Why is my premium going up?

In insurance broking, managing uncertainty is our bread and butter. It’s our job to take a measured look, and to help our clients respond to eventualities as they emerge. Of course, we can’t offer a helping hand when things go wrong if our own footing isn’t firm. That means having a good idea of what might be coming down the pipe for ourselves … as well as for you.

It’s hard to say that the past year has been great for insurance. Profitability took a dive in 2019, and we’re still waiting for a recovery. APRA’s most recent report shows some growth in profitability, but not much. It’s not all bad news, however: I believe we’re at a point in the insurance cycle where the tide starts coming in again. That is, when there is a more equitable relationship between the degree of risk and costs to transfer it in a policy.

How bad is it, Doc?

On the surface, the picture isn’t pretty. The pattern we’re seeing in insurance is one of rates increasing, capacity receding and profitability staying level. Let’s take a look at what’s behind those trends.

Generally, what causes premiums to go up is big losses like we’ve had over the past few years, with economic upsets and natural disasters. These are situations where insurers are suffering the losses, reducing market capacities and moving out of unprofitable markets that they had previously stayed in. It means premiums go up, and it gets harder to access insurance in certain industries and regions.

There was a good report from Fitch Ratings recently that showed how the insurance industry has been affected over the past couple of years. One result of COVID has actually been a decrease in global risk. For example, there are fewer people on the road, less road freight and logistics and fewer people travelling. So, the risks and payouts around motor insurance have gone down and insurers in that sector have been running more profitably.

In other words, COVID has reduced some operating risks and insurers are rebuilding their coffers and doing what they have to do to remain stable and continue offering coverage.

Things are looking up, actuary 

Part of the problem with the pandemic, business-wise, has been uncertainty. This has been a particular problem for insurance, because making good predictions is what makes the industry work.

From looking at “Global reinsurance sector position improving” (an article in Insurance Business Australia that quoted the Fitch report), the uncertainty is going down for three main reasons:

  1. Pandemic-related losses have stayed within projections so far
  2. Insurers are responding with COVID-specific language in policies, helping to minimise future payouts and thus protect their ability to offer fairer pricing
  3. Increasing vaccination rates are cutting health and mortality payouts.

It’s good to look at the situation for reinsurers; after all, they assess the risk represented by insurance companies themselves. Good projections for reinsurers reflect a healthy insurance industry. That said, it can take some time for increased profitability and stability to flow downstream to you, the client. For example, Fitch doesn’t expect reinsurance prices to go down in the coming year, which means consumer-facing insurers are not going to see that benefit.

So, when will my premium go down?

You might be asking “if uncertainty is going down, then what?”. I like to think of the insurance cycle as a clock – when you have a major disaster, that moves the hour hand to 4 o’clock. The market then follows a predictable cycle, where you see insurer losses, rising rates and receding capacity. Eventually, insurer profitability returns, leading to an increase in market capacity, stronger profits, price competition and easing of consumer prices.

Anyway, I think we’ve now spun around to about 10 or 11 o’clock. That means we’re seeing continued strongly rising rates, which will be followed by a period of strong profits. For reinsurers, Fitch expects up to a 2 percent rise in combined ratio in the coming year, and again the year after that. 

As we’re entering this hard-market part of the cycle, you can expect to see the following:

  • Premiums will probably continue to rise over the coming 12 months
  • Getting insurance coverage could become more difficult for many
  • Negotiating terms will become harder and take considerably longer to facilitate 
  • Until higher profit levels return, insurers will reduce capacity
  • Higher excesses in general
  • A greater focus on risk management and mitigation processes
  • More time and additional information will be required from you before insurers offer coverage.

The coming year or two

The cyclical nature of the insurance market means that costs will eventually stabilise and potentially reduce. However, in the immediate future, coverage costs are likely to go up, or plateau. If you haven’t started to focus on your insurance costs as a major business expense, you need to ask what you can do internally to mitigate these exposures.

First of all, if your insurance broker is doing their job well, it should make things easier for everyone: for you and your insurance company! You should get the right – that is, the most accurate – cover for your operations. As always, seek advice from a suitably qualified risk-management professional on controlling and mitigating your risks.

Cybercrime risks rise in the world-from-home world

A recent article titled “Global cyber insurance pricing rises 32%” has led to some interesting conversations at Alleviate Risk among my team, and with the odd client. Why? Because cybercriminals are opportunistic and we’re in a new world of business. The recent haphazard rush to working from home means all manner of cyber vulnerabilities have been created or revealed in businesses across the economy – small, medium and large.

This quote from the article sums it up nicely: 

“COVID-19 and all of its attendant effects on technology adoption and cybersecurity, combined with independent or connected changes to the loss environment, has added a big dose of complexity into an already complicated risk landscape.”

That’s from Shay Simkin, head of cyber at international insurance broker Howden. Yes, she is speaking in a US context, but the same trends are happening here.

Think about it. All of a sudden, we’re being forced out of our workplaces, where IT is professionally managed, controlled and monitored, into using our own devices and home internet connections. The risks are clear. 

In this context, the degree of difficulty for being a cybercriminal has come way down. Many cybercriminals these days aren’t “genius hackers”, they’re just conmen who’ve downloaded automated security -probing software. That’s all they need to launch the two main kinds of attacks we’re seeing: spoofing and ransomware.

  • Spoofing: cybercriminals intercept emails and then use social engineering (digital grifting, essentially) to fiddle with invoices to divert money into their accounts.
  • Ransomware: one day you go to work, switch on the computer and find that your entire business system is encrypted and crippled. All you have is an ultimatum: pay some sort of cryptocurrency amount to a mystery destination or your data will be deleted.

The point is, you and all the other businesses you do business with have been thrust into an era of slapdash cybersecurity. I’ve been working around this a lot, so here are my key insights… 

My top 4 points about cybersecurity risks

  1. If you think you won’t get hacked, you’re mistaken. Actually, if you think you are immune, your risk increases. Chances are your site has already today been cased by cybercriminals looking for soft targets. It’s like that story with the two people about to get chased by a tiger and one of them stops to put on running shoes. You don’t have to outrun the tiger, you have to outrun the other guy. The cybercriminals are always coming, so, at a very basic level, your online presence just needs to be too tough to bother with.
  2. Insurance does not bring back data that has been encrypted or lost. Two factors here: highly sophisticated encryption tools are cheap, and decryption or recovery is rarely successful and is always very costly.
  3. You probably won’t get your data back, even if you pay a Bitcoin ransom. Research from Kaspersky has found that only about 25 percent of ransomware attack victims get everything back. After all, the cybercriminals have little incentive to keep their side of the bargain.
  4. Being a cybercrime victim casts your business in a bad light. Regardless of the data loss or outcome, there are major reputation risks associated if you have a data breach. Imagine sending a letter to all your clients saying “we were hacked and your personal data was stolen”. At the very least, this will cost you business. At worst, you could end up in court. 

The big effect of raising your cybersecurity bar a little

To handle this emergent situation you must mitigate your cyber risk exposures. The key to doing so rests in how most cybercriminals operate: they cast a wide net and try to scoop up easy pickings. Generally, their automated software scans thousands of sites a day looking for specific weaknesses. If your site doesn’t have them, the scanner moves on. Trust me, your site has been scanned for weaknesses thousands of times already. This means the best cybersecurity mitigation tactic is often simply to be a slightly tougher nut to crack than the next guy.

