Annual renewal hinders wider solutions, say risk managers

Risk managers have urged insurers to deliver multiyear insurance contracts, so that they can stop wasting time on annual renewals and get on with the job of mitigating the increasingly complex threats they and their boards want to focus upon.

The speakers also advised brokers to spend more time and effort adding wider value to their clients, rather than chasing a few percentage points on rates at each renewal.

The risk managers made their comments at Commercial Risk Europe’s Risk Frontiers event in Brussels, sponsored by AIG, Chubb and Aon. The day-long event was held in association with Belgian and Dutch risk management associations Belrim and Narim.

Carl Leeman, president of the International Federation of Risk and Insurance Management Associations (Ifrima) and a Belrim committee member, urged risk transfer partners to scrap the annual renewal and work with clients to deliver longer-term solutions, particularly for more standard risks.

“Long-term wordings are the way forward. It is a waste of time to swap or renew insurance every year,” began Mr Leeman, who is also chief risk officer at Katoen Natie. “Then we can get on with the important things, instead of going through those annual renewals every year, over and over again.”

Ferma president and Belrim committee member Jo Willaert agreed that long-term partnerships are desirable to help foster a deeper, strategic understanding of insureds’ organisations.

“If you have a long-term partnership, it is much easier for the partner – insurer or broker – to know your company and what its long-term strategy is,” he said.

The good news is both men reported that progress is being made on this issue and insurers are more receptive to multiyear deals.

“I see that this situation is changing dramatically and things are improving,” said Mr Willaert, who is corporate risk manager for Agfa-Gevaert.

Mr Leeman said more and more insurers are open to the idea of long-term insurance contracts.

“It is an evolution that we have seen over the last few years. Ten years ago, it was very difficult to find insurers that would give you that but I think these days, in the industrial market in which we all work, they are more willing to give you those long-term partnerships,” he told conference delegates.

He also told his profession that longer-term agreements are a two-way partnership that requires cast iron commitment from both sides.

“If it is a three-year deal, it has to be for both buyer and insurer. If it’s three years, we as buyers also have to stick to it,” said Mr Leeman.

He argued that multiyear deals are advantageous for insurers because they allow them to properly study the risks they are taking on, develop a true partnership with clients and rely on premium income for a longer period.

The need for longer-term deals is increasingly important as the risk manager role widens to more strategic risks that are more difficult to transfer and require sophisticated insurance solutions or pure risk management treatment, said the experts.

The call for change is not about relegating the importance of insurance, but allowing time for risk managers to focus more time and energy on the bigger role they are increasingly being asked to fulfil.

This is evidenced by surveys carried out by Commercial Risk Europe, Ferma and its national member associations, which repeatedly show how non-transferable, macro, intangible risks are dominating the risk landscape.

Mr Willaert believes this is a natural evolution of the risk manager role, as management turns to them for help with high level, strategic risk.

“The board comes to the risk manager for solutions to problems that keep them awake at night. The solution is no more the traditional insurance product,” he began.

“It is very good for the risk management profession that we are taking care of exposures rather than buying products. There is a reason why risk managers are more concerned about so-called macro exposures in surveys. They are bound to be because that is what management is asking for help on and solutions to. I don’t think any board is kept awake by whether their property is covered by insurance; they know it is covered,” explained Mr Willaert.

There is an argument that brokers are barriers to multiyear renewals because they rely on annual commissions to make money.

Mr Leeman simply advised brokers to look for other ways to add value to clients and secure revenue rather than squeezing the market every year and trying to get more commissions.

“They should look for more added value. Exchange of data is one area where brokers can give a lot of added value. We need one unique system where everybody can share data. Currently, everybody has different IT systems that do not communicate. We have so much data everywhere at insureds and insurers but we don’t exchange that efficiently. This could be a role that brokers could step into, to develop a uniform system or ways to connect the different systems,” he said. Brokers can also add huge value by helping companies make investment decisions, continued the Ifrima president.

“To get decent country information on where a company wants to invest would be very useful. It needs a completely different mindset from brokers when it comes to the added value they can give to companies. It is much easer to pay a fee for those things than it is for the 5% discount on cover,” he said.

Mr Willaert said such information and subsequent solutions needs to come from partnership between risk manager, broker and insurer, rather than an off-the-shelf product. “We are partners,” he reminded the audience.

For his part, Belrim president and group risk and insurance manager at CMI, Gäetan Lefèvre, urged fellow risk managers to help their organisations deliver on strategy. “Strategic decisions, such as entering a new market, are the big issues for companies and where things can go wrong. This is where risk managers need to – and should – help boards,” he said.

“It is important to have the trust and support of the business and management. It is important risk managers have access to management, to open its eyes and say ‘be careful because we know from data that there is a risk lurking in a new project or venture’. It is important that we say something that adds value to the decision-making process,” concluded Mr Lefèvre.