Buyers get picky and turn to self-insurance in France

Companies have also become more picky about the services they buy as a result of the tight economic times.But customers should retain the upper hand in most insurance lines. This is because capacity remains abundant and competition among insurers is becoming tougher by the day according to leading players in the French insurance market who spoke to Commercial Risk Europe in the run up to the AMRAE conference in Deauville this week. Insurers and brokers see a gradual hardening of the market in lines affected by natural catastrophe risks, a direct consequence of the record amount of losses recorded last year. “Property represents the biggest challenge for buyers in the current market,” said Thierry Van Santen, the General Director at Allianz Global Corporate Solutions in France and a former Chairman of AMRAE and President of Ferma.hide“There are rate increases in areas with nat cat exposure or for accounts with a poor loss ratio,” he added. But brokers say that rate hikes are concentrated in countries where such risks are more evident, in a situation that is far from the cross-market increases posted after the terrorist attacks in New York and Washington in 2002. In the domestic market, upwards pressures on property insurance rates are much less conspicuous, the experts say. “Large companies with business spread around the world are clearly witnessing a hardening of conditions on property damage insurance,” said Phillipe Maraux, the Head of Property Risks at Marsh in France. He noted that rates have sometimes raised by 10% to 15%, but not all clients have been affected by the rises. Increases have been focused on companies that have operations in areas with high natural catastrophe risk, such as California, Japan and some Asian or Latin American countries. But even for such places there is no lack of capacity, say the experts. “In the upper middle market in France, there is still much competition and prices remain stable and can significantly decrease in some cases,” reported Mr Maraux. Paolo Crestani, the Head of Property and Casualty for Corporate Clients at Gras Savoye, told CRE that pressures on property insurance rates are creating some localised challenges for buyers, especially as they are starting to grasp the full implications of their supply chain risks, after last year’s tsunami and earthquake in Japan and floods and Thailand. “For the first time ever there has been a substantial increase of loss ratio due to contingent business interruption,” he noted. “We have seen higher premiums for natural catastrophes, and a reduction in capacity for contingent business interruption, where capacity is actually needed,” added Mr Crestani. In any case, both clients and insurers still have a way to go to properly deal with the issues raised in 2011. “There is very little knowledge and capacity in the market for supply chain risks,” Mr Crestani said. For its part, AXA Corporate Solutions has seen property rates increase by 7% on average in France. Increases have been higher for companies that have facilities located in regions where catastrophe risks are more acute, said Philippe Jouvelot, the firm’s Chief Underwriting Officer for Property and Casualty. In some cases, he said, the hardening of terms and conditions has been significant. “Sometimes there has been an impact of plus 10% of equivalent premium in deductibles increase, and another plus 10% in real premium rates, which in practice makes a plus 20% change in price,” Mr Jouvelot noted. So even though clients are not necessarily paying higher premiums, insurers should be able to improve their technical results as they will only start paying claims when losses reach a higher threshold. “In some cases, you actually see both an increase of deductibles and a considerable increase in premiums,” Mr Jouvelot added. It also seems that large insurance buyers are bracing themselves for periods where it will be more difficult for them to find inexpensive coverage for some of their risks. Both insurers and brokers have noted that a growing number of clients are making use of their self-insurance tools in a quest to keep premium costs at lower levels. “Due to the crisis and current financial circumstances, some companies prefer today to keep risks for themselves,” pointed out Anne Charon, the Country Manager in France at insurer RSA. “These clients are not prepared to pay too much for premiums,” she added. The growing use of self-insurance tools like captives, of course, creates its own set of challenges for insurance buyers, as the viability of captives after the Solvency II Directive kicks off in 2014 remains a matter of much debate in the market. Stingier clients are also keeping a closer eye on their insurance contracts to understand exactly what they are paying for and cut out costs wherever they can. “Large buyers have been asking us to prepare detailed studies about their insurance needs,” said Mr Maraux. “They want to understand the risks they face and to learn exactly how much property insurance they actually need to purchase. Some clients are making more use of auto-insurance strategies too.” “There has been a growing distinction in the market between pure capacity providers and service providers,” Mr Jouvelot said. “Customers want to know exactly how much they are paying as pure premium, without the fronting element, cost handling, international programmes, fees and commissions. They also want to learn about the services they are being charged for, and whether we can do some service level agreements,” he continued. And that is because French companies have become more picky and want to purchase only the products and services that they believe they really need. “Transparency is a big issue in the market right now,” said Mr Jouvelot. “Customers want to compare premium prices in the worldwide market, and they make tenders on the scope and service of services. They want insurers to compete on service,” he said. Another sign that the winds are changing, although not quickly, is that insurers have identified a lower tendency by clients to swap providers. Mr Van Santen at AGCS told CRE that there is very little movement in the market as clients are less keen to change current carriers, thus relinquishing conditions achieved in times where markets were more favourable to them. “We do not see many tenders in the market nowadays,” he said. “Buyers appear to be very careful, as they don’t believe they can get better rates, and at the same time they do not want to lose what they have got in recent years,” explained Mr Van Santen. But some companies believe buyers have retained their ability to achieve lower insurance prices, not least because competition for their custom is fierce. “The market remains very soft in France,” Ms Charon at RSA said. “There is a lot of competition and new capacity coming into the market. Rates are going down even in property lines,” she added.In her view, for a turnaround to take place, the bigger insurers, the likes of AXA or Allianz, will have to take the initiative. “If one of the main players in France starts to increase their rates, maybe the market can follow,” she said. “They have to give the signals to the market, but it has not been the case so far." One specific sector where prices continue to slide is D&O, where there is plenty of capacity and the traditional leading carrier, Chartis, has deployed fierce efforts to keep its portfolio of clients, according to market insiders. Mr Crestani said that initiatives by rivals to break into the market have helped to keep rates down. But Mr Jouvelot believes that it will soon prove difficult for insurers to maintain the lower premiums charged today.“The D&O market has been very soft in recent years,” Mr Jouvelot said. “Coverages have been expanded, but prices have not followed. Now the market is turning back towards charging higher premiums for exposures. It is needed too, in order to achieve a technical balance between premiums and exposure. So companies are likely to face some challenges to buy at some reduced price their D&O policies for high exposed risks,” he said. On the other hand, some markets that troubled French companies in recent times are showing progress in 2012. According to Mr Crestani, banks seem to be able to readily buy D&O insurance for their executives, something that they were almost unable to do in recent years. Fraud insurance has stabilised after two years of turmoil, he said, although there have been big increases in deductibles and less capacity available. And a number of insurers are starting to offer coverage for cyber risks, a new concern for French companies. But Mr Crestani told CRE that he is not sure whether the products that are being made available will meet the needs of companies to deal with the new demand for a worldwide platform. The general view is that, with the exception of property, no hardening is in sight for the French insurance market.“The market is at a bottom point. There are some discussions about terms and conditions, but nothing too significant,” Mr Van Santen said. “We have a flat market today in France.” This is because, it seems, that even in business lines where rate hikes could be justified from a technical point of view, competition is making sure that prices do not go up. “There are pressures for motor insurance rates to go up in France, but at the same time, some players have already cleaned their portfolios, hence their wish to get a share of the market for themselves, which helps to keep prices down,” Mr Crestani mentioned as an example. Also, a number of Lloyd’s agencies have recently set up shop in Paris, boosting capacity for speciality lines, including some areas where French companies find it more difficult to find capacity in the local market.

Buyers get picky and turn to self-insurance in France

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