The value of risk transparency
Knowledge is power, and this applies to a wide range of situations. It determines the relationship between warlords, it applies to divide-and-conquer politicians and it is certainly relevant for a variety of business situations. If you imagine the relationship between a company and its insurer as a ‘battle’ over the price of the premium and coverage, a company can decide to keep its cards close to its chest.
After all, the more an insurer knows about the company’s risk situation, the easier it will be for them to find a reason to increase the premium or limit the coverage. “Just leave the insurer in the dark, so the premium remains the same,” a business professional would say.
I don’t think there are many companies that truly believe that risk transparency leads to higher premiums or limited coverage. Yet this assertion prompted a discussion at the recent NARIM conference between risk managers, insurers and company risk and insurance managers, in particular concerning the counterpart of the claim that transparency about company risks leads to lower premiums.
Engaging in dialogue
After all, in whose interest is it to discuss the risks at your company with an insurer? If you know you have a loose filling – and therefore are at risk of cavities and pain – you don’t wait years before going to the dentist, do you?
The underlying question is what an insurer should know and what not. The fact is that most policyholders respond to this issue reactively. They prefer to wait until the insurer conducts an inspection and asks questions. This passive approach is genuinely based partly on the sincere confidence that everything will work out in the end. Questions about risk that are not answered satisfactorily during an inspection or for which an adequate solution is not provided can ultimately lead to a premium increase – not a surprising response in itself. The question is whether you should only be worried about that higher premium or whether the risks identified are reason for concern in themselves. This could mean that the coverage is inadequate and subject to loopholes.
Incidentally, the way things stand today, such a discussion about unexpected or new risks does not even have direct consequences. It gets filed away and often forgotten. In my view, insurers do not devote much time and effort to hunting policyholders and are more interested in hunting for profit. Many insurers conduct random inspections of the ‘type’ of risks and damage statistics based on the amount of the insured’s interest. Certain sectors are sometimes the focus at insurers. Understandably, risky sectors are inspected more often. In the food industry, for instance, there have been a significant number of claims in recent years, so it is only to be expected that this has attracted the interest of insurers.
Advantages to be gained
My experience is that there are advantages to be gained. Insurers are willing to engage in dialogue, more so than around ten years ago. Due in part to the emergence of the phenomenon of risk managers, insurers are more willing to have a peek over the fence – insofar as such a fence exists – in order to engage in a pragmatic discussion. A company that talks about risk assessment and the usefulness and impact of certain preventative measures will find itself in a constructive dialogue. Insurers respond to good arguments and it would not be the first time that such a discussion leads to a lower premium. In that sense, I believe that transparency can pay off.
Lower premiums – and better conditions
There is money to be earned here in the sense of lower risks and lower premiums, as well as better coverage and better conditions. Those who engage in dialogue with their insurer may very well be reducing the pressure associated with inspections. Such a reduction in the administrative burden will undoubtedly please the employees on the work floor.
Of course, this requires that the company and its risk manager do their homework. It demands a proactive approach and the willingness to take a serious look at assets, activities and the accompanying risks. By examining the various aspects of risk more broadly in a proactive manner and from within the organisation, aspects such as workplace safety, compliance with regulations and legislation and insurability turn out to be a lot less different than anticipated and information and preventative measures can be efficiently combined.
During the NARIM conference, we briefly discussed whether transparency regarding company risks strengthens the position of insurers. If you want to think according to the conflict model, the answer is ‘Yes’. Knowledge is power. But it is also beneficial for both the insurer and the insured! In this sense, examining risks and prevention in a mature manner is an indicator of good entrepreneurship.