Yes, you can have cybersecurity as part of your business insurance, but the standard cover is pretty skinny. It’s better than nothing, but you’re far better off with a standalone specific cyber policy that is responsive to your cyber-risk management practices.

Being proactive on cybersecurity goes a long way

My point is that prevention will always be better value for money than paying a Bitcoin ransom. And the tigers are already stalking your online presence, but they usually seek to attack the weaker targets. So, instead of outrunning the tiger, outrun the pack mentality of “cybercrime happens to other people”. 

To learn more about “putting on your running shoes”, reach out to someone in your network who can connect you with a cybersecurity expert and/or seek a suitably qualified risk expert to assist you in mitigation strategies. At the very least, have the conversation so you understand where your exposures lay.

What to do about the greatest insurance challenge in decades

If you weren’t watching the insurance news, there was an interesting article recently. And when your insurance broker says “interesting”, you know they mean “concerning”.

The article is on insurancenews.com.au. It is about a presentation that the Insurance Council of Australia (ICA) CEO Andrew Hall gave to the House of Representatives Standing Committee on Economics. The headline: General insurers facing ‘greatest challenge in two decades’.

If that sounds like the hot air that peak bodies often offer up to government committees, you’d be right: it does sound like that. But this is not hot air. This quote from Hall shows why:

“Insurer profitability over the 24 months ending March 2021 was down 64 percent on the preceding two years, and according to APRA the entire general insurance sector only made a profit of $19 million in the most recent March quarter.”

That $19 million is shockingly low. For a multi-billion-dollar sector to be running at a fraction of a percent profit margin is not sustainable. It will not continue. Something will change. Here’s what I think will happen.

First, reinsurance costs will continue to go up as they have been over the past 18 months. This will affect the pricing models that insurance companies work from. In turn, this will have three outcomes: one, it’ll get passed on to customers for certain lines of insurance; two, insurers will simply pack up their bags and stop offering that line of insurance (which we are also seeing in certain product lines); or, three, insurers pricing certain products at a level where it makes the expense borderline unviable for clients (which we are also already seeing). 

None of this should be a surprise 

As an insurance broker, I’m already seeing all of these effects. When we get enquiries from certain kinds of businesses, it is difficult to find anyone willing to offer insurance at any price. If you read between the lines, you can see Hall saying the same things here:

“We are aware that the availability and affordability of some commercial lines of insurance for small and medium-sized businesses has become challenging.” 

If you know business-speak, you know that “challenging” often means “unviable”. What Hall is trying to do is to highlight that these rising insurance premiums are not price gouging: it’s the insurers trying to survive in an increasingly complicated world. A world in which offering insurance against many categories of risk has become increasingly difficult. However, the ability for businesses to manage risk is a necessity in a functional capitalist economy. There are two ways to do it:

  1. Transfer the risk through buying insurance policies
  2. Mitigating the risk through adapting your operations.

Given the continual shocks to the global and domestic sense of “business as usual”, it is becoming clearer and clearer that it makes sense to find a balance between the two.

Transferring and mitigating risk

A common way to start introducing more of Option B into your business is to find a risk-management expert who not only also understands your transactional environment but also understands your business model. They will be able to analyse your exposures and advise on what to do about them. When you implement those actions, you’ll still have some risks left over, of course. And it is these risks – the ones it is uneconomical to mitigate internally – that you then seek to transfer out via more appropriately priced insurance policies.

For most SME businesses – even those at the larger end – risk management and insurance is typically delegated to the Chief Operations Officer or Chief Financial Officer. But do they actually have dedicated risk-management skills? Probably not.

Of course, most businesses don’t have the financial capacity to employ someone specifically to deal with risk, but they can call on someone suitably qualified. Someone who has studied risk management and has the academic credentials to back it up.

I’m not saying this just because I am an insurance broker who has the appropriate academic credentials, I’m saying it as someone who is already seeing the fallout of the situation that Hall was talking about. 

I mean it too when I say that you must choose your risk adviser carefully. The insurance industry, unfortunately, has gone down a path of cost-based business models. The profits that keep the industry functional are derived from how customers transfer risks, rather than from advice on how to mitigate risks. In this situation, when the cost base rises, the insurer margins get squeezed and we end up with an entire sector on a knife-edge. This is what is currently happening.

If you’re adapting, so must your insurance company

I would like to think that the insurance industry is shifting from that cost-based model to a service-based model built around well-informed risk advisers working with business managers to engage with risk. Yet, if this broad change is happening, it’s happening too slowly.

To be honest, most insurance brokers don’t possess any business acumen beyond what they’re required to have as part of their license to be an insurance broker. So, there is a degree of ignorance about risk management on both the customer’s side – you don’t know what to ask for – and on the supply side – your insurance providers don’t know what questions to ask.

Our philosophy: the answer can only be as good as the question you ask.

For insurance brokers like myself who have academic credentials in risk mitigation, our role is not to force business owners or managers to decide on how they choose to engage with risk. Our role is to provide data on what their exposures are and advise on the pathways towards mitigating these – whether the be operational changes or changes to a contract of insurance.

Good risk management is good business practice

To me, these issues all boil down to ‘what is the most cost-effective way to deal with this risk?’ Is it cheaper to transfer it to a contract of insurance? If so, fine. Is it cheaper to modify your business in some manner to reduce the risk long-term? If so, great! Ultimately, the latter should be your goal (within reason). 

We are not here to use scare tactics, telling people everything that could go wrong in order to try to sell more insurance. When insurance brokers like us have ongoing relationships with our clients, we’re working with them to build a better, more stable and more resilient business overall.

Really, I am talking about giving risk resilience equal footing to profit margin in your business strategy. If your business is not risk-resilient, if it is brittle, then the profit margin doesn’t matter: you don’t have a stable operating base.

The business world of 2021 is in uncharted territory. The world is more connected, more dynamic and more surprising than ever. You can’t establish resilience in the new world by going for the cheapest quote generated under old-world assumptions. You have to be smarter than that.

What is worrying Aussie businesses in 2020 and why

If 2020 has taught us anything, it’s that things are getting more unpredictable in the business world. Where we were once secure in our knowledge of what the risks were and where they lay, we now have no idea of what will be thrown at us or when.

In the recently released World Economic Forum’s survey Regional Risk for Doing Business 2020, the top five risks that Australian businesses felt were (in order):

  1. Cyber attacks
  2. Spread of infectious disease
  3. Fiscal crises
  4. Energy price shocks
  5. Extreme weather events.

Interestingly, the top three are intertwined to an extent – with one likely affecting the others.

Why are these things on the list?

So, what do I think about this list? In the past, I haven’t taken this survey too seriously because we address these factors with our clients anyway. But infectious disease at number two, that’s a new one.

Further, the fears around most of the list are media-driven, and yet Alleviate Risk isn’t witnessing or experiencing any broad pessimism across the economy. In fact, banks are even starting to make it a little easier to borrow money. Of course, the banks still prefer to lend to those who seem like more of a safe bet.

Now, while a pandemic was always a possibility, no one could have forecast its timing or magnitude with any precision. Nonetheless, all businesses should still have prepared for catastrophic upsets to their standard operations. That’s just good risk management.

For me, the current situation brings to mind the ‘presilience’ concept that risk expert Dr Gav Schneider has talked about for years. In simple terms, the concept states that the more effort you put into preventing and preparing for something bad to happen (regardless of how unlikely it is to happen), the more effective your response to recovery will be.

