Barely three months into my new job, I totally immersed myself in the challenges that it has to offer and I am enjoying every step of the journey with the customary “bring it on” attitude to life.
One of the rewarding aspects of being in the underwriting seat is the propensity to think outside the box and offer solutions to problems instead of products off a shelf. From motor or personal accident policies that do not quite fit the cast to the more complicated industrial property or engineering risks, I endorse the, “Why not?” philosophy; emulating Edward Cuthbert Heath the grandfather of underwriting innovation.
One of the main inhibitors of this otherwise utopian underwriting world is the cadre of gate-keepers taking insurance purchasing decisions in commerce and industry within the region. Thankfully, the larger corporations are witnessing an increase in qualified risk and insurance managers or directors within their ranks. However, insurance purchasing within the Middle East still remains largely under the domain of scrooge incarnate, i.e. the top dog in finance (whatever the designation) who understands all there is to know about price but who very often has no clue to what constitute value in insurance. Among them, the good are few and far between and the bad and the ugly (ranging from the blissfully ignorant to the corrupt seeking to line their pockets) generally abound.
Price vs. Value
Although I am strong advocate of competition, the basic premise of competition is the homogenous nature of the products on offer. How does one measure the value of one insurance policy against another? Although what we sell is intangible, some factors come to mind, such as the reinsurance capacity behind a primary insurer, the claims paying ability and, more importantly, the claims paying behaviour of an insurer. In tandem with all of these, one also needs to select an insurer that is able to give sound advice preferably before a loss happens and not while turning down a claim after calamity strikes.
Several incorrect practices continue driven either by price considerations, or by ignorance or by a combination of both. The following are a few examples:
Firstly, although it happened quite a few years ago the conflagration of Oasis Shopping Centre is still fresh in the mind of many in UAE as is the destruction of over 100 warehouses in Al Quoz Area. These and other similar significant losses each took anything between three to five years to rebuild. So why, with such vivid examples, do most chief finance officers still insist on a maximum business interruption indemnity period of 12 months. And, when as a broker or insurer, we cave in to this, who are we kidding?
One of the older but smaller insurers in UAE decided to become significantly aggressive in 2011 and 2012 in a bid to rapidly grow market share. Prima facie some insurers could not understand where this company was pulling its rates out from. A closer examination soon revealed that it was ultimately short-changing clients. A typical example is the capping of third party property damage cover on motor fleets to AED 250,000 (approximately Euros 50,000). In simple terms, one accident with a high value vehicle and the insured is constrained to dig into his pocket. But does it have to take a claim for a chief finance officer or chief accountant, who is otherwise very conversant with numbers, to grasp this very simple fact? Or is it a case of ignorance is bliss until misfortune strikes?
A final example that perhaps takes the cake is a primary insurer granting of unlimited liability in the aggregate when his reinsurer would have capped it at, say, twice the limit any one occurrence.
The primary insurer’s secret? “Cancel the cover if there is a claim.
And if there isn’t? “Oh well no one would have been any wiser?”
Does Professionalism Pay?
These and many others are real life examples from the market where intellect, governance, discipline and professionalism often serve as a disadvantage in the short run.
But in the long run? The story is different. Companies that offer value over price tend to be rewarded not by rapid top-line growth (sadly that would continue to elude such companies) but by strong client loyalty and retention.
The client, broker and insurer interaction is very often a worthwhile process of education. Costly? Not really, when compared to ignorance.