The business of protection
ALTHOUGH HONG KONG is generally recognised as the centre of the region's multibillion-dollar insurance industry, there are still misconceptions about the role played by brokers within the sector.
With more than 20 years of experience in the business, Michael Haynes, the managing director of Heath Lambert (Hong Kong), is well placed to explain exactly what is involved.
What do people often misunderstand? The key point is that an insurance broker negotiates protection on behalf of the client. The duty of care is to the customer and, in any argument or legal dispute, you are always at their side.
As a broker, you are sure to deal with a wide cross-section of people. They might represent large international companies or small local ones. Meeting their different needs presents a range of challenges and you never quite know what will hit you.
An agent, on the other hand, works specifically for an insurance company, or principal, and has only a limited basket of products to sell for his employer. Recently, some insurance agents have also begun to sell general financial planning services, as well as the more usual life policies.
What is the broad scope of the firm's business? We are the oldest broker in Hong Kong and have been here for 60 years.
We have 44 staff spread across several divisions. Traditionally, marine has been one of the biggest areas and it involves arranging insurance for container ships, bulkers and VLCCs - very large crude carriers. We also handle the cover for private pleasure craft and super yachts, some of which are valued in excess of US$70 million. The owners of these vessels can be anywhere and are not necessarily Hong Kong-based.
The non-marine division mainly looks after liabilities relating to buildings, cars and properties, while the employee benefits division takes care of anything a company might need in terms of medical, accident or life insurance for its staff.
What is the focus when dealing with clients? From our point of view, the main thing is to identify risk and find ways to take it off the balance sheet. Therefore, when we sit down with a corporate client, we talk through in detail exactly how their business operates. It is also very important to understand their appetite for risk. For instance, a building might be worth US$10 million, but the owner could take a commercial decision to insure it for only half that amount.
Can you illustrate the types of risk considered? In the case of a manufacturer exporting bicycles to the US, we would go into the assembly procedure, quality controls, how the bikes are packed, shipped and distributed, and where they are sold. Those areas could all be a source of claims if something went wrong.
Besides that, we would also point out the need for a policy offering extra protection for selling in a market known to be particularly litigious.
When working with a ship owner, we might examine the need for hull insurance and, if vessels were trading to the Middle East, additional cover for being in a war zone. Beyond that, we would also suggest looking at consequent liabilities that could arise if a vessel was damaged and then blocked the entrance of a container port for several days.
How do you arrange the actual insurance policy? When all the requirements are known, our job will be to approach one or more of the major insurance companies and negotiate terms. In most cases, we are putting together a tailor-made package, which may involve spreading the risk among several different insurers. Obviously, we make sure there is no conflict of interest between them. All the proposed terms and options are presented for the client's consideration, and will take into account possible budget constraints.
After finalising the negotiation, we may need to prepare an 'overlay' document. This sets out in plain English - and Chinese, if necessary - all the key points. We explain to the client each of the policy conditions and, just as importantly, any exclusions. Special vigilance is needed so as not to overlook any technicalities specific to one business, geographical limitations or aspects relating to legal jurisdiction.
In due course, the client pays the agreed premiums to us and we forward them to the insurance company. Usually, rates are fixed on an annual basis. Agreed brokerage fees, which are set at a fairly standard level throughout the industry, are deducted from the premiums.
How do you find new clients? Nowadays it is more likely they will find us. Fortunately, we have a reputation for providing quality service and being able to cover almost any requirement, even in niche markets. A lot of business comes from referrals, but we also conduct targeted marketing activities during the year.
My own role is to run the company, but I also believe the managing director has a responsibility to be the biggest producer of contacts and inquiries which lead to new business.
What is needed to do well in the sector? A broker has to be a jack of all trades with a working knowledge of every facet of the insurance business. For example, it could easily happen that a high net-worth individual might want to talk about cover for jewellery, a fine art collection and overseas properties. Of course, we have staff with specialist expertise who can provide the necessary support in each of those areas, but most clients prefer to deal with one main contact for all of their needs.
What is the best thing about the job? There are always new challenges. Often, these are linked to learning about the risks associated with new technology. For example, there are issues like identity theft or the knock-on effects of a computer system crashing, for which businesses need cover. Not surprisingly, terrorism is also a big talking point now. Some of the big international firms have executives who travel frequently to politically sensitive countries. Therefore, they are thinking about things like kidnap and ransom insurance.