Brokers must not treat risk management as an ‘afterthought’

Risk management has climbed the corporate agenda and brokers are fast finding themselves facing increasing demands from clients for support and advice on how to make risk management a strategic focus.

This topic has become even more pertinent following the onset of the hard market and the Covid-19 pandemic – both events have tested business continuity plans and brought about new, unprecedented risks that businesses have been scratching their heads over.

Risk management, however, has always been an important part of a good broker’s role – although maybe a less prominent requirement during soft market conditions, according to Richard Graham, Aston Lark’s head of claims and risk management.

He said: “In a soft market, everyone can place a risk. In a hard market, it’s only those brokers that have not just jumped on the ‘risk management boat’ last minute and have been talking to their clients about the importance of managing risk all year-round that are able to truly succeed.

“In a hard market, insurers want to focus on the catastrophic risks and want comfort and reassurance on a wide ranging list, from fire to continuity, to safety.

“An early and constant approach to risk management from a broker will achieve this and consequently enable them to attract the best terms.”

Neil Hodgson, managing director of risk management at Gallagher, added that the hard market has changed the way corporate clients think about risk management.

“The pandemic has seen companies look to their business continuity plans and many believe that while they have had plans in place, they can do better,” he explained.

“Casualty risks are rising due to increased health and safety regulation and we have seen a greater focus in the need to secure a company’s supply chain.

“It has led to more conversations with brokers around risk management. Companies are more open to discussing the issues, which has to be a positive.”

He added that although “risk management has long been seen as an afterthought”, it should - in fact - “be the first part of the insurance conversation”.

Hodgson continued: “When you have managed the risk, then you are able to understand what needs to be mitigated with insurance. For too long, some brokers have turned that equation around.”

The SME opportunity

Insurers are also keen that brokers engage in greater levels of risk management.

“There’s always been brokers in the UK that take the risk management of their clients really seriously,” said Nic Brown, broker divisional director at Markel UK. “And obviously, that’s their role.”

Brown additionally believes that brokers’ risk management lens is especially important in supporting the SME market.

“You’ve got a scenario where some SME customers are more complicated than others in terms of the risk exposures that they have. So, it’s brokers’ ability to understand their customer and the risks they’re likely to face and ensure that the insurance risk mitigation solutions that are being recommended are appropriate.”

These fundamentals of a brokers’ job role have not changed over the last 25 years, Brown noted, however what “has happened is that risks and exposures have evolved compared to 25 years ago”.

He continued: “Cyber would have been something you’d watch on the television - now every small business has an awareness of how technology can impact them.”

Graham added: “Convincing SME and mid-corporate clients about the importance of having strong risk management measures in place has historically been a struggle. We’ve been trying to convince clients to spend money to solve a problem they don’t know they have.

“Within the industry, we haven’t helped [ourselves]. We’ve used language that is archaic and we’ve focused our risk management solutions at the large corporates.”

Hodgson said it is now clear that SMEs are waking up to the need to adopt risk management systems.

“Smaller enterprises have seen the impact in their business during the pandemic,” he explained.

“They understand the need for risk management and are asking their brokers for more support. Better risk management lowers claims - and with it, premiums.

“There are huge opportunities for brokers, but unless we are having those conversations, we will not be able to deliver these opportunities.

“Those brokers [that] see their role as simply transactional may find they struggle to place their clients’ risks. We have to welcome the increased recognition of risk management and the role that the broker can and should play.”

At the ‘fork’ in the risk management road

Brown emphasised that brokers now have a choice to make.

“Brokers are standing at a fork in the road,” he explained.

“They have two choices - go down the general piece and ensure that, for certain customers, they can provide advice and guidance across a broad range of products.

“Or, they can look at customers with more specialist requirements and more complex risks that need to be managed and go down the route of making sure that they’re providing that specialist risk management advice and adding value.

“[These are the] two options and you can do both as a broker. But for me, the role of the broker has always been about trying to balance those two.

“There is a choice to be made and one route is all about customer focused activity and the other group [is] probably more around the volume play.”