Risk engineering a result

Risk engineering a result | Insurance Business Australia

Risk engineering a result

Insurance Business talks to Zurich’s Mervyn Rea about the insurer’s recent work on the risk assessment front and the opportunities it can offer brokers

The role of the traditional insurance risk engineer is changing. Instead of just focusing on assessing risks for underwriters, they are now collaborating more strongly with customers, and balancing their skills equally between transferred and retained risk.

As a result of there being greater information sharing around risk, providing risk insights and by working together in partnership, customers – no longer just underwriters – are reaping the benefits.

“When we do our risk assessments on site, we’re taking care of assessing the risk that’s transferred to Zurich, but also the risk that customers retain themselves,” says Mervyn Rea, Zurich’s head of risk engineering for Australia and New Zealand.

“We give advice and consult with customers about risks above and below the risk transfer retention level. So if we give advice that helps them better understand and remove exposures to their retained risk, it benefits the customer directly.”

Rea says Zurich is sharing far more information with customers than it has in the past around risk-grading reports.

“We’d previously thought, ‘that’s our Assessment Results, let’s not share it’, but now we better understand the value of giving our customers their full report, including risk improvements,” he says. “If they act upon them, we’ll lessen the exposure, the frequency or the outcomes should an event occur, and that’s going to have direct impact on their bottom line.”

Rea says Zurich also now regularly provides customers with benchmarking insights that show how their risk profile compares with that of their industry peers.

“That’s something that’s quite unique that other insurance providers haven’t quite tapped into,” he says.

Getting buy-in
Larger corporations with internal risk and safety professionals readily engage with risk engineers. But when it comes to small businesses that don’t have access to these resources, the reality is there is so much more at stake.

“They’re usually family run or individually owned, they’re deeply rooted in maybe one community [and] maybe one town relies upon them from an employment point of view,” Rea says.

He tells Insurance Business there are a host of reasons why small businesses are actually more exposed than their larger corporate counterparts and he cites cyber risk as an example.

“They think that it’s big corporates that are targeted by cybercriminals when, in fact, those big corporates have probably got more money to spend on cybersecurity [and] they’re harder to crack into,” says Rea.

“Small businesses … don’t have the access to help and support when they’re being held to ransom. The [cyber] criminals know that, so they put up a ransom fee of maybe just a few hundred dollars, which they know that small businesses can just afford.”

Additionally, a small business with less robust cybersecurity represents an easier entry point for criminals into the corporate world.

“If a small business is contracted to do work for large corporates, it’s often an easier way into the larger corporate’s computer systems and data,” he explains.

According to Rea, the challenge for small business is to recognise their risk management cost and resource constraints. It’s for those types of enterprises that Zurich has recently developed self-help app, Zurich Risk Advisor.

“With virtually no training … the intuitive app guides the small business owner to conduct assessments of their risks using similar methodology to that which risk engineers would use for much larger businesses and gives them the same outcome, the same kind of risk quality score,” he says.

McColl’s Transport, a major transport carrier and distributor, has worked with Zurich’s risk engineers for several years, says Mervyn Rea.

“We went on a journey with them to help improve their overall safety, concentrating on how they manage their drivers [and] improving and stepping up their entire safety culture amongst their employees,” Rea says.

“We did a risk assessment and scoring of their risk profile throughout the journey, and every time they implemented our advice … we could see that their risk profile was getting better … That was also reflected in the premium.”

However, far more significant were the savings McColl’s eventually observed, in terms of annual operating costs related to vehicle accidents. Rea says that in 2008, right before the transport carrier started working with Zurich, those costs totalled just over A$1.2m.

“By 2011, their total operating accident costs for the year were $200,000,” he says.

Not only did those costs dramatically drop, but the company’s WorkCover claims, which in 2008 amounted to A$1.7m per year, had also decreased to $270,000 per year by 2011.

“And those savings go straight to the bottom line. It really increased their profit margin.”

The broker opportunity
Rea says the app will provide benchmarking, allowing small business owners to see how their organisation’s risk profile compares against its peers. He also says there’s an opportunity for brokers to use Zurich’s app, in their own efforts to add value for clients.

“Brokers could go out and do the assessment, they could provide the score, and eventually the benchmarking report, which shows them how they are scored [and] against others,” he says.

“Brokers could actually perform that as part of their service offering and, at the same time, the broker is having a key touchpoint with the customer, they’re providing advice, and gathering information that’s useful to the underwriter so that … [they] can actually influence the underwriter … to come up with a fairer, risk-based price, where warranted … To me, it’s a win-win.”

Good risk engineering can reduce the likelihood of an event occurring at all, but also substantially lessen the impact when a situation does arise. Rea discusses a corporate client of Zurich’s that installed a fire protection system to protect crucial machinery. Some years later, a fire occurred and instead of the initially estimated US$11.2m loss before the fire protection was installed, the actual loss incurred was US$250,000. It’s just one instance, Rea says, when early engagement with risk engineering ultimately resulted in an optimal outcome for the business. “So, while it avoided significant loss to the insurer, it also avoided financial loss to the customer – financial losses that are often not even covered by insurance, such as brand and reputation. They were able to continue to deliver to their customers and improve their future contract negotiations. Avoiding potential risk is extremely beneficial to everyone involved in the supply chain – upstream and downstream; employees’ livelihoods are protected.

“Can you imagine if that advice in the future came from the broker? A broker may traditionally be focused on the cost of insurance – the premium. [But] if they help a customer – every once in a while – avoid an $11m loss, that’s more powerful. That’s a customer for life,” he says.

“I think there’s a great opportunity for brokers… to provide that advice, and … that’s one of the things that the customer can’t get online [or by transacting] directly with the insurance market.”

For more information on the Zurich Risk Advisor app, go to www.zurich.com.au/general-insurance-for-business/products/riskmanagement- tools/zurich-risk-advisor.html.