Given what 2020 has thrown at us, I can’t stress enough how important it is for businesses to be prepared for the probable sources of business upset in the future. So, let’s have a look at some of these risks in more detail.

Fiscal crises and the spread of infectious disease

These two risks largely go hand-in-hand given the pandemic triggered fears of a second GFC. At the best of times, I encourage businesses to be innovative and agile enough to change when things don’t go the way they should to minimise financial fallout.

However, when things do not go for the best, businesses must realise they can’t just sit back and rely on their insurance, because insurance isn’t as easy to come by as it once was.

Most insurance policies now are quite inflexible – largely the result of living in an increasingly unpredictable world. Why? One of my theories is that there’s so much more data available that the modelling used by insurers is becoming highly accurate.

This increased level of accuracy allows insurers (and their re-insurers) to reduce their exposure significantly. Risks they may have accepted in the past are, they now see, mathematically no longer worth taking on.

The businesses prone to presenting those risks now need to think about transferring them and/or finding ways to alleviate them as best they can. Some may choose to pass on costs to the end-user or to ‘self-insure’ – have enough money in the bank to cover the costs of an incident.

Making hay while the pandemic rolls on

Yes, there are sectors that haven’t suffered in the current conditions – such as postage, online retailers, alcohol retailers and food delivery providers, etc. They have actually thrived in the face of the pandemic and largely dodged the resulting financial fallout.

So, while it all looks good for them financially, how about their processes and general way of doing business? Yes, they have plenty of business, but can they cope with the increase in demand? Can they keep up with new, competing businesses that are well equipped to deal with these increases? These factors come into play at some point and this is where ‘presilience’ measures are needed.

Since about March this year, most businesses have been at action stations working out how to maintain operations throughout the pandemic. Many office-based businesses have had to implement a model where most of their staff work from home. That’s what I’ve done in my own business: my staff are rarely on-premises anymore.

As a risk manager, I already had a general ‘bug out’ plan in place prior to COVID-19. As such, our transition to work-from-home wasn’t disruptive. Unfortunately, this wasn’t the case for many.

I know that not all businesses can transfer their operations offsite, but they can still adapt to the changing situation. Cafes and restaurants are a perfect example. When lockdowns were enforced, dine-in service was off the table (pardon the pun). In response, the smart cafes and restaurants started offering take-away and delivery. They made the most of a dire situation.

Fears over cybersecurity

While financial ups and downs are a priority, the survey surprisingly found that cyber-attacks are the leading concern. I think there’s a good reason for this: with so many businesses now operating remotely, the opportunities for cybersecurity breaches have dramatically increased.

Ransomware is a particular concern for businesses that aren’t maintaining enough security in their systems. You’d be amazed at how often Alleviate Risk reviews a client’s systems to find that they aren’t up to scratch. The questions go like this:

Us: Do you back-up?
Client: Yes.
Us: Do you test your back-ups?
Client: I’ll check on that.
Us: Can we get a report of the last back-up you did?

When these tests are undertaken, things often get a little shaky. Most clients leave testing up to their IT people and when we ask for a report of the latest back-up, they admit they’ve never done one before. And when we review the report, the clients are shocked that the tests failed. They think they’re covered but their back-ups are losing data.

How to handle extreme weather

Extreme weather events came in at number five. Yes, they scare everyone, but perhaps that fear isn’t spurring people to undertake risk mitigation. For example, we’ve been told over and over that the 2020 Australian summer will feature La Nina weather patterns – rain, flooding, storms, wind and so on.

Businesses are hearing it, but they’re not doing anything about it. Everyone’s distracted by COVID-19, so no-one’s thinking about how to become resilient when wild weather rolls in.

Example: a few weeks ago, the Brisbane suburb of Springfield Lakes was hit with hailstones large enough to smash right through tiled rooves. Everyone was warned that La Nina would probably bring this sort of fury, but how many people made contingency plans?

These plans don’t need to be elaborate, they just need to exist and be effective. It can be as simple as asking “how will we get the kids home from school if there’s a hailstorm coming that could destroy the car?”

An unpredictable future doesn’t equal a powerless present

This year, 2020, has seen quite a few things reaching critical tipping points: disastrous bushfires, geopolitical turbulence in the US, increasing technological advancements and a series of weird weather events.

However, I argue all of these could have been predicted in general … if not in particular. And a general sense of the likelihoods is more than enough to go on when you’re mitigating your risks.

John Doyle, the CEO of global risk experts Marsh, has observed that the COVID-19 crisis has shone a spotlight on the topic of organisational resilience.
“As firms look to the future, they are matching their risk and resilience arrangements with a threat landscape marked by significant customer and workforce behavioural shifts,” Doyle says.

“To optimise recovery, organisations will need to build greater preparedness into their business models in order to be more resilient in the face of future disruptions.”

I couldn’t agree with this quote more. If 2020 has taught us anything, it’s that the global pandemic has exposed the fragility of the economy. In a lot of cases, it has given people a wake-up call and the realisation that perhaps their business is not as resilient as they thought.

Businesses need to think about alternative ways to manage risk or seek advice on how to mitigate the risk entirely.

Choosing what to do about the risks you know about – and the ones you don’t yet know about – isn’t always straightforward. At the very least, you should minimise your known-unknowns and unknown-unknowns. I mean, compare the cases: what can you do when you’re caught out by surprise versus what can you do if you’ve got a contingency plan?

Why are my insurance premiums going up?

“Is my insurer gouging me just because they can?” A lot of people have been asking this through 2019 as the effects of the insurance industry’s flip from a buyer’s market to a seller’s market has hit home.

The usual follow-up questions are something like: “What reason could my insurer have for increasing my premiums? My business hasn’t become any riskier!”

To give you an answer, there’s a few things to know about the current state of insurance:

  1. The insurance industry runs on multi-year price cycles: right now premiums are trending upwards.
  2. Natural disasters are increasingly less predictable both in occurrence and severity. This randomness combined with rising rebuilding costs, means insurers are paying larger claims more often.

For example, since August, roughly 700 buildings and 2 million hectares of countryside have been destroyed in bushfires nationwide. At the time of writing, there are still hundreds of bushfires ablaze across Australia. Further, if you cast your mind back, 2019 began with cyclones, hailstorms and widespread flooding.

The overall result for insurers? Difficult market conditions.

Insurers are like you and your business in that they transfer their risk by “buying insurance” for catastrophic events, like bushfires, where they’d have to pay out a lot of claims. This is called reinsurance. And reinsurance premiums are on the rise. This raises the operating costs for insurers, so insurers are passing on the price rises in response.

This article will look at how these factors are affecting your premiums and what you can do about it.

Insurers are feeling the squeeze too

A decade ago, the insurance market was hot: lots of providers and lots of capacity to take on risk – a buyer’s market. From the perspective of a business needing insurance, it was cheap and easy to transfer risk to a contract of insurance.

And so insurers were selling a lot of policies. As a result of the sheer number sold, the gross volume of claims also rose. I’m in no way implying that insurers are incompetent at estimating risk, just that a percentage of policies will always yield claims somewhere down the line. More policies, more claims.

This trend caused the market to slow and then gradually reverse. The wheel has now turned to the current situation where the reinsurers (the ones backing insurers) have tightened their criteria.

These industry heavyweights are getting pickier when it comes to who and what they insure. Some are leaving certain business sectors entirely.

As a result, insurers are facing higher operating costs and have fewer and pickier reinsurers to turn to. All of this is now combined with a generally lower risk appetite across the economy. Therefore, the insurance industry is now a seller’s market.

