Let’s be honest – do you, like the majority of other company owners, usually see paying for insurance policy as incomprehensible, still necessary, expenses but definitely not as purchasing effective financial instrument? It may be one of the reasons why, if you sign an insurance policy without reading it, you end up with expensive stack of paper instead of effective insurance coverage. Interestingly enough, you never fail to read every bit of the credit agreement closely, don’t you?
For me insurance is broken down into two stages. First is when a client, being pressured by a bank or another lending institution, buys insurance for his assets. For my line of business large industrial or commercial facilities are most common. The purchase is made based on the price alone.
The second stage begins once there is an insured event. By the way, there is a consistent pattern that insured events are more frequent for poorly insured assets. Much more often than if you had seriously monitored the market and insured your trade center or a butter making factory with a branded insurance company after familiarizing yourself with every comma in the insurance policy. Once the facility suffers damage, it’s owner in 100 % of cases ignores the obvious fact that he is the one who purchased the policy without giving it much thought but only to get the bankers off his back. Nonetheless then he demands from the insurer for all his losses to be covered in accordance with the value basis which he, the Insured, finds suitable. Almost at the same time, right after the he encountered the loss, the client usually gets sucked into more expenses by hiring lawyers from outside with a big name and hourly pay to bring the action against the insurance company.
From my experience, purely legal conflict with the insurer very rarely results in complete satisfaction of client’s interests. There is a number of factors influencing such an outcome. They are extreme refinement of insurance company when it comes to legal issues, restricted application of laws to insurance business, routine experience in handling multiple risks simultaneously etc. However the most important reason for the above is the mere fact that insurance terms & conditions and policies stipulating the relations between both parties are drawn up by only one party while the second party rarely reads the policy and hardly ever reads terms & conditions until being faced by the insured damage.
All of the above is the prelude to answering most frequently asked questions I come across in my brokerage practice.
Question No.1 – who is insurance broker?
De jure a lot of entities can serve as insurance brokers. Common international practice sees insurance broker as an outsourcer which solves two problems for a corporation. The first one is acting as a legal proxy for choosing optimal insurance coverage for a company. The second one is settling the insurance claims for his client.
Summing it up, it’s safe to conclude that the majority of license holders in Ukraine are actually serving as insurance agents for certain insurance companies who do not possess a portfolio sufficient to leverage each and every one of the insurance services providers. Meaning that if in most cases broker you deal with tends to bias you towards working with a specific insurer, I bet that this very insurer holds around 80 % of the broker’s portfolio. Another question is what to do if you own only one restaurant or a maintenance station, i.e. any small or medium business asset? I would recommend you find a friend in a reputable insurance company and pray that he lobbies your interests. Why? Keep reading and you will find out the answer.
Question No.2 – why would a large corporation work with an insurance broker?
The truth is there are a few large holdings operating in key fields of economy which do not work with a broker. Usually they have several employees who de facto serve as internal brokers. They are mainly ex-employees of insurance brokers whose positions inside the company are frequently called “risk managers”. As to the principal responsibilities these positions imply, they are mostly the same as those in the insurance broker’s company. Well, if you can allow keeping one or two experts busy for the whole year and find it easy to keep risk manager and somehow assess his performance.
Some oligarchical industrial and financial groups turn to brokers’ services as they consider it more expensive to hire the experts. Independent insurance broker is accountable to you by his reputation and, of course, you can change the service provider every year upon your discretion.
However if the need for insurance arises rarely, from time to time, so you prefer to assign this task to junior employees, you are most likely to regret this decision right after the first insured loss. Let alone the fact that the market is extremely dynamic, so you most probably won’t be able to find such optimal price for your insurance as the insurance broker who manages tons of similar risks on the everyday basis. What is even worse, the quality of your insurance will leave much to be desired. Insurance policy is extremely massive and much more complex document than, for example, credit agreement.
Question No.3 – which insurance companies are reliable in terms of indemnity payment?
The answer is simple – none. From insurance broker’s point of view there is not a single insurance company that indemnifies each and every client equally well. In Ukraine the corporate insurance market is basically divided between global insurance brands. All those big names entered Ukrainian market before the crisis of 2008 and just couldn’t find the way to exit our market later. Since then the insurance rates have been slowly but surely going down which is absolutely counterproductive. This is happening because insurance brands find it more profitable to win in the long run meaning that they prefer to maintain their share of the market even with no profit waiting for Ukraine to finally pay off as the investment project. That explains the approach the majority of companies which plan to stay in the market for a long time adopted. Its gist lies in the moderate indemnity meaning that the companies neither pay indemnity to everyone nor deny it to all their clients. The thing is this is the only way to survive in the damping market. There are valid legal grounds which allow smart division of the clients into those who are promising in the long run and those who can be denied indemnity. I am not talking about some kind of fraud, as trust me, it is very easy to deny indemnity since both insurance policy and terms & conditions are written by the insurers giving them carte blanche.
To sum it up, I’d like to point out a few probable projections for the future. In Poland which has always been viewed as the pioneer market for Ukraine and a signaling light for the coming trends, nearly 80 % of all policies are concluded through insurance brokers’ assistance. I hope that these numbers support the views expressed above and will come up in your mind at that crucial moment when you are ready to conclude the “right” insurance agreement.