CEO Insurance 101

In many companies in Asia, insurance is poorly understood and underutilized by the CEO and their management team. It is important for the CEO to remember a couple of critical things.

1. No one needs insurance until they need it.

2. The insurance transaction is built on trust. There is essentially nothing there otherwise. If there has been no time taken to build that trust – it’s a two way street - then don’t be surprised if the insurance underperforms in a crunch.

Insurance buying should be an important decision making process for senior management. This is the last recourse if really bad things happen. Unfortunately, busy CEOs living in a relatively benign environment (for example, Asia for many years) tend to allow this key method of balance sheet protection to fall down the priority list.

Buying insurance sometimes gets delegated to relatively junior and inexperienced employees who often have other things to do anyway. The purchase process can become a compliance driven, commodity buy with little focus on the underlying reason for the policies, their coverage and most importantly their security. The relatively low level employee has a transactional relationship with a broker or agent. The relationship is muddied and sometimes dominated by internal purchasing teams who often have no idea how the transaction should be structured or why it might be important.

As a consequence the key players tend to treat this as a cost driven purchase. The insured purchasing team and the weaker brokers focus on low cost delivery reflecting back to the corporation the commoditization it seeks. This is usually achieved by doing as little as possible to get the transaction over the line. There is little or no dialogue with underlying markets who also treat the CEO and his company as a low value partner. The markets save their energy, creativity and dedicated product design and support for higher value clients.

Everyone loses in this scenario. For the CEO whose company is in this space they are missing a huge partnership opportunity. For the broker they lose the chance to explain the additional benefits that can arise from a more robust debate and attitude around risk and insurance management. For the underwriter and the markets behind the policies they have no idea of the quality of the risk protected. So the market will provide something cheap and cheerful, and do everything in their power to delay or avoid paying claims if something goes wrong.

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