It means insurers are heavily scrutinising risks for exposure and pricing their premium models accordingly. In other words, if you have a high likelihood of making a claim, you’re going to be paying substantial premiums. Some are arguing this approach is, by far, a fairer way of pricing risks.

This is nonetheless bad news for anyone who is:

  1. Located in a high-risk area: For example, if you’re insuring a combustible structure in a bushfire-prone area, your premiums are going to be astronomical.
  2. In a high-risk business: Getting insurance for, say, a jumping castle business has always been difficult. These days, it’s almost impossible unless you have a broker who knows their stuff.
  3. Offering insurance services and advice: Brokers (such as myself) have a smaller pool of insurers to utilise. The competition is just not there anymore.

The good news in all this? The insurance industry is cyclical. While premium increases might be stinging you now, they won’t keep rising forever. Eventually, the buyer’s market of 10 years ago will return.

Caught short by natural disasters

I’m not getting into the climate change debate, but the fact is that insurers are paying out more on natural disaster claims these days. The 2019 bushfire season is now in its fifth straight month of devastation. And it’s fairly likely that 2020 will open with a cyclone or two.

While the overall number of natural disasters does not seem to be rising, their intensity has. And we certainly hear more about it all on the news and social media than ever before. Worse disasters and more coverage seems to be a global trend. What it means is instead of, say, three small fires generating 100 claims each, we get one big fire that generates 1000 claims.

It’s no surprise that insurers are analysing their risks carefully. To protect themselves while they do so, everyone in certain industries or who faces a certain type of risk has been painted with the same brush. I am already seeing people having problems insuring any properties above the 24th parallel – roughly Seventeen Seventy and north.

Of course, insurers have funds to cover natural disaster payouts. The problem is that they’ve been unprepared for the higher rate of claims per disaster. In turn, the reinsurers are pressuring insurers to increase premiums for customers.

To illustrate the pressure insurers are under to increase rates, a commercial insurer recently told me that their actuaries now say that if an insurer is winning more than 80 percent of the quotes they make to brokers, then their premium rates are too low.

Caught in the middle of all this, what’s an insurer to do? Do they:

  1. Raise premiums?
  2. Scrutinise exposures?
  3. Limit coverate?

Well, they’re doing all three at once.

What you can do about rising premiums

Being an insurance customer in a market dominated by these patterns can make you feel powerless, but there are things you can do if you change the way you approach risk.

Remember when I said that it used to be easy and cheap to transfer risk to insurers and that now you can’t do that? What you should now do instead is engage with your risks. Control them, monitor them, track them and then use your risk-mitigation regime as leverage to get a better result when insuring the risks you can’t handle.

If you don’t know how to do all this, then get help from someone who has specific risk-management qualifications. With hundreds of billions of dollars wrapped up in the insurance industry worldwide, you shouldn’t be surprised to find that risk management is a field of intense academic, scientific and economic research.

So look for people with bona fide qualifications.

Do it right and you won’t be paying to just insure your risks, you’ll be acting to alleviate your risks in the first place.

Here’s how I look at a business with my risk-mitigation hat on:

  1. Risk: Take a stock of every risk the business faces: operational, financial, economic, etc. Identify which risks can be mitigated.
  2. Reward: Once the areas of unnecessary risk exposure are found, begin mitigating them internally. This might mean you have to rejig your business model. This is actually a good thing, because it will make your business more robust.
  3. Repeat: The insurance industry’s conditions will change, so revisit your insurance strategy regularly. When you’re in a hardening market (like now) your job is to make your business more robust and appealing to a potential insurer. That is, to mitigate your risks and be able to prove it.

A risk professional can help you at each stage. Look to work with those who have real academic training and business experience.

There is also the option of doing nothing. However, we’ve seen premiums rise up to 400% in certain cases, so it’s virtually guaranteed you’ll be better off if you look at your options before your next bill … or worse, your next claim.

With your unmatched knowledge of your business and your risk-mitigation expert’s understanding of the wonderful world of insurance, together you’ll ensure you keep paying a fair price for the risks your business faces – no matter what the market does.

Was your holiday safe? 3 things you should know about travel insurance

For most of us, the holidays are already over. For some of us, it was the break we needed. For others, well, they spent most of last week trapped in Thailand because of a massive storm. I’d hope they all had proper travel insurance.

And bad weather is only part of holidays from hell. In this article, I’m getting interviewed about the major ways you can be stranded by inadequate travel cover. It’s all about:

  1. Where you go
  2. What you do
  3. Who you bring.

So, let’s get into it…

1. Where you go – hazardous locations

Question: So Morgan, the first point you mention is ‘where you go’. What does that mean?

My answer: There are places your insurer is not keen on covering. Typically, they’re whole-of-country exclusions – usually conflict zones, places like Afghanistan and Iraq. Some policies request that you comply with DFAT recommendations – that’s the Smart Traveller site. Smart Traveller can be a bit Chicken Little though. You’d think Belgium would be as safe as it gets, but it currently has a high threat level due to a failed terrorist attack in June 2017.

Q: This could be tricky. Belgium is a tiny country in the Schengen zone: if you’re in a tour bus, the highway might go in one border and out the other half an hour later without you knowing.

My answer: Correct. You have to understand your policy and know if you’re going to have an excluded claim however you end up in a country. If you’re flying from Europe to Australia with a stopover in Abu Dhabi, that’s fine: most policies will not exclude transit locations. But if your stopover is diverted to Turkey, that’s a higher-risk location. Again, the point here is to understand your policy and how it will respond.

Q: So, what should you look for in your policies regarding hazardous locations?

My answer: Look out for any terms like ‘transit countries’ and ‘modes of transport’. Read all the conditions and policy wordings around those terms. If something doesn’t add up, call your insurer and get answers.

Q: Any real-life examples of travellers who’ve come into trouble through being in a hazardous location?

My answer: Happens all the time. Only the horrific cases grab headlines. There’s those Aussie surfers who tried to drive across a sketchy part of Mexico and there was that attempted machete carjacking in Kenya recently. Most of the time, it’s nothing like that. Usually, it’s like the woman who broke her ankle badly on a cruise ship in Indonesia. Her travel insurance policy gave her – amongst other benefits – unlimited medical cover. She chose to be airlifted off the cruise ship and taken to a reputable hospital rather than go to the nearest one in Indonesia, fearing the level of medical care would be substandard. Obviously, not all policies afford this level of choice. It’s another thing to look for in your policy wording.

Q: How can an insurance company even know what’s going on in these places?

My answer: They employ people specifically to monitor conditions on the ground and also use sites that pull intelligence reports from agencies around the world, including Interpol. For example, Chubb uses the WorldAware service, which has something like 150 intelligence analysts on staff.

2. What you do – risky activities

Q: Okay, so there are hazardous places, but can’t you get hurt anywhere?

My answer: Yes. You can be in a safe location, but still engaging in a risky activity. A classic is hiring a scooter in Bali: there’s probably very few travel insurance policies that cover driving a motorscooter by default. There are also lots of other activities not covered as standard: scuba diving, snowboarding, hang-gliding, parasailing, mountain biking, fishing, spearfishing etc.

Q: But those are exactly the kinds of things people do on holidays!

My answer: Correct, and that’s why you have to read your terms and conditions. Most people are buying these policies online or through a travel agent who is not versed on insurance. So, it’s up to you to read the exclusions. If you don’t understand something, seek help from an expert.

