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Corporate Risk Management: Amid Changing Expectations, Insurance Industry Falls Short

Source: Greenwich Associates

Posted on 07 Jul 2010

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Corporate risk managers report a serious and growing disconnect between themselves and their insurance brokers and carriers: At a time when U.S. companies are enhancing internal risk management capabilities and elevating risk management to a strategic priority, many brokers and carriers are responding to their own business pressures by becoming more bottom-line focused and transactional in the corporate insurance business.

The consequences of this disconnect are clear: The 683 corporate risk managers participating in Greenwich Associates' 2010 Large Corporate Insurance Study express low satisfaction with the service they are receiving from virtually all U.S. insurance providers. This lack of satisfaction has carried over into brokers' and carriers' brand strength and client favorability ratings:

  • Among the 10 largest corporate insurance brokers in the United States, only two firms, Beecher Carlson Insurance Services and BB&T Insurance Services, receive "excellent" favorability ratings from more than 30% of their corporate clients — and both of these firms have client bases much smaller than those of lower-rated national brokerage firms. Most other brokers are concentrated in a relatively narrow range, with excellent favorability ratings from 17%-26%. Of course there is a wide variance by market segment, sales size, and industry verticals.

  • The situation is similar among carriers. Only two firms, FM Global and Chubb Corp., receive "excellent" favorability ratings from more than 27% of their corporate clients. "FM Global gets excellent favorability scores from more than 60% of its U.S. corporate clients and Chubb receives these top favorability ratings from almost 40%," says Greenwich Associates consultant David Fox. "All the other carriers are tightly grouped with excellent favorability ratings from only 13%-27% of their risk managers."

"The fact that companies see little distinction between major brokers and carriers will come as unwelcome news to insurance providers, many of which make large investments of time, effort and money in trying to develop strong brands," says Greenwich Associates Client Associate Brett McNeice. "But our research results suggest that — in the current market environment at least — advertisements and marketing efforts aimed at corporate clients are being overshadowed by risk managers' evolving needs and their perception that brokers and carriers are not living up to the standards of this new environment."

Missed Opportunities
These performance gaps represent a missed opportunity for brokers, carriers and companies alike. As corporate boards, management teams and dedicated risk managers become more proactive and sophisticated in their risk management efforts, the evolution of the function is creating an invitation for brokers and carriers to develop closer relationships with corporate clients. "As a new breed of risk managers evaluate the market, they see a myriad of mid-range choices with very few providers doing what is necessary to stand out," says David Fox. "Both brokers and carriers have an opportunity to distinguish themselves with a focus on important service factors."

Brokers and Carriers Focus on Bottom Line
Recent declines in revenues have forced brokers to cut costs at precisely the time that corporate risk managers are looking for more intensive coverage and strategic advice. "Client ratings of broker satisfaction are influenced more by service quality than by price," says David Fox. "Many brokers have become too focused on generating quick 'wins' and the associated revenues when they should be focusing on building out their client service functions in order to capitalize on the new needs of corporate risk managers. As a result, service levels are deteriorating, dragging down client favorability ratings. It's a vicious cycle."

Likewise, carriers' overall customer service remains the most powerful driver of client satisfaction — but companies' definition of client service is changing. Increasingly, companies are looking for insurance carriers to move beyond their traditional reactive roles as providers of coverage and to step up as partners and strategic advisors. "Unfortunately, with few exceptions, the industry is not taking advantage of this demand and risk managers are not getting what they want from carriers," says Greenwich Associates Corporate Relationship Manager Robert Mata.

"In fact, difficult market conditions and the pressure to restore quarterly earnings have driven many carriers to move in the opposite direction. Rather than deploying resources to build long term strategic or advisory relationships with companies, they are adopting a tighter focus on transactions and pricing."