South African Insurance Association

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Risk Management - an essential enabler of the Role of the Brokers in SA

Are Engineering and Property Insurance Brokers responding with effective strategy adaptation to occurrences and changes in the South African risk management landscape? Lately it has become critical for the Engineering business sector. Brokers in particular to manage client risk beyond the scope of the available insurance coverage.

South African Brokers have consistently performed their role of providing insurance advice, minimising the cost of risk transfer (insurance premiums), as well as securing acceptance of risks in local and international markets for their clients. In doing so, they can secure the most appropriate protection and cost efficiencies for most of their clients, whilst simultaneously challenging for favourable claims outcomes. However, there have been varied levels of success in effective contribution to reducing the total cost of risk for their clients.

Brokers are increasingly being approached and duty-bound to respond to recent changes and occurrences in the South African engineering risk landscape, thereby necessitating them to absorb the lessons and experiences learnt into their risk strategy. Brokers that can and do respond rapidly and efficiently to these ever-changing situations have the best chances at achieving long term success. Determining and procuring technical and risk financing structures, securing settlement on insured losses, and sourcing capacity through global contacts, whilst at the core, should not define nor limit the broker’s value. There is a limit to the value that Brokers can add by being very good deal and capacity negotiators, particularly when market performance deteriorates. As reinsurers and insurers push back by reducing capacity, hardening terms and price, brokers must revert to source, and address route cause drivers.

Targeted and client specific risk improvement efforts have obviously been more pronounced following major incidents and negative survey feedback. Is the advocacy and client engagement following negative survey feedback enough? and is there enough emphasis and indeed advisory pressure by brokers for Engineering clients to put risk improvement on the top of their priority list? Whilst most of Engineering covers focus attention on preservation/enhancement of physical/material resources, as well as financial resources and intangible resources such as goodwill/reputation and time, there is a major opportunity to contribute to preservation of the Organisation’s prime resource i.e. human resource, through a broader risk management contribution beyond insurable exposure on engineering assets, and that adds even more real value from a broker perspective.

Risk management is a function of information, and in the recorded news events, accidents, information and expert opinion of recent times, lie key risk indicators directing the attention of Brokers to more intimate risk management involvement with clients.

Effective client-side risk management is essential for the insurance industry. This is an opportunity for further value add by intermediaries, which helps reduce pressure on premiums, and more importantly supporting a sustainable risk environment, as well as maintaining and strengthening client value proposition. The local mining industry mantra for example is, “Every worker returning from work unharmed everyday”.

Brokers should ensure that risk management is embedded within the philosophy, policy and strategy adopted by clients, which in return will support a reduction in total cost of risk, rather than merely the cost of insurable risk transfer.

The focus historically was almost entirely on lag indicators such as: the number of incidents, loss ratios, loss amounts, the number of deaths. Instead, there should be a broad-spectrum approach, combining such lag indicators, with risk indicators peculiar to the clients’ business, such as contract obligations and rights, geotechnical conditions, topography, weather, causes of fires in underground mines, and risk reduction and prevention mechanisms e.g. fire-fighting equipment and flame-retardant conveyor belts.

Risk training, coordination, facilitation, monitoring, feedback of client risk management projects, as well as clarifying value at risk to promote risk efficient decisions and prioritisation by clients, is a critical component of broker’s armoury.

The challenge of embedding effective risk management is often exacerbated when it comes to SMME’s, including emerging contractors. This sector normally has to contend with limited resources and capability to drive effective risk management practises. The larger construction organisations, however, need to support their subcontractors to achieve risk compliance before they can allow them to work on-site. Brokers can play a role here through providing training for the small players. Hollard is currently involved in a project together with an Engineering Broker to develop risk management capacity for small contractors within the Ekurhuleni municipality region.

History has been an unquestionable witness that the guaranteed route to failure and/or calamity is to consistently neglect existing risks (and opportunities) until everybody is convinced that nothing will happen. Concealed within such a lacklustre strategy environment and risk culture, significant hazards and loss potentials can quietly escalate, and unexpectedly materialize at some point in time resulting in damage on a fatal scale due to the perceived “unlucky chain of events”. In a nutshell, Engineering Brokers must adapt their service and advisory strategy to be more risk focused, whilst ensuring their clients remain vigilant in risk management regardless of loss history.

For more information contact:
Krush Moodley
Hollard-Scintilla Engineering