3. Who you bring – travelling with family, friends and kids

Q: How does travel cover work for people you’re travelling with? Where is the limit with spouses, kids, relatives and friends?

My answer: Some policies cover your whole family. Some policies will only cover you personally. Some will cover financial losses for your overall group. This actually happened to me: my wife and I were going snowboarding in New Zealand with another couple. We’d all booked together. The day before we were due to depart, I suffered a grade-3 tear to my calf muscle. Hello crutches, goodbye skiing trip. Because I’d been careful in buying our insurance, the whole group was reimbursed. In no way is that a given in every travel insurance policy.

Q: How many people does an off-the-shelf holiday policy usually cover?

My answer: It will usually say the ‘insured’ which is the policy-holder. Some policy wordings broaden the definition of the insured to include ‘spouse and dependents’. A dependent is someone who’s financially beholden to the policyholder. I have plenty of clients taking their retired mother on their trip as a babysitter for the kids. Both the mother and the kids are technically ‘dependents’ – depending on the policy wording.

Q: What about ‘spouse’, how is that defined? Marriage has changed over the past couple of years.

My answer: Yes. There is an increasing population of same-sex couples, so this is important. In a contract of insurance, if a word is not listed in the policy with a specific meaning, then typically it adopts the meaning in the normal English language. So, let’s look up ‘spouse’:

That’s pretty clear-cut then. Also, from an insurance point of view, it doesn’t usually matter if the place you’re visiting doesn’t recognise your marriage. It’s about the law where the policy was issued.

Getting good travel insurance is crucial

So, that’s a quick overview of my thoughts on travel insurance. Overall, I think travel insurance should be mandatory. I don’t just say that because I’m in the insurance industry.

I don’t want anyone to face the very stark choices of having a serious incident overseas and not having the insurance to match.

All this brings us to…

Q: Okay Morgan, final question: isn’t a tailor-made travel insurance policy more expensive than one from a comparison site?

My answer: No. Not always. A properly tailored policy can be more cost-effective than a standard online one because there’s more to coverage than the price.

  • What is actually covered in your policy wording?
  • How long does it take to get certain things included in your policy?
  • Will you be able to get fast customer service when you’re in desperate need?
  • How soon can your insurer settle a claim?

Every time you trade a lower price for compromises on those things, you edge away from cost-effectiveness.

Take my claim about the skiing trip. I got that through an online insurer. But, I have been in insurance for years and years. I was able to articulate the claim form in a way they would understand. I was able to provide the information they needed in order to pay my claim quickly. Because I know the industry, I was able to get a good, quick result from an insurer that didn’t have a call centre at all.


I know my usual sign-off is that the right insurance means you can Risk-Reward-Repeat – well, holidays are different. When you get the right travel insurance, you’ll know you’re covered no matter what. And that means you can Recline-Recharge-Relax. And that’s what I pray you’ve just been able to do.

But, if you’ve ever had a holiday from hell, let us know. I’m genuinely interested.

My Top 3 Tips For When You Buy Insurance Online

You need insurance for many of the good things in life – travelling, running a business, buying your home, etc. These are all important things to protect from hazards, however no one teaches you how to buy the insurance to give you that protection. Especially not many of the insurers selling it.

When most of us – I’m including both consumers and businesses here – go to buy something, we look online for what we think is a good deal. We’re blissfully ignorant that taking this route can leave you high and dry if you need to make a claim. Even if you’re usually pretty switched on, you don’t know what you don’t know (we’ll get into that later).

So, if you’re thinking about buying insurance online but are worried about wasting thousands on a policy that won’t come through, this is an article for you.

Based on my 13 years as an insurance broker, these are the top three common mistakes people make when buying insurance online.

1. Putting  The Wrong Business Name on the Application

Getting your name right on a form seems like primary school stuff, but people get it wrong on their insurance forms more than you can imagine. While a fat-fingered typo won’t necessarily be a deal-breaker, forgetting to add the correct business identifier or writing in something altogether different from your business name could be.

I’ve seen countless businesses that might have come undone because:

  • They’ve registered under the parent company’s name, but are trading under a different business name.
  • They’ve changed their business name, but the old name is still listed on their policy.
  • The name of the business they’re trading under is incorrectly listed in their policy documents, and actually describes another company with a similar name.

When scenarios like these come up, the result is usually a lively discussion between the policyholder, the insurer and sometimes the ombudsman about the purchaser’s “intent”.

If you bought the policy in good faith but under a technically “wrong” business name, you may still be able to claim, but is that an argument you want to have after you’ve just suffered a significant loss?

If you’ve used one business name instead of another because the business you’re actually trading under has a dubious past, the insurer will most likely not view that as good faith – more like deliberate non-disclosure. It’s very likely you can say goodbye to your claim, your cover and all the premiums you’ve been paying out!

What’s the easiest way to avoid this situation? Get advice someone you can trust!

2. Thinking Near Enough Is Good Enough When Listing Your Occupation

Drop-down menus catch a lot of businesses out when they’re applying for the regular forms of insurance, such as business insurance, public liability or professional indemnity.

Here’s how it happens:

  1. The site asks you to choose your occupation from a drop-down menu.
  2. Your exact business type is not listed, but there is one that seems close enough.
  3. You pick that one.
  4. You click “Buy”.
  5. Congratulations, you just bought an insurance policy covering work you don’t do!

Case in point: I recently worked with a hi-tech cleaning company that microbially purifies business premises top to bottom. The business thought it was doing the right thing when buying insurance through a comparison website. Later, when the owner came to me to review the policy, I saw the business was categorised as carpet cleaning.

The business hygiene provider had already been operating for months. If an incident had occurred regarding any operations not related to carpet cleaning, then they wouldn’t have had any cover at all! Like any innovator, this business didn’t fit neatly into any of the standard menu options. We soon got their insurance sorted out through working directly with the insurer.

If you’re not sure if you’ve listed your occupation correctly, don’t be an ostrich. Pull your head out of the sand. Pick up the phone and ask your insurer to specifically note your occupational duties on the policy. If they won’t, there’s probably a good reason: they don’t cover those activities. Find an insurer who will or find someone who can help you get it right.

3. Relying On Comparison Websites For All Your Research

Comparing policies online might feel like due diligence, but comparison websites aren’t actually there to give you great protection; they’re designed to make money from referrals.

Here’s why comparison websites rarely offer business owners the best value:

  • They offer one-size-fits-all policies: Your business is (or should be) different from every other company in your industry. Your insurance has to reflect that. Comparison sites don’t give much opportunity to tailor a policy to your unique risk profile. This means most people who buy online either end up underinsured (i.e. with spotty coverage) or overinsured (i.e. paying excessive premiums).
  • The pool of insurers they draw from is tiny: As insurance brokers, we can access about 140 different insurers and thousands of policy wordings. As a consumer on a comparison website, you can only choose from maybe 6 to 10 different options. Plus, you have no way of knowing how the insurer you select responds to claims. We, on the other hand, know which insurers have a reputation for wriggling out of paying and which ones are known for behaving themselves when claims come up.
  • The devil is in the detail: It’s not always easy to know what you’re signing up for. Just like I have good knowledge about contracts but always get a lawyer to review mine, it’s always a good idea to get an insurance broker to review your policy before you sign it. At the very least, make sure you know the definitions, understand the policy limitations and are across the sub-limits.

A Simplistic Solution Usually Causes More Problems Later On

There is a big difference between simple and simplistic:

  • Something made simple still works properly
  • Something made simplistic doesn’t.

