insurance
Reduce amount of cover
Reduce number of things covered
I really pay more attention to how 24% much I’m paying 20% 20% for17% insurance and 17% 14% what’s being covered. I’m more interested now because every dollar counts. Change
Push back on
Wendy, insurer Tutoring current broker
38%
35% 30%
16%17% 14%
18% 14% 12% 5% 5%
Go without insurance
Move to direct insurance
8%
Change broker and insurer
Nothing (would have no impact)
for a better deal Micro (1-4 employees)
Source: Vero SME Insurance Index
Small (5-19 employees)
Medium (20-199 employees)
38%
35% 30%
insuranceNEWS
April/May 2020
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