ZURICH: Help Point Perspective
The Price May Not Always Be Right
By E. RANDALL CLOUSER is Head of Marketing, Distribution and Regional Management for Zurich in North America.
There has always been a need for standardization in the insurance industry, but price competition is not the sole differentiating factor for evaluating coverage. Certainly strong price competition characterizes personal auto insurance. But despite the commercials that promote switch and save, consumers still look for value. A basic example is claims. Is the process efficient? Are they paid quickly?
More frequently, risk managers and insurance purchasers are considering Total Cost of Risk (TCOR) as part of values-based decision-making. Rather than evaluating price exclusively, a holistic approach is used, looking at self-retained losses, risk management administration costs and insurance costs. TCOR can be a valuable tool and offer improved benchmarking, transparency and other insights.
Technology also factors into the equation. Carriers and brokers have developed new platforms, allowing greater opportunities to speed the insurance buying process with improved customer efficiencies. So, for many customers, decisions will be based on the ease of doing business, not just the price of a policy. A more holistic approach to insurance and risk management will focus on developing solutions that meet the particular needs and the individual risks that organizations confront.
For example, the question of the size of risk retention may be more a question about the cost and value of capital. In the midst of the economic downtown, the financial strength of the carrier was a critical factor, not just price. There are certain kinds of risk -- contingent business interruption, for example -- that will probably never be treated as a commodity, because the risk is so complex and individual.
Risk engineering, globalization and claims management are issues that don't easily lend themselves to a simple price comparison.
Managing risk means managing cost and creating value for the investment. Price is only one factor in that equation.
February 19, 2013
Copyright 2013© LRP Publications