Buying business insurance can be a simple process if you have the right advice. But buying business insurance online is usually a simplistic process because you don’t have the right advice. You will pay good money for a piece of paper that says “policy”, but how much faith can you put in it?

Did you just bet your entire business on a policy you bought from a “Meerkat” after 10 minutes of clicking drop-down boxes with options that seemed close enough?

An online comparison site might be completely fine if you have a mainstream kind of business. However, if your business is an innovator or a little left-field – like the corporate hygienist in the example – you’re going to find plenty of things the comparison sites can’t do.

So, get your existing policy out or download all the details on the one you’re thinking of buying. If there is anything you don’t understand, that’s your trigger to call someone you trust to get an explanation.

My advice is that diving in and buying insurance without a good level of understanding is a not a good business risk to take.

The way I see it, your edge in business comes from controlling and consciously engaging with certain ‘good risks’ on an ongoing basis. It’s why I always say Risk-Reward-Repeat. The other side of this is that your business insurance is there to mitigate the bad risks.

So, don’t make buying your insurance a bad risk in the first place.

Ignorance isn’t bliss, it’s the hell of being powerless

There is something I need to remind myself of almost every day and it’s not pretty: I’m ignorant. It’s not on purpose, I do what I can about it, and yet I will always have a level of ignorance. Just like everyone does.

Most of us travel through life cultivating a dusty collection of known-unknowns in the corners of our minds. You know the sort. I’m talking about those issues that if you can put full awareness on them, they trigger the mental response of: I don’t know and I don’t want to know.

But to tip the old saying on its head: what you don’t know can hurt you. And if you’re an entrepreneur, then that hurt will extend to your business.

Insurance is one effective way to mitigate the risks of these unknowns. The problems arise when your insurance is itself an unknown!

Many entrepreneurs place their insurance in the too-hard basket which is, honestly, understandable. The average insurance product description can be up to 50 pages and people – especially business owners – are time poor.

Nevertheless, staying ignorant about your insurance has routinely disastrous consequences. I see them every week.

Today, we’re going to delve into ignorance. Specifically,

  • the common sources of ignorance about insurance
  • the risks you take by keeping your head in the sand
  • how you can mitigate powerlessness through knowledge.

Do you know what insurance is? Are you sure?

A true understanding of insurance goes beyond knowing what’s in the contract you’ve signed. Insurance is, at its core, the holistic management of risk. I say ‘management’ here because risk isn’t always something to be avoided.

Properly managed risk can be the fuel that propels your business into future success. Often, this success is of a magnitude you could not have achieved if you had not taken that first ‘risky’ step.

The right insurance enables you to take such risks because it puts a net under the trapeze. If you fall, you have a safe place to land. Knowing this, you can swing out harder and reach higher without your creativity, passion and drive being hindered.

This is the real role of business insurance. Sadly, most people are ignorant of this fact – often, even insurers and brokers get it wrong. Many people see risk as something to be avoided altogether. They focus so hard on what happens after a claim that they fail to manage the risk factors that lead up to it.

Luckily, this kind of ignorance is easily fixed. The crucial first step is to start seeing your insurance as more than just crash protection. Instead, see your insurance as ‘risk management’. Make rational engagement with risk into a tangible element of your business strategy.

And it goes without saying, get yourself an insurance broker who respects the role of risk as a key ingredient in a successful business.

Insurance premiums too good to be true? They probably are.

Insurance companies are not charities. They’re there to provide cover that’s fair, reasonable, and priced accordingly. Higher risk equals higher price – it seems so obvious.

However, I see many cases where a business’s premiums were too low and they only found out what this means when the time came to put in a claim. They suddenly face the fact that low premiums meant there were gaps in their cover. Sometimes these gaps are so big the whole business can fall through.

Conversely, if your premiums are too high it’s also a red flag. Either:

  1. You don’t fully understand the risks associated with your business
  2. Your insurer doesn’t understand your business’s risks, and you’re losing money, which, I think we can all agree, is never a good thing!

It can be all too easy to ignore the numbers when it comes to insurance, particularly if you feel like you’re getting bargain rates. But maintaining this particular ignorance is often catastrophic.

Businesses routinely collapse because something fairly mundane has happened whose risk they had not mitigated and which wasn’t properly covered by their insurance. It’s essential that you learn the risks associated with running your company and ensure your insurance covers them all.

If you’re unsure how much your business ought to be charged for insurance, a good preliminary check is to gather up advice from a handful of providers and brokers. I’ll happily be part of your round up.

Anyway, if their quotes don’t match what you’re currently paying, then you should work to patch the proverbial leak before it becomes a flood.

Examining your ignorance is more rewarding than you might think

Everyone is ignorant of something. None of us knows everything. It’s impossible. There’s a certain power to accepting this truth and working with it.

By examining your own confirmation bias, you’re not only mitigating the risks your company might face, you’re also giving yourself the power to strengthen your business practices. Being well-versed in risk gives you the confidence to make decisions you might otherwise shy away from. And it’s those risky decisions that make for a groundbreaking business.

Not to imply that facing your own ignorance is easy. Becoming suddenly aware of all the risks your business faces can seem like you’ve walked into a den of sleeping wolves with nothing but brittle twigs underfoot.

However, you already know that discomfort is essential for growth. Once you’re able to reframe your response, the power to be gained from your new knowledge will make the growing pains worth it.

Business insurance still the monster under your bed?

Still unsure about your business insurance? That’s fine too. The most successful entrepreneurs achieve so much because they are acutely aware of the limits of their knowledge and understand the value of engaging experts to fill those gaps. They are powerful people because they engage with their ignorance strategically.

Insurance brokers like me make it our business to understand your company – the ins, outs, ups, and downs. At Alleviate Risk we go the extra mile by focusing not only on the outcome of claims, but also the risk factors that lead up to them. Because the best incident is the one you avoid altogether.

“Risk-Reward-Repeat” is our slogan for a reason. We understand insurance for our clients so they reap the rewards of carefully managed risk.

Want to know more? Get in touch today.

6 fundamental insurance questions small business owners are too polite to ask

Most first-time business owners are only vaguely aware their fledgling company needs insurance. And 30 seconds after the idea pops into their head, they push it right back out and decide to just hope for the best.

This is not a good strategy – actually, it’s not even a strategy. The reality is that any business owner who doesn’t want their cash flow or operating viability destroyed if a certain incident or circumstance occur needs insurance.

No one wants to look uneducated, but don’t let fear of asking a stupid question (or fear that all insurance professionals are shonky and won’t give you honest, unbiased information) stop you from understanding what business insurance is all about.

Instead, equip yourself with the knowledge you need to make informed decisions – whatever they may be!

Read time: 7 minutes.

1. Is insurance just a rip-off?

As an insurance broker, of course my answer to this question is a resounding NO. My reasons might surprise you though. In my eyes, business insurance is valuable for three key reasons:

  1. Running a business is stressful, and insurance buys you the peace of mind that comes with knowing your operations are no longer vulnerable to certain kinds of events. You keep paying your premium and if things go down a bit or an unexpected event that would otherwise wipe you out suddenly occurs, you know you’re going to be okay. It’s a pretty simple equation: insurance = less risk = less stress. Something every business owner wants!
  2. Getting the right business insurance forces you to spend time weighing up the unique risks and rewards for your market and operations. This type of in-depth evaluation, being half of the classic SWOT analysis, naturally reveals opportunities that your competitors are overlooking.
  3. Lenders and big clients can more comfortably invest in you when they know you have insurance backup. When your business is insured, investors are more willing to back you, banks can offer you better lending opportunities and you’re able to make the bold moves that propel your business forward, instead of keeping you plodding along at the same old pace.

