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Helping clients understand risk – the personal shopper way

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Brokers maintain their place in the insurance ecosystem based on the value they bring their clients, in many ways, the way personal shoppers do.

Think about it. A personal shopper has to develop a deep understanding of his or her client and what his or her needs are: some data points would include age, marital status, employment status and so on. A personal shopper also needs to have an encyclopedic knowledge of what’s out there in the market at the precise moment of the client contact.

If you think about it, that’s what a good broker does. One can see the value in this philosophy when one considers the question of risk, and how brokers should use it to help their clients end up with the right insurance for them. Insurance is often seen as a grudge purchase but when it’s positioned within the context of risk, it starts to make more sense to clients.

As a starting point, brokers should make themselves familiar with the material published by the Institute of Risk Management South Africa (irmsa.org.za). IRMSA publishes an annual risk report which provides a useful conceptual risk framework for business, as well as essays by prominent risk experts. The IRMSA Risk Report can also be used to set the scene for the environment in which individuals assess their own risks.

Here are some key steps the broker can use to help clients understand their risks and how to provide for them:

What the probable risks based on the client’s individual circumstances? As noted, the starting point must be the client. The quality of the broker’s closeness to the client will tell here. At a personal level, for example, an individual with a young family faces different risks to one who is heading towards retirement. An important part of this process is to estimate the probability of each risk materialising as this will help to prioritise how much budget should be allocated to mitigating it.

When it comes to business insurance, the broker still functions in personal shopper mode, except in this instance, the client is a business rather a person. Clearly the risk environment is more complex and should be looked at within the context of business continuity. This means establishing what the real costs to the business would be if a particular risk materialised. It’s surprising how few business owners actually understand which processes and/or pieces of equipment are vital to keeping their doors open. It’s why we advocate very strongly that our business clients undertake a business impact analysis, it can be a highly illuminating exercise. Insurance can seem expensive until one puts it into the context of the costs of not being able to trade for any period.

What steps could be taken to mitigate key risks? Before proceeding to the next step of identifying insurance cover that might be needed, it is useful to establish how risks could be minimised. For example, individuals can take steps to minimise risks relating to their goods and property, such as implementing certain security measures, or undertaking regular maintenance.

Businesses affected by the riots of July 2021, for example, should be taking appropriate steps to protect their facilities against a possible repeat. It might make sense to install more comprehensive security. Other options could include sprinkler systems or fire doors to mitigate against fire risk. Should goods be stacked on pallets to reduce the risk of water/ flood damage?

Mitigation efforts need to be clearly documented so they can be communicated to the insurer which may, in turn, use them in the underwriting process. A client who understands what his or her risks are, and is taking sensible mitigation steps, is obviously a more attractive risk proposition than the typical client.

Smart brokers would also be interacting with insurers to understand their perceptions about current risks and how they should be mitigated.

What insurance products are out there? At this point, brokers should also help clients understand what their current insurance cover looks like as mapped against their actual risk framework. What items are not covered under current policies, and which policies need adjusting? This is closing the personal shopper loop, with the broker leveraging his or her intimate knowledge of the client and their deep understanding of the product landscape to come up with the perfect match. People trust their personal shopper to find the exact garment for a function, or the perfect piece of furniture for the new pool house; in the same way, people trust their broker to find the right insurance products for their risk profile!

For businesses, brokers should highlight loss-of-use cover for special purpose vehicles on which the client is particularly dependent, as well as alternative transport cover should be considered to mitigate the risk of a breakdown while goods are in transit. Is cover for driver dishonesty necessary?

When it comes to cover for electronic or other equipment, the cover should take into account the need for new equipment to be compatible with existing systems. Machinery breakdown cover could be an option to allow a client whose business is dependent on machinery to continue operating.

More generally, business interruption insurance should be carefully weighed up in the light of the costs incurred if the business cannot operate.

Risk is inherent in business, and in life generally. However, it is important for brokers to help you as their clients understand exactly what their real risks are, and how probable they are, in order to take appropriate measures. In this way, you can achieve peace of mind that they have done what they can, but also that they are not paying for cover that is unnecessary or unfit for purpose.

Seasoned brokers, like personal shoppers have your best interests at heart, and are invaluable as partners in promoting and protecting your overall wellbeing.

MiWay is a licensed non-life insurer and Financial Services Provider (FSP 33970).