How to protect your clients from underinsurance

Underinsurance is one of the most significant issues facing the insurance industry in 2023. As a potential risk to your clients and your brokerage’s reputation, It’s something that should be easily identified by risk-based monitoring and commercial insurance risk management audits; however, as widespread as underinsurance is, it can still go overlooked due to a number of factors.

And with clients becoming ever more savvy when it comes to reviewing and approaching brokers, it’s more important than ever to reduce or eliminate the risk of underinsurance.

But how does your brokerage identify and tackle underinsurance? How do you find out which of your clients are underinsured so that you can take steps to fix it? Let’s take a look at just how you can - and should - review your insurance portfolio to protect yourself, and your customers.

Why is underinsurance suddenly such a problem?

Underinsurance has always been an issue for brokers because of the issues it can cause for your customers. But now, more and more external factors are compounding the issue. Firstly, there’s the general economic situation. With double-digit inflation, the sum insured payable when claiming on a policy simply doesn’t stretch as far as it once did.

Add on the rising costs of rebuild materials, businesses cutting back on premiums in an attempt to conserve much needed funds, and the perennial issue of customers not giving insurers accurate information at the underwriting stage and it’s easy to see why accurate underwriting and risk analysis is a bigger problem than ever before.

The effects of underinsurance are clear to see and have a far-reaching impact. Imagine one of your customers suffering fire or flood damage to their place of business and thinking they’re fully covered; however, what they didn’t do is inform you about the valuable new equipment they’d invested in. This may now mean that their sum insured isn’t enough to cover the higher cost to get them back up and running.

That’s going to damage your relationship with the client, and potentially your reputation. But that’s not all.

As well as your customer being unhappy with your informing them they are underinsured at a time of great stress and upheaval, they run the real risk of going out of business if their rebuild costs are too high and their policy only covers a portion of this outlay. You’ll lose the client, and with reputation damage compounding the issue, you’ll find it hard to find new customers to replace them.

The good thing to take away is that there is a way to minimise the risk of this happening. It’s time to take commercial insurance risk management seriously and look at ways to reduce the threat of underinsurance.

In the next three steps, we’ll show you how.

Step One: Regularly review your portfolio and the general market

As we’ve discussed, the risks of underinsurance to both your customers and your brokerage are very real, and can have lasting, damaging effects. If you wait until a customer makes a claim to realise that they aren’t insured for the correct amount, it’s far too late.

On the flip side, if you can ensure clients are always fully covered, and provide them with the right advice before any claims are made, a great proportion of this risk will be eliminated entirely. Lower risks mean happier, better protected clients, who in turn are more likely to work with and recommend your brokerage.

To do this, the first thing to do is review your mindset. Instead of offering reactive advice - “this has happened, here’s what to do,” you should offer more proactive advice - “this is what may happen, here’s how to prevent it.” As a respected broker, you’re probably already doing that but you can never have too much information about the industry and your customers during a hard market.

Fully proactive advice means spotting potential issues before they affect the client and that’s where better risk-based monitoring comes in. Constant review of the market and how this relates to your clients is the order of the day. By understanding your customers and impending changes in the market using CLI tools and other methods, you’ll be well aware of what’s ahead.

Once you’ve settled on a proactive commercial insurance risk management approach, you need to know how to deliver it. And that means improving your analytical processes.

Step Two: Analyse your portfolio for signs of underinsurance

There are a wide range of analytical tools and techniques you can use - many of them available from FullCircl - but before you invest in a single tool, there’s an incredibly simple way you can start your analysis.

Pick up the phone and ask.

Regularly speaking to your clients about their cover, and new investments into their business, means you’ll be well placed to advise them if they’re underinsured. It’s all about understanding your customers, their needs, and their insurance requirements so that you can mitigate risk on their behalf.

That’s not all you’ll need to understand.

You need to be well versed in the insurance industry as a whole and have an in-depth understanding of the current moving parts in each sector of the industry, so that you can identify potential issues and move quickly to safeguard your clients. The best way to do that is by ensuring you’re always up to date with what’s happening in their world by conducting regular data analysis and setting up alerts.

Once you’re fully informed about your customers' situations and the industry as a whole, you can focus on carrying out an in-depth analysis of your portfolio.

This is where Customer Lifecycle Intelligence (CLI) tools come in useful. These tools make it easy to analyse the current value of cover for a specific customer against the future value of their assets, for example. If the former won’t cover the latter, you’ll be made aware ahead of time so that you can bring it up with your clients. They’ll be able to adjust their cover to protect their business - and your brokerage - from the consequences of underinsurance.

The more data you can gather from your proactive outlook and analytical tools, the more aware you’ll be.

This leads us nicely onto step three, which details the benefits of getting ahead of your industry and key changes by becoming much more data aware.

Step Three: Become more data aware

Having the right mindset and the right tools are one thing. Committing to using them properly and becoming more data aware is what will really benefit your brokerage.

By being aware of - and increasingly familiar with - customer data, you’ll support your proactive outlook and know exactly how to constantly advise and protect your clients. With your grasp of data forewarning them about potential underinsurance risks, they’ll trust your advice more than ever.

Also, by being aware of industry data, you’ll have a deeper understanding of the risks and opportunities within your entire portfolio, prompting you to start the important conversations that lead to even deeper trust and much more organic growth.

All that combines to enhance your reputation as the kind of insurance broker who puts customer needs first. The kind who can see - and solve - problems before they arise.

That’s the kind of broker any client would like to work with.

How can FullCircl help you protect your clients against underinsurance?

FullCircl empowers your team with rich, contextualised company information on every business in the UK and Ireland. Information you can use for commercial insurance risk management purposes and to carry out deeper risk-based monitoring. With complete clarity on your market provided by sector specialism and vertical integration, you’ll always have the information - and the CLI tools - you need.

For more information and to start becoming more data aware, email letstalk@fullcircl.com.

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