Besides premium savings, what are some other benefits of consolidation?
Specific to property insurance, depending on the spread of risk, the coverage terms can be enhanced substantially regarding certain sublimits, blanket versus scheduled coverage, flood/earthquake catastrophe limits and coinsurance penalties. For those that may not have suffered a property loss yet, this may not seem important, but it can make a significant difference in the amount the insurance company pays for a loss, or even if it pays at all.
Administrative efficiency is another benefit to centralizing insurance procurement, as having a single renewal date and one point person handling the renewal saves time.
The ability to easily track and manage your company’s total cost of risk (TCOR includes premiums, claims and expenses) is another benefit. TCOR is most often converted to a percentage of an operating value, such as revenue, allowing you to normalize the data for benchmarking year to year, and can also be used to benchmark business units. Claims safety and loss control best practices can be implemented throughout the company to reduce losses.
How does risk management work if a company has operations outside the United States?
Today, many companies have a global reach in terms of sales, operations or supply chains. Hence, the need is enhanced for corporate wide oversight of insurance and an insurance broker with global capabilities.
Some countries require that local policies be issued within their own jurisdiction, and a global broker will understand these laws. By understanding the full scope of exposures worldwide, you can cover them on a single global insurance program, with local policies where required. An umbrella policy can then provide coverage excess of the global program, creating true worldwide coverage.
Companies commonly allow their country manager to purchase insurance from a local agent in the name of the local subsidiary, with no link to the main operating entity or U.S. holding company. This leaves a major gap in coverage should the foreign subsidiary be sued in the U.S., or the U.S. operating entity be faced with a suit filed in that country.
What is the impact if a company plans to grow through acquisitions or be sold?
Both strategies create even more reason to create a platform risk management program. On the sell side, delivering a consolidated program for all company operations will create an easy-to-understand package for the buyer to evaluate. In addition, the premium savings achieved may increase EBITDA, the metric often used in determining the purchase price.
On the buy side, having a corporate wide program lends itself nicely to realizing synergies immediately upon closing the transaction. This ensures that the newly acquired assets are insured following the corporate risk management philosophy and creates a prime opportunity for a new risk management philosophy to be adopted.
As a company realigns resources, a corporate wide risk management platform can be an effective way to protect the balance sheet and create value across the entire entity.
Rebecca Newman is director of Aon Mergers & Acquisitions, a part of Aon Risk Services. Reach her at (314) 854-0766 or [email protected].
