Risk managers hope writing is on wall for annual renewal

Leading insurance managers and Airmic are frustrated by the annual renewal process and have called on insurers to streamline a system that they argue is now out of date. The insurance buyers told Commercial Risk Europe they want to see moves towards evergreen and longer-term contracts, which they feel are increasingly achievable in today’s data-rich world. The experts argue that such innovative solutions would save them a lot of time and effort, while making life easier and reducing costs for all involved in the risk transfer chain. Complaints about the work demanded by insurance renewals each year under annual policies is nothing new, but it seems buyers are growing increasingly exasperated by the inability of insurers to streamline the process. Although longer-term agreements are now more widely available, annual renewals remain the norm and the workload has only increased for UK buyers and those that purchase cover from the London market, following the introduction of the Insurance Act. Taking part in our European Risk Frontiers survey, sponsored by HDI Global and the Worldwide Broker Network, Airmic’s technical director and deputy CEO, Julia Graham, said her association believes there is “some writing on the wall” for the annual renewal process, “energised by the digital world”. Ms Graham believes the annual renewal could potentially become redundant. “I am very interested to see what happens to the annual renewal. I think the jury is still out on the annual renewal process, but I expect that in three years’ time annual renewals won’t look the same as they do now,” she said. Ms Graham noted that the annual renewal can be expensive and time consuming for all players – insurers, brokers and buyers. Driven by better use of data and analytics, the annual renewal “is heading towards change”, she argued. “Insurers and brokers are doing some really exciting things, using analytics and artificial intelligence to improve the underwriting experience and shorten the time it takes to put a renewal together,” Ms Graham continued. She said the idea of evergreen insurance policies, whereby contracts automatically renew after a predetermined period, is nothing new, but should now be explored further, providing they address insureds’ legal requirements, including those related to the Insurance Act such as fair presentation of risk. Tracey Skinner, director of insurance and risk financing at BT Group, is critical of the current annual renewal process and frustrated that changes have not been forthcoming from insurers. “Not least because of the Insurance Act and the additional work it has meant for us as a team, and how that has lengthened our renewal process, it does seem now that we have hardly any downtime between renewals. Therefore, we would really value a longer-term relationship. I know this topic has been discussed many times. I previously saw some moves towards evergreen-type cover without renewal dates, but not so much recently,” said Ms Skinner. She added: “The market is so competitive that new and innovative thinking could help insurers separate themselves from the crowd, and that innovative thinking needs to come to this area. For whatever reason, we have just never got there and to me this is extremely frustrating.” Like Ms Graham, she accepts that boundaries would need to be set around disclosure issues and insured values in evergreen or longer-term contracts. Ms Skinner also pointed out that streamlining the process would save the whole market money and time. “I know that the annual renewal process doesn’t involve insurers in nearly as much work as us, but it still involves a significant amount of work for them that would disappear. Non-annual contracts would create stickier customers that are going to be around for two or three years at least. So, I am very curious as to why it hasn’t taken off. Solving this issue, or at least making progress, would be a win-win for both buyers and insurers. Any insurer that made progress in this area would secure a huge competitive advantage, so I hope they start to invest in this issue for both their and our good,” she said. Clive Clarke, Airmic chair and group insurance manager at Lloyd’s Register, also believes that the annual renewal process has got to change, because it would save so much time for everyone involved. In particular, he believes the proposal form that accompanies any renewal needs to be looked at, with the current approach far from ideal for sophisticated buyers. “I think it’s the proposal form that winds up sophisticated buyers. Insurers should really know who we are, what we do and where we are. Most of them have known our risks for a long time. If we want to go into the open market there should be more than enough information available for insurers,” said Mr Clarke. He said buyers should be able to rely on their insurers to carry out due diligence and build confidence based on information in the public domain. “I am pretty passionate about this issue. It would save a lot of people a lot of time,” said Mr Clarke. He too accepted that there would need to be some “rules of the road” in any streamlined renewal process, to make sure organisations are complying with their legal obligation and issues around the Insurance Act. Mr Clarke also argued that the Insurance Act may help crystallise all parties’ duties when placing insurance. He added that proportionate remedies now allowed under the Act could free up insurers to take a slightly more relaxed approach. “As long as you have innocent non-disclosure as a fundamental and the reality is that insurers can re-rate the risk, with buyers accepting additional premium as and when, then what have insurers got to be scared of? So I think the Insurance Act might create a little more of a relaxed approach, in which both sides know things can be changed or tweaked in terms of re-rating later on. I think we need a more adult approach, with less suspicion and more openness,” he continued. Mr Clarke also stressed that information given on a particular day for any renewal is unlikely to always be 100% accurate and, in any case, will soon be out of date. This highlights how redundant the annual renewal has become, he added. “We have 7,500 staff in 80-plus countries, [so] how can I really sit and look an insurer in the eye and say I know everything that we are doing, everywhere that we are doing it? If insurers think about it, what they are asking us to do is just impossible. So if I send you a form at a particular hour at a particular day, what does it really mean in the longer term? It seems very pedantic. How are you supposed to declare exact numbers that in any case might rise or fall shortly after? It is a broken system but because it is such a big issue, everyone seems to just carry on as they were. I would love to see this situation change,” said Airmic’s chair. Fellow European Risk Frontiers survey participant Claire Combes, director of risk and assurance at intu, is excited about some innovation in the insurance industry to reduce the administration of renewals through the use of historic and live data to assess risks. She believes this type of development will increase going forward. Colin Campbell, head of risk and compliance at fashion retailer Arcadia, said he wished the annual renewal process would become a thing of the past because it is administratively expensive, time consuming and does not give the market time to step back and consider more innovative, efficient and long-term solutions. But he fears that as long as annual reinsurance arrangements are in place between insurers and reinsurers, primary buyers will have to work with 12-month contracts.

Risk managers hope writing is on wall for annual renewal

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