Marsh

Commentary

Is insurance the unwanted love child of some dark affair in an otherwise hidden corporate story?

It could seem that way. Insurance is a vital part of corporate risk management and strategy, but it is often an orphan within the corporate structure. It is not always clear whether it belongs to Treasury, to Procurement, Tax or even Internal Audit, as was historically the case for one peer on the call. It is clear that, whatever the company, the insurance team is usually very small (one peer doubled the team by adding one person…) and it is usually under pressure to reduce premiums – while, of course, making sure that all accidents, incidents and losses are fully covered.

Having become involved in the subject, usually by accident, peers generally agree that it is fascinating, challenging, and vitally important for the financial wellbeing of the company. It can be an area where the CEO looks to the treasurer for strategic advice.

The topics covered were not new, but the perspectives were fresh.

• Where does the function belong? In a call made up of treasurers who are responsible for insurance, there is a clear selection bias: all viewed it as being a key part of risk management, involving some complex relationships with brokers and insurers, as well as some challenging technical details. The relationship skills are similar to the ones needed in managing banking relations, and the risk approach is similar to currency or interest rate management.
• Two peers shared a situation where they were providing a strategic benefit to the business by facilitating general and product liability and business interruption policies which also protect their resellers and suppliers, who are often located in countries where this cover is not available.
• Catastrophic or first loss insurance? Practice varies: one peer finds that they get a price benefit from buying large quantities, with low deductibles; while another only buys insurance against catastrophes, with very high deductibles. The rationale is that they should accept the losses they can, and only buy insurance for the ones they can’t afford.
• Captives: one peer did not see any benefit, as they feel they get tight pricing and acceptable deductibles without one. But others have a different approach:
  • One uses the captive as a....Please Register / Log In to read the rest of this commentary

     

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