Insurance in and of itself is not a rip-off: it gives peace, prosperity and opportunity. If, however, you don’t know what to look out for, then you can get a bad deal. We’ll get to that at point 6 of this article.

2. Is buying insurance betting on failure?

Yes, it is, but hedging your bets is a smart decision.

The business people who succeed long-term are the ones who carefully examine and plan for all the reasonable positive, neutral and negative outcomes of their situation. Insurance brokers are your experts at detecting and preventing the negative scenarios.

Go to a good insurance broker for, say, public liability insurance and you’ll soon find yourself in a conversation that dives deeply into the inner workings of your business. Expect to cover:

  • What your business model is
  • What your plans for expansion are
  • Who your clients are
  • How you pay your staff
  • Where you live and work
  • What your branding is
  • What your differentiation strategy is.

Once you have discussed all of these with your broker, they may then say: ‘Right, now here are the things we need to look at regarding your liabilities…’

This process is important, because you can only mitigate your risks after you have identified them. And facing your risks realistically is something only business owners with a certain level of sophistication or humility can do.

3. What are the differences between an insurer, an insurance broker and an insurance agent?

In answering this question, you must first understand that people usually source insurance in one of two ways:

  1. They’re directed to a big insurer by a comparison website or Google search
  2. Their accountant or lawyer refers them to an insurance broker.

In the case of option 1, the big insurers will either directly offer you a range of business insurance products (that are usually quite narrow in scope), or their insurance agents will intercede and consult with you about which of their employer’s product suites is best for you. (Note: An insurance agent can only sell their employers products.)

For option 2, however, an insurance broker has an unrestricted agreement to offer you the policies of any insurer. This means they’re free to sit down with you to figure out exactly what you need and what your business’ risks are. With that info they’ll shop around multiple insurance markets on your behalf. Once your broker has done their due diligence, they’ll come back to you with quotes and a recommendation about which insurance products and providers best suit your business’s needs.

4. Do I really need an insurance broker to help me understand the fine print?

Yes…with an if; no…with a but.

On one hand, Australian law is designed to protect consumers from being misled by insurers. When it comes to the PDS – or Product Disclosure Statement, the document containing what used to be called “fine print” – there is a ‘reasonable person test’.

It means if a reasonable person reading through the terms and conditions in the PDS would make a certain assumption, then, should a matter go to court, that assumption will generally be regarded as correct based on case precedence.

This puts the onus on the insurer to make their wordings clear, understandable and readable. If an insurance dispute does go to court and the wording is ambiguous or grey, more often than not, the courts will rule in favour of the claimant. In this regard, Australians are far more protected than, say, Americans.

On the other hand, most people do not want to read through their PDS – some are more than 50 pages. Even those who do read their PDS cover to cover usually have no idea of what to look for in terms of what has been left out.

A perfect example comes from the 2011 Queensland floods which destroyed something like 25,000 houses. Many homeowners who thought they had purchased adequate insurance beforehand were left up a creek without a paddle (pardon the pun). In the summary of their cover (the part that most people read) they saw “Flood cover: Yes”. Had they read the rest of the PDS, they would have seen this cover was capped at $50,000.

People were buying this policy partly because they thought it included “flood cover”. When they went to claim, they found they technically did have flood cover, but it was hardly enough to rebuild a devastated home.

Unlike most people, insurance brokers like myself love reading the fine print. We know which exclusions to look out for, which inclusions to ask for, and which insurers to steer clear of.

The above flood scenario wouldn’t happen to someone with a good insurance broker. We’re like any other trusted professional: you count on us to give you expert advice that’s in your best interest, because happy clients are in our best interest!

5. How could an insurance broker who doesn’t know my business possibly understand my risks?

Good question. If there’s one saying the entire insurance industry agrees on it’s probably: You don’t know what you don’t know.

I’m the first to concede that most small business owners understand the ins and outs of their own company far better than I could. At the same time, I also know that most people starting out on their business journey don’t have the time or inclination needed to study all the relevant risk trends affecting them. This is what insurance brokers like myself do (exciting, I know).

So, when a business owner and an insurance broker get together, they can combine their micro and macro understandings to form a full risk profile for the business at hand.

Take, for example, a cleaning business I am currently working with. The owner knew she needed cover for the equipment her staff use and could tell me down to the dollar the financial impact she’d suffer if one of those machines was out of action. She was also acutely aware of who her most important team members were. She knew all this, but had not accounted for one of the biggest risks her business faced: a new contract to have cleaners working at a shopping centre during business hours.

Most people wouldn’t bat an eyelid at a cleaner in a shopping centre, but most insurers would immediately recognise it as a very high-risk situation. Shopping centres are one of the most common places for slip, trip and fall personal injury claims. A single claim from a member of the public could have put her out of business or even bankrupted her!

Fortunately, once this particular business owner was made fully aware of this risk, I was able to work with her to mitigate it. We didn’t just source appropriate insurance, we also gave her advice on how she could reduce the likelihood of an accident occurring (which also lowered her premiums).

Now she’s insured and can keep her significant contracts and even land bigger contracts without having to worry about the real or perceived risks her business faces.

6. What are the warning signs for a dodgy insurance broker?

Every industry has bad apples. Insurance is no exception. The two tips I give to anyone looking for the right insurance broker for their business are:

  1. Ask other business owners for a referral. Insurance brokers are like lawyers and accountants in that much of their business comes from happy customers passing their details onto someone else. A great broker will get a lot of their business through the grapevine.
  2. Be wary of anyone who quotes without asking you questions about your business. Some brokers will send you a price for professional indemnity or other insurance products over the phone without even asking basic questions about what you do. In general, if the insurance is cheap and easy to get, it probably isn’t ideally suited to your business.

Ask tough questions to get good insurance cover

I really believe in the old saying: nothing ventured, nothing gained. Business insurance exists specifically to reinforce the “venture” part of that old proverb and make it more dependable. That’s why I truly believe the words underneath my logo: when you can repeat risks responsibly, you really reap rewards.

If you want to know more – or ask “stupid questions” – drop me a line at morgan.appleby@alleviate.insure. Why? Because there are no stupid questions.

Confusion, credibility and underinsurance: the rocky relationship between modern travellers and insurance

Anyone who travels in 2018 does so in an unprecedented way.

Today, Australians explore more and further afar than ever. Everywhere we venture we carry expensive gadgets to document and navigate our journeys. As we do, we’re ditching traditional transport and accommodation models in exchange for the convenience and value of things like Uber and Airbnb.

Naturally, the way travellers view their insurance is also changing. Just look at the most popular search queries for the subject:

  • “Is travel insurance necessary?”
  • “What is travel insurance and what does it cover?”
  • “Is it compulsory to buy travel insurance?”
  • “Does travel insurance cover Airbnb?”

While business travellers and older Australians still understand the importance of being insured in a foreign country, many younger people don’t see the value of travel insurance at all. Those who do buy coverage aren’t always aware of the risks they face overseas or the limitations of their policy. Many head off with no insurance at all.

A profound shift is taking place in the travel industry, and the travel insurance industry has been slow to respond. We must adapt to the new technological, business and social landscapes modern travellers roam through. If we don’t, new, dynamic insurance concepts will take over. Apps that insure household appliances for short amounts of time outside the home are already here. It’s only a matter of time before someone finds a way to make travel insurance digitally agile. When they do, traditional travel insurance may go the way of the traveller’s cheque.

