Insurance is too cheap, says Parima chairman

Franck Baron, chairman of the Pan-Asia Risk and Insurance Management Association (Parima), has taken the unusual step of suggesting that insurance rates are too low. Speaking to Commercial Risk Asia, ahead of the association’s conference in Manila, [see p14] he said risk managers must be prepared to pay the proper price for a proper insurance programme if they are to be taken seriously. “Conventional insurance is too cheap and does not reflect the true value of what insurance should be,” said Mr Baron. “We do not value insurance enough because we are not willing to pay enough for it.” He cited the lengthy negotiations that typically accompany the initial purchase or renewal of insurance programmes as a practice that seldom takes place in the purchase of other financial products. “When you go to a bank for a corporate loan, there is limited negotiation on terms and conditions or interest rates but there is always a negotiation on insurance. “I am not asking for more premium but the right price for the right product. At the moment, there are risk managers paying a lot for what is a piece of paper rather than proper protection.” While rates are low and capacity is high for the off-the-shelf products, prices rise and capacity shrinks when companies seek more tailored coverage, notes Mr Baron. Furthermore, the willingness of some companies to seek the lowest premiums rather than the best protection is also affecting the commitment of some major insurers to the region, as evidenced by management changes and mergers and acquisitions. Consequently, risk managers that are looking to build long-term and customised risk transfer programmes must be prepared for possible changes to the martketplace, said Mr Baron, adding that not every international insurer can achieve the double-digit growth they anticipated when establishing their Asia-Pacific presence. The effect of a long-lasting soft market has indeed become a concern for international insurers in the region. At Parima’s last conference in Singapore in November, a panel of international insurance heads told Commercial Risk Asia’s editorial director Adrian Ladbury that while they remain committed to the region, rates might be reaching an unsustainable level. “They cannot get any lower,” said Kent Chaplin, chief executive, Lloyd’s Asia. He cited competition and overcapacity as the contributing factors. But risk managers must also play their part in changing the way insurance is managed. “We are in this together [insurers and risk managers],” he said. Meanwhile, Rob Brown, chief executive of Axa Corporate Solutions, emphasised the need for risk managers to ensure they are getting the right insurance given that, in a soft market, some insurers may simplify or restrict their coverage in order to be comfortable giving insureds the price they are looking for. Mr Baron is not the only Parima executive to be concerned about unsustainable rates. “My view is that this is a very unhealthy market and unless we see some stabilisation on the pricing and better understanding of the specific risks, there will eventually be a very significant systemic collapse of some key markets,” said David Ralph, speaking to Commercial Risk Asia last year as part of the Risk Frontiers Survey.

Insurance is too cheap, says Parima chairman

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