The Changing Nature of Property Insurance – Part II

Companies have asked the questions:

“Do we need insurance?

Why should we pay out a fluctuating premium each year dependent not on our own needs but the somewhat irrational dictates of the insurance market?”

Of course, money can be made by clever purchases in a soft market, but large
corporations really require predictable cashflow.

Therefore, insurers and brokers in this market have needed to rethink the service they provide. “What ‘added value’ can we give over and above handing out cash for cash?” One of the answers has been risk management. A commercial partnership in which the insurer actively inspects the property, advises on risk protection and assists in working with the assured’s risk retention scheme makes good sense and, in return, the insurer has a clear understanding of the risk it is insuring. More importantly, the insurer becomes close to the assured, cementing a feeling of mutual reliance.

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If this is a development which becomes commonplace, it will change, to a degree, the nature of insurance for these privileged assureds. The essence of insurance is the obligation of utmost good faith. However, the concept is based on the assumption that the assured knows everything and the insurer knows nothing! Perhaps in practice (if not in law) that underlying assumption is changing. ARPI, however, is still placed on many occasions at a distance without this interdependence and so, it has been assumed that the insurer knows little about the assured. In 10 years’ time the principle of utmost good faith may be less important in this type of cover. Certainly major corporations are looking beyond the security of their property insurers and expecting more for their premiums. It expects it to have capacity to accept a large net line to avoid excess transactional costs. Further, as suggested above, it may expect it to provide risk assessment expertise so as to allow the corporation to reduce risk and therefore cut cost, whether by reducing the retained risk or premium payments. This expertise may come in the form of engineering advice, claims handling or even corporate finance.

The key for the insurance and reinsurance industry is to provide “something” which the major corporation cannot provide (or may not wish to provide) itself. Risk transfer or risk sharing is no longer enough in itself.

Willis J. Watson is a freelance writer since 2006, living in United States and he writes about he enjoys the most…insurance policies. If you want to read more information about Event Liability Insurance and also read more reviews about Commercial Insurance Brokers, you can check out his websites.


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