Millennials don’t value travel insurance

At Alleviate Risk, one of my target markets is millennials. Among them, I’ve noticed a lack of desire to buy travel insurance and a lack of understanding of what it actually is. Like anything in life, when we don’t understand something we mentally steer away from it. It’s not hard to see why there is no perception of value among millennials. If they do buy it, they buy it online. To do that they’re forced to read complex terms and conditions by themselves. They go through all that rigmarole and then they see no appreciable result for it.

In 2016, the Insurance Council of Australia and the Department of Foreign Affairs and Trade worked together to conduct “The Survey of Australians’ Travel Insurance Behaviour” (SATIB). Here’s one startling result from the study: one-quarter of Australians who went overseas experienced an insurable event, but many didn’t take out any insurance at all. How many?

  • 8% of surveyed adults travelled overseas without insurance in the past 12 months
  • 31% had travelled without insurance in the past decade
  • 30% of travellers think you don’t need insurance if you’re visiting a developed country.

When asked why they didn’t get travel insurance, the top reasons were:

  1. Just hadn’t thought about it
  2. Uncertainty as to whether it was needed
  3. Travel insurance was too expensive
  4. Travellers were careful not to have an accident
  5. It was too much hassle

Look at numbers 3 and 5 again. As an industry, our customers perceive our product as too expensive and too hard to buy. Yet, nothing could be further from the truth. As an insurance broker with both professional and personal experience of what can go wrong for an overseas trip (I tore my calf muscle in half the night before a 10-day ski holiday), those responses are a worry. Not just numbers 3 and 5, but especially those.

I understand where they are coming from though and would like to bring an additional reason for their aversion into the mix: the public – particularly young people – is cynical about an insurer’s willingness to:

  1. Pay a traveller’s claims, no matter how legitimate it may be
  2. Insure a traveller’s activities, because travel these days is far less planned than it used to be.

Of course, I am a firm believer that you get what you pay for. If a policy is cheap and narrowly worded, you can bet your bottom dollar it will have a cumbersome claims process and more exemptions than you can poke a stick at. But air travel is so cheap and accessible these days. People duck off multiple times a year on a whim for shorter and more spontaneous trips.

Our industry isn’t catering well for this type of unplanned travel. And when the industry lags so far behind consumer behaviour, the result is a loss of business for the insurer, plus inadequate or non-existent coverage for the consumers. Everyone loses.

People care about their phones, a lot

A perfect example of the travel insurance industry’s inability to keep up with customer expectations is the way insurance for smartphones, tablets and other traveller gadgetry is provided.

Compare Travel Insurance recently investigated how 20 of Australia’s market-leading travel insurers deal with smartphone claims. Their research showed “travellers can expect to lose out on at least $500 if making a claim for an Apple iPhone purchased over 12 months ago for $799”.

Once an average excess of $107 and 50% depreciation are factored into the claim, a smartphone owner can expect to get $299 for their loss – less than half of what they paid for the phone.

Furthermore, even if travellers do purchase insurance, they may find themselves entitled to no payment at all if:

  • They are on a monthly phone contract instead of being an outright owner
  • They cannot provide the phone’s IMEI code after it is lost, damaged or stolen
  • They cannot provide proof of ownership of the phone, such as an original receipt
  • They have their phone stolen from an unattended motor vehicle.

To insurers who understand risk, all of these exemptions seem reasonable. To a customer who wants to protect their most prized travel asset, these limitations make them think: “Why bother buying insurance at all, I’m not going to be covered for anything I care about!”

And to the customer attempting to make a claim only to find they’re underinsured, the question becomes: “What did I actually pay for?!”

We must explain the value of travel insurance, personally

Answering this last question is paramount to travel insurers remaining relevant and useful. But with the SATIB finding 34% of travel insurance buyers use online search as their primary research method, personalising cover to a client’s needs is no longer cutting it.

With online sources like comparison websites leading the sales race, insurers don’t get a chance to assess their client’s risk profile and explain what the best options are. Clients meanwhile can’t access a human expert to answer questions and explain policy terms.

Instead, companies just email the customer a Product Disclosure Statement and ask them to tick a box saying they understand it. This type of sale often leaves consumers blissfully ignorant of:

  1. The risks they face overseas
  2. The limitations of the coverage they’ve selected.

The online purchase model that’s currently popular is not meeting client’s needs. The SATIB report found:

  • 58% of all travellers did not even look at their policy’s exclusions
    26% of travellers did not look at their policy document at all
    24% were not completely clear on what was covered by their policy.

As insurance advisers, our job isn’t to lump clients with the highest coverage possible. Our job is to work with travellers to explore their risk profile and use the information we glean to match the client’s needs with the right product.

This first step is critical because many travellers (particularly those under 30) have no idea what their risks are. They are not educated consumers, and therefore cannot possibly purchase the best insurance for their unique situation.

Modern travellers are dangerously unaware of the risks they face

The base level of understanding Australian consumers have regarding travel insurance is revealed by their widely held beliefs about what happens during an overseas medical emergency. The Australian government has no obligation to provide any assistance to its nationals, but despite this, the SATIB revealed that of 18-29 year olds:

  • 52% incorrectly believe that if an Australian has a medical emergency overseas the Australian government would arrange and pay for them to get home
  • 47% incorrectly believe that if an Australian has a medical emergency overseas, the Australian government would pay their medical bills.

This wishful thinking is not only incorrect; it’s dangerous – especially when you consider that 27% of the respondents were either not covered for medical emergencies or were not sure if they were covered.

Overseas medical emergencies are often incredibly complicated and can result in death or permanent injury if a plan for a swift rescue, transportation to an acceptable healthcare facility and access to immediate and adequate treatment is not put in place by an insurer.

Even if an injured traveller fully recovers, an overseas medical emergency can leave them in huge debt. Australians have a tendency to assume that other developed countries have healthcare billing systems that are similar to ours – not so. Only when clients hear that something as common as unanticipated appendicitis could cost them $55,000 in the USA do they begin to appreciate the importance of having the right cover.

Modern travellers want flexibility

In addition to convenient, transparent purchasing options, travellers are increasingly expecting the travel insurance industry will offer products using the mix and match approach some health insurers provide. Younger people, in particular, are less interested in paying for coverage for every possible risk they may encounter: they just want to be covered for the risks they know they’ll take.

“We’re seeing much more of that certainly from an interest standpoint, even somewhat generationally with younger travellers. They don’t want to necessarily purchase an entire package, they really just want singular benefits,” Jeff Rutledge, president and CEO of AIG Travel in Insurance Business Magazine.

Many young travellers don’t want to cover for acts of war, deep sea diving or natural disasters. They want to know they’ll be covered while riding in an Uber, or couch surfing or if they choose to make a last-minute booking.

It is these seemingly simple expectations that insurers must not only meet but be seen to meet.

The travel insurer who can convincingly communicate their willingness to cover a traveller who’s leaving next week, who’s going to stay in an Airbnb somewhere and will be using their expensive iPhone the whole time – that’s the company that’ll remain relevant. Why? Because they are giving people what they want.

To hear more about why we insurance brokers must offer the cover that enables travellers, especially business travellers, to make decisions and follow opportunities on the fly, get in contact with me: morgan.appleby@alleviate.insure. Let’s talk.

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