Buyers bruised by hard market but relationships still strong

The hard market has had an impact on the appetite of some carriers and raised questions about alternative risk transfer, but insurance remains the critical solution for transferring risk off the balance sheet, according to Nordic risk managers taking part in our Risk Frontiers Europe survey. They added that relationships between insured, broker and insurer may well have taken a slight knock in 2020 and 2021, but are ultimately standing strong and are sustainable. Alessandro Ingrao, risk manager at Holmen, said rates now appear a bit more stable but there are no signs of prices coming down. Terms and conditions are worsening and exclusions growing, he added. The most heavily impacted lines remain D&O, cyber and property, explained the risk manager. In response to the market, Mr Ingrao is considering boosting loss prevention and raising internal risk awareness, as well as bigger self-retentions and improved contractual risk transfer. Dr Ulrich Adamheit, board member of the Swedish risk management association Swerma and head of business risk at Vattenfall AB, is also seeing more market hardening this year, with more or less all lines affected by premium increases. He said cover is more stringent and there is less “silent” protection in polices. As a result, he said more people are turning to captives. Denmark-based Lene Ritz, chief risk manager at Energinet, believes the hardening will likely continue for the next few years. “We still have a pandemic and the insecurity that this causes will continue for some time. The future will change because of Covid-19,” she said. “But the hardening market started before Covid-19 and we should have foreseen this after so many years of a soft market,” added Ms Ritz. “The hardening market of course means continuously rising rates on all lines. However, the terms and conditions, not to mention the expanded need for risk information, have changed significantly too,” she said. Ms Ritz’ company is working harder to sell its risks to the insurance market. “We need to develop even more extensive risk information. And we have to meet requirements from the insurers, which could mean changes in already entered contracts with business partners.” In terms of the biggest impacts, she said liability lines are affected significantly. “At first it was the non-interest from the insurers on LTAs. Then the covers got narrowed down and now we see less capacity. On construction risk, we see higher deductibles and an offshore market that is basically ‘impossible’ to act in.” And Ms Ritz said the hardening market certainly hasn’t improved the claims experience. “In general, we have not had that many claims and therefore it is difficult to talk about a lengthier process. But, overall, the process has historically been lengthy. However, the efficiency of follow forms, which we have had good experience with in the past, seem to have been eroded because of co-assurance agreements with less and less caps for the lead,” she said. Ms Ritz does not believe the hardening market has broken the relationship between insured, broker and insurer. But things are more difficult, she suggested. “The understanding from all parties that this is ‘the name of the game’ is present, and has the professional attitude that it demands,” she said. “However, insurers have extended the need for risk information and their giving less cover has changed the handling of potential business changes or scope changes in relation to construction. The time for approving scope changes and other minor requests is more and more onerous, and demands more and more risk information from the insureds. You could get the feeling maybe the trust is eroded a bit. But I am sure that it is the insurers’ internal processes that have become more rigid,” Ms Ritz added. Her words were echoed by other Danish risk managers. Two that wanted to remain anonymous both reported higher prices as well as tighter terms and conditions compared to 2020. They said the most affected lines were property damage and business interruption, liability, construction all-risk and cyber insurance. One reported that all claims are being “scrutinised and audited to a degree not seen before, and great efforts are being exercised in finding reasons to deny coverage… the latter in some instances to a degree not defendable according to policy conditions and/or general law”. As a result, he is considering buying into a protected cell captive. The risk managers also think brokers have limited power to protect buyers from the hard market. “The position of the broker has declined as brokers have little or reduced power to change the outcome of the hardening market and difficult claims environment,” one said. Another Danish risk manager said rates have increased. But due to his company’s risk management activities and strong relationship with its insurers, the increases have been kept lower than those averages reported by Aon and Marsh for the EMEA region. “We had the general cyber clauses introduced to our programmes and, on the property damage business interruption programme, I was fighting for our CBI coverage and managed to keep the wording as is. However, our lead insurer has informed us that we may need to look into cutting some of the coverage for the 2022 renewal,” said the insurance buyer. He has yet to look into alternative risk transfer but reported that he may soon consider captive solutions. The risk manager said there is little change in his existing insurance relationships. “This has not changed since I joined my company six and a half years ago. Our insurance broker knows that for us it is important that we have the direct communication with our insurers. For instance, during the insurance renewal period all the important meetings I will have will be with the insurer directly, without involvement from the broker. Because this is the best way to ensure that our insurer has the best possible knowledge about us. We are the ones having the agreement with the insurer,” he said. Adding: “We do use insurance brokers a lot actually – but only when this adds value. They support us in the renewal and complicated tasks during the insurance period. All the risk managers concluded that finding capacity for their insurance portfolio next year could be tricky. While some may appear slightly more relaxed than others, they all shared a common view that the hard market is far from over and things could get worse before they get better. The feeling was, however, that ultimately they will need the insurance market to be there for them in the future. While it may be tough going at the moment, they recognise the need for a sustainable insurance sector and a professional approach to their risks.

Buyers bruised by hard market but relationships still strong

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