Balancing act continues in Spain

Pepe Rodríguez, international director of Filhet- Allard MDS and Spanish partner of Risk Frontiers Europe sponsor Brokerslink, talks to Liz Booth about what has been a challenging year.

Q: Are insurance rates continuing to harden this year, along with terms and conditions? And are there more exclusions?

A: The Spanish insurance market has experienced a severe reduction in capacity and the rates applied have hardened noticeably. At the same time, wordings have been modified with new exclusions connected to Covid-19, business interruption (BI), cyber risks and directors and officers (D&O) cover.

In the case of cyber risks, the renewal premiums have increased by between 25% and 60%, added to the fact that the number of companies that have transferred these kinds of risks for the first time has grown rapidly, especially for those with turnovers of more than Ä250m.

Among lines most affected are property and BI, industrial heavy risks, recycling and insureds with poor loss histories. Also impacted are professional indemnity covering IT and advisers with international exposures, general liability including pharmaceutical risks, D&O and cyber risks.

Q: Are claims getting more difficult to settle this year?

A: Covid-19-related loss-of-income claims were filed by a large number of insureds. The majority of these have been rejected by insurers because most policies in our market exclude claims related to pandemic diseases. 

There has been an exception to this trend on a BI loss in Girona relating to a pizzeria obliged to close by the authorities. The local courts ruled that the policy in question did not clearly exclude these kinds of claims. The ruling encouraged the clients of the insurer to file claims related to the shutdown dictated by the local, state and European authorities. All insurers reacted stating that the claims related to the pandemic were excluded in their wording. This contrasted with the health and life insurers, which have reacted proactively in favour of those affected by Covid-19.

For non-Covid-19 claims, insurers have adopted a more agile approach to the settlement process in an effort to help their clients facing severe reductions in turnover because of the pandemic’s impact.

Q: Are you seeing more clients looking at alternatives to traditional insurance? 

A: Clients that have experienced difficulties placing insurance, have a multinational risk profile and with a high insurance expenditure, have shown an increased interest in captive insurance solutions, replacing or supplementing the lack of insurer and market appetite for their risks, as well as the higher rates requested by the insurers supporting their current programmes.

Along with that, markets specialising in sophisticated solutions have gained a presence because of the withdrawal of traditional players in sectors such as industrial and technological, and other areas with capacity-intensive requirements. 

Q: Has the relationship between insured, broker and insurer changed?

A: The role of the broker has gained importance, with clients affected by the trends I’ve described, sourcing insurance and risk management solutions for specialised and complicated risks, placing reinsurance capacity and rolling out captive and alternative schemes to fulfil clients’ requirements. Therefore, clients are now more keen to rely on their broker’s experience and skills. Insurers are now less interested in client servicing, and this has left room for the brokers to step in when a need arises.

Q: What do you see as the key risks going forward?

A: Cyber risk and business interruption arising from supply chains and the pandemic, as well as property risks for heavy industries are the big risks. 

The rapid adoption of new technology will continue in 2021, bringing ever greater connectivity. Regulatory risks, including sanctions and bans on purchasing foreign tech, will increase this year. Ideological and practical blocks are emerging rapidly. Companies across the world will have to balance the drive for technological innovation with security, integrity and resilience challenges.

Q: How do you think risk management and risk managers fared in the pandemic?

A: The risk management profession has been affected by an event that was never forecast. Therefore, all the plans designed by risk managers have had to be adapted to this new scenario and a completely different framework. The pandemic has substantially reduced the risk appetite of insurance market investors, causing a massive reduction in underwriting capacity of both local and international players. This now is one of the top issues on any risk agenda.

Risk managers and compliance officers should ensure their organisations implement integrated risk management processes related to decision-making and rethink their approach to corporate governance through the prism of compliance and risk management. 

The road ahead is full of uncertainty, given the volatility of the legal framework, the reshaping of the financial markets because of the arrival of massive recovery funds to help organisations return to pre Covid-19 conditions, and the controls set up by the authorities to monitor the use of these funds.

Q: What are the key lessons learnt from the pandemic?

A: Now, risk management must consider global trends that can certainly affect any business, no matter its size or activity. Business travel will substantially change its shape and volume with the increasing number of business meetings and training sessions that are now online. 

Organisations have discovered just how fragile their supply chains are. Therefore, local supplying alternatives will be prioritised, and reliable options abroad will be critical for all interconnected businesses.