Time for insurers to step up

Anne-Marie Fournier, AMRAE board member and risk manager at luxury brands group Kering, told Adrian Ladbury that risk managers in France and the rest of Europe face an unprecedented level of risk that represents both a challenge and opportunity. Speaking in her capacity as an AMRAE committee member, Ms Fournier explained that she would like to see the insurance market step up its game to ensure it can assist customers with the rise of new risks and not be left behind as the global economy rapidly evolves. Adrian Ladbury (AL): What do you regard as the big three risks that face French risk managers currently? Anne-Marie Fournier (AMF): Given recent events in the UK, political instability and terrorism are really on the top of the agenda for now. We also have events in North Korea and Qatar. All of this represents global political instability that is not good for business. Unfortunately, this has been with us for some time and will continue over the medium term at least. This means that multinational companies have to be very careful about the security of staff and their installations. There are companies that can help you manage these risks such as ‘assistance’ service providers, but even the best consultant in the world cannot give your life back again. But such companies can help you prevent the risk and provide the information you need to ensure staff act appropriately. Global warming is another big subject on the agenda. Water levels continue to rise and yet we continue to see industrial installations and private housing being built by the sea. I think it will be increasingly difficult for companies and individuals to find insurance for buildings in such places, because you can no longer pretend that you did not know they are exposed to flood. We continue to see active volcanoes and earthquakes. All this has to be properly analysed when you have global operations. Third, national and international regulations remain a big topic at board level and need to be taken very seriously. We have the new EU GDPR regulations on personal data and privacy. New regulations come from the EU, but they are applied differently in each country and these rules will be different again from those in the US and Asia. It is a real challenge to be fully aware and compliant with all these different regulations. The best approach is to take the strictest law and comply with that one. France, for example, has introduced a strict law on data privacy. We comply with that one and build from there. (AL): I suppose that this regulatory problem is a real challenge with global programmes nowadays? (AMF): Exactly, this is a good example. The local rules on taxes and local tariffs are often so unclear and inevitably will change the day that you are about to complete your annual renewal. This is very, very difficult but you have to comply. It has certainly become more complicated to build a compliant global programme in recent years. But on the other hand, we do have better tools than we did in the past and insurers and other service providers have improved the way they do this. Modern technology and communication helps, but it does remain a big challenge to make sure that everybody does what they need to do and on time. (AL): The global economy is increasingly dominated by intangible assets. This leads to challenges for risk management and insurance. Do you think the market is reacting adequately to this change? (AMF): Non-damage business interruption has been a topic of debate for some time now. The basis of this is the method of calculation adopted by insurers. This can theoretically be extended to include newer risks such as cyber, reputation and intellectual property. I think that solutions are possible, but this must be on a case-by-case basis. The nature of the risks is very different from industry to industry. But if you are able to closely analyse your risk, then solutions are possible. The first step for most companies is to better present their risk in the first place. Risk, such as supply chain, needs to be properly identified, quantified and explained if you want solutions from the insurance market. (AL): Supply chain risk is an increasingly important area. Do you believe this risk is truly insurable? (AMF): Supply chain is part of all production businesses. I think that ideally an insurer should not look at this on a line-by-line basis, but really focus on the individual company they are insuring. They are basically taking a bet on a company like an investor and this should be based on whether the company is well managed or not, and how they manage their supply chain. The insurer should not say: “I will take this part of the risk but not that part.” We are global companies that are usually centrally managed and we are usually majority shareholders for our subsidiaries worldwide. An insurer should take a global bet on a company with a management system of this type. This should make it possible for an insurer to deliver what we need. It is very annoying to be told that an insurer wants to work with you but is only willing and able to take your construction risk, for example. (AL): Given how competitive and soft the corporate insurance market is, you would think the big insurers would be willing to react to this demand. Why is it not happening, in your view? (AMF): I really do not know. The market is so soft and I do not see an end to the new entrants coming in. The problem is that the new entrants and the existing insurers only want to sell you additional products such as cyber. UK risk managers recently said they want cyber to be included within existing policies rather than as an additional line. Surely this would be a huge opportunity for insurers to offer global coverage to customers that includes everything needed, such as employee benefits that is an increasingly important area for AMRAE members and across Europe. Yes, the big insurers do invest in big companies like ours and so you have to assume that, having put the work in, they trust us. So why can’t they say ‘I trust you and will cover your exposures on an enterprise-wide basis’? (AL): Is this not where the captive becomes very useful? If you retain a decent share of the risk within the captive, surely that helps to build confidence in your loss prevention and risk management? Wouldn’t this then make it easier for the insurer to take an ERM approach to your coverage? (AMF): Yes. A captive is all about sharing risks. If we want the insurers to share in our risks and believe in our risks, then using the captive is a good idea and an added sign that we can do this together. (AL): What do French risk managers think Brexit will mean for them? (AMF): Brexit will basically lead to higher costs for insurance in the UK and out of the UK. One element that worries me is that many insurers, brokers and banks are looking at their options and where to locate in the EU, but they are not looking at France. It worries me that they may look to Brussels, Luxembourg or Barcelona to base their operations. This means that France reports into somewhere else and the ability to make decisions here is reduced. (AL): Do you use the London market and how will Brexit impact your approach? (AMF): We do use the London market, and of course we will not be able to issue coverage for the rest of Europe out of the UK after Brexit. This means that we will have to find fronting companies with additional costs, or we will more likely find cheaper coverage here in France. I think French insurance companies may see this as an opportunity to win business from London. (AL): Returning to cyber, are you happy with the way this market is developing? (AMF): Cyber should be considered more globally. This is an intangible risk and such risks can destroy companies. For basic IT failures, capacity is limited – it is too small compared to what we really need. In the US, they are used to more cyber cover. They export that cover to Europe and you discover that you have $1m to $10m in limit. That is a deductible to us. For some large production sites, you need $500m to $1bn in limit. What is the point in buying $1m? If you suffer business interruption from an accidental event, there is not so much capacity in the market. It is becoming really difficult to understand who is liable for what when different systems are involved and you have numerous suppliers. I see liability issues becoming very difficult and perhaps they need to be better balanced. IT companies limit their liabilities as much as possible but with the new regulations, liabilities will have to be shared on a different basis. (AL): Do you think it would be a good idea to introduce a national state or EU-backed pool for cyber risk? (AMF): No, I don’t think that we want that. I am not actually sure that natural catastrophe pools make sense on a national basis either, to be honest. When a catastrophe occurs in Europe, experience has shown that these events hit multiple countries – Germany, Spain, Switzerland and France. I don’t think we need a national scheme in France. Germany and Switzerland manage without them. AMRAE did participate in a consultation with the European Union about the potential for a pan-European natural catastrophe scheme and came up with ideas. This still seems to be under scrutiny. The same could be said for cyber risks. Perhaps a pan-European scheme would make sense, but not a national one. (AL): Who is responsible for ensuring that your global programme is compliant? (AMF): The one who issues the policy. We do not ask our insurers to do anything against the law. They need to take all the steps necessary to provide a legal product. It is up to them as they are the ones who are responsible for issuing the policy. They should not be trying to pass the liability onto us.

Time for insurers to step up

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