Follow the Leader

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Follow the Leader

Perhaps the most critical issue in the large corporate insurance space is deciding on the leader of the major policies and the significant following markets. In Asia, it is shocking to still find CEOs and insurance buyers in even some of the largest corporations who have little understanding of how their programmes are structured or why the leader has been selected for particular policies.

Some of these insureds often don’t even know who the following markets are, and have never asked. Few in Asia enquire about how the policy will respond and the various players will interact in the event of a claim – until it’s too late and the insured is facing a major emergency.

This ‘See no evil’ approach is incredibly short sighted and frankly bizarre considering what’s potentially at stake – the whole company – if things go dramatically wrong.

Choosing the leader for each policy requires careful consideration. The appointee should be of sufficient standing and credibility that the insured has confidence they can respond properly if there is a big problem. The broker is an excellent source of information on whom is best placed to fill this role in the markets and geographical jurisdictions where the corporation operates.?

The advice of the broker is the CEOs best route to finding the perfect partners - but the final selection or endorsement should come directly from the customer, preferably after meeting several potential leaders and discussions around coverage, limits and deductibles for the new policies.

For an existing programme, it’s equally important to review the leader on a regular basis. Arguably this is more critical than the broker review as the leader will be stumping up the cash in a claim and setting the tone on payment with the following markets. Some markets are very black and white when it comes to settlement. With others, there is some latitude to negotiate. The more capable brokers will help the client find the best fit for their needs.

Irrespective of choice, the CEO needs certainty the market will pay, in the right quantum and in the right time if there is a need. It perhaps goes without saying that a leader review on major policies should not be done in the same year as the broker review. Too much change sends a mixed signal to the insurance world. The next newsletter deals more with the market relationship, but it’s hard to demonstrate strategic, competent thinking if all the market sees is constant churn. This will be reflected in prices and coverage even in the sort of long term soft market the Asian CEO historically enjoyed..

There is a tendency in Asia to focus on price as the only criteria for market selection. Leaders are changed all too frequently in some companies. In the rush to save a few pips the other important criteria for selection are often overlooked in this region.?

It is generally preferable to have a formal staged approach to leader selection and appointment. Ideally, and assuming market competitiveness, three to five years would be a reasonable period in which the incumbent can get to know the insured and vice versa. When a leader review is carried out it should be a carefully managed process. It is counterproductive for the broker and client to get too many markets excited about the potential for change. Often the old adage applies well here: “If it ain’t broke, don’t fix it”.

Next time we will turn to the process of leader review and set out the nuts and bolts of how to manage this critical relationship.

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