Insurers out to earn the credit

THOUSANDS of companies could have survived the recession if only they had taken out credit insurance, according to Mike Eve, UK chairman of Rollins Hudig Hall, now the fourth largest insurance broker in the world.

'More people go bust because a client goes bust than for any other single reason,' he says. 'Credit insurance is a very important risk management tool, yet four out of five organisations don't buy it.'

Of those four, just one will have actively decided against it, confident in its own credit control procedures. The others will either never have heard of it or will have assumed that they can't afford it. Premiums vary from industry to industry, but in construction, for example, the cost can be as little as a half per cent of the turnover.

'It's a hell of a lot cheaper than factoring, and you don't have to give away a share of your receivables,' Mr Eve says. In addition, since the underwriter looks at your client's financial status before committing himself, you get the benefit of a credit rating service as part of the deal.

'That information could be extremely useful if you were planning to extend credit of pounds 100,000 to a client who turns out to be worth less than pounds 10,000.'

Rollins Rudig Hall is part of Aon Corporation, the US insurance and financial services giant with assets of dollars 3bn ( pounds 2.01m), chaired by the Irishman Patrick Ryan. Despite its position in the league tables, RRH is hardly a household name, largely because it is the result of a series of acquisitions.

Today, the organisation has more than 270 offices around the world. Providing clients with a global service is not cheap. First, you have to have a big enough infrastructure to be credible. The entry costs are high, but that is why Ryan spent roughly dollars 1bn buying up all these brokers.

The overwhelming benefit of being a global player is the buying power that goes with it, enabling the broker to give better value to the client.

In addition, as a multinational the company has enormous potential for making money in the developing countries. Take personal cover, which accounts for around 65 per cent of the market.

While Switzerland has the highest expenditure on insurance anywhere in the world, at around dollars 2,000 a head per annum, the average in Pakistan is just 20 cents. 'As these countries get richer, the opportunities are endless,' Mr Eve says.

This is just as well, for brokers are having to change radically the way they operate, in order to respond to a significant shift in the attitude of their multinational corporate clients, who are increasingly choosing to insure themselves.

'Many corporate clients are very much aware that for every pound of insurance they buy, around 40p is going on expenses and brokerage. Why should they hand over their cash for an insurance company to invest until they have a c1aim, when they could be investing it themselves and getting a better return?' Mr Eve says.

The tendency is to set up their own insurance captives in, say, Bermuda or Guernsey, to take care of the first pounds 5m of claims, before handing over the rest of the risk.

'What they're saying is: 'We can afford to be more precise about where we throw our money. We can take the first pounds 5m a year of losses without upsetting our balance sheet, but what insurance can we buy above that?' '

The traditional concept of the losses of the few being carried by the many is, in the main, a myth, Mr Eve says. The reality is that you not only pay for your own claims, but make a loss.

'Take Employer's Liability; it's pointless to insure 50,000 employees for the little accidents. You only really need to insure for the occasional major incident in which somebody might be seriously hurt.

'When you take into account the amount of disruption caused, the cost to industry of accidents is far greater than the amount the employees get back from the insurers anyway. The cheapest solution is to increase your safety precautions so that you don't have any accidents, and to pay for the minor ones out of your own money.'

Of course, accidents will happen and there will always be a need for cover. But ultimately, Mr Eve's argument is that you have to take back control of your losses.

'As with any risk, if your people think: 'Oh, it's insured, don't worry about it', in the long term you will suffer more, because you won't worry about the losses in the same way that you will if you self-insure,' Mr Eve says.

'Our attitude is, why waste your money on insurance if you don't need to? What we're trying to say is, if you've got pounds 1m how can we help you to make better use of it?

'Too often in our business, the existing client doesn't get as good a deal as the new business prospect. If someone comes along and asks the broker to pitch for pounds 1m of new business, he will put every possible resource his company has into that report, because he wants it. But he's not necessarily giving that same level of skill to the clients he already has.

'The real challenge for us is to keep refreshing our organisation with better people and better ideas in order to create a culture that welcomes change.'

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?