Cards on the table

CRE caught up with Carsten Scheffel, Allianz Global Corporate & Specialty’s (AGCS) board member and chief regions and markets officer covering the Nordics, South America and Asia, as well as head of its regional unit London. Mr Scheffel was refreshingly open and frank in response to some of the big complaints from buyers about how the insurance market currently operates. He told CRE that transparency over broker remuneration needs to better managed, explained how his firm is trying to reduce the burden of the annual renewal and suggested that cyber cover is likely to continue down the standalone route for now. There was also time to discuss the long-term soft market and likely future direction.

Following on from recent complaints by the likes of Airmic and fellow insurer Evan Greenberg, Mr Scheffel said transparency over broker remuneration has fallen away, despite positive moves made during investigations by former New York governor Elliot Spitzer back in the mid-2000s.

“I thought after Spitzer we were getting transparency, but I think it has slipped away again. The customers don’t seem to feel there is transparency. It’s not there at the level that makes customers feel happy,” said Mr Scheffel.

He believes brokers must be more transparent when it comes to remuneration and made the point that ultimately, customers pay for any fees or commissions charged to clients or insurers.

“Let’s be honest with ourselves, at the end of the day the customer pays for everything. None of the markets exists unless the customer pays the bills,” said the Canadian. “This is why transparency is so important.”

He stressed that the soft market and decreasing rates have led to a fall in broker commissions and meant intermediaries have had to seek new ways to boost their revenue. Targeting extra cash from insurers, through higher contingent commissions and the like, is the easiest way to achieve this, continued Mr Scheffel. It seems this has led to concern among some in the buying community that past practices are returning.

“It’s a vicious cycle. Brokers still need the same number of people to service the customers but when they get squeezed the first place to go is the insurers, because they give in straight away. Brokers don’t seem to want to approach customers and ask for an extra 10%, which would be a normal transaction in most businesses, or the customer doesn’t want to pay,” explained Mr Scheffel.

Standalone cyber

Insurance buyers taking part in our European Risk Frontiers survey have complained that the insurance market is continuing to push cyber protection as standalone cover, rather than wrapping it into existing lines as they would prefer. They say standalone cyber insurance is a hard sell internally on top of existing budgets, and they are more likely to get extra funds if protection is attached to existing lines.

We asked Mr Scheffel why insurers are pushing standalone cyber cover and if client demands could be better met. He stressed that the customer is always right and ultimately cannot be ignored. He agreed that multi-line solutions are desirable, but noted that the sheer complexity of cyber risk means that for the time being, customers will likely have to make do with standalone solutions. But ultimately buyers may get their wish, he added.

“When you look back historically, it is not abnormal for the market to run products as standalone for an interim period of time while we get our arms around the risk, ensure our service level is high and then move forward. Our exposure management and risk accumulation control is key here. So I would say standalone is the way things will work going forward, but the cyber insurance market is still in its infancy beyond the US, and further evolving globally. In the future, who’s to say it won’t become part of one of the other product lines,” said Mr Scheffel.

Unclogging the renewal

AGCS appears to be listening to buyers’ complaints over the annual process and their wish to reduce the time and effort needed to place insurance. The insurer is offering longer-term contracts on the one hand, but also experimenting with rolling renewals. This second development sounds extremely promising for readers of Commercial Risk Europe and seems like a real example of putting the customer first.

“We agree that the renewal can be too complex and there are a couple of ways we are addressing this. One is issuing and making commitments on contracts for two, three or five years. The other way is our experiment with a rolling renewal, whereby if three or four metrics stay steady the renewal just rolls on,” explained Mr Scheffel.

The rolling renewal means there is no need for full-blown negotiations each year. If there have been claims or significant changes to the risk profile, then a more in-depth discussion is needed.

“Even in this later case the policy is still rolling and there is no intent to remarket it. In this system, you sit down with the client each year to review the coverages and check everything is working best for them. Obviously we buy reinsurance on an annual basis, so to fully deliver for clients on their wish with renewals, we need to further get our head around buying insurance in the same way to match our customers’ needs,” explained Mr Scheffel.

He said there has been some interest in rolling renewals from risk managers but that currently, longer-term deals are proving more popular. Based on discussions we have had with risk managers, it seems buyers will be keen to discuss rolling renewals further.

Mr Scheffel also noted that AGCS is responding to buyers’ desire for all-risk policies. This has long been an issue close to the heart of many CRE readers.

“We are doing much better on that today. We look across the board and the combined ratio of the customer and not by the silo line of business. That is a big shift. When a customer comes to us we put a deal team together on the account. It is represented by underwriting, claims, operations if it is a global programme, actuaries and the reinsurance departments. You have everything you need to look at the customer and across all classes to work out how best to manage the clients,” said Mr Scheffel.

This approach is available to both new and existing customers. All of these client-driven approaches have created stickier customers, so are a win-win for all involved, he added Mr Scheffel.

Soft market

When it comes to the seemingly neverending soft market, Mr Scheffel suggested that some lines are seeing price adjustments and more are needed. But he feels that any widespread market hardening is unlikely to materialise because huge amounts of flexible capacity now look the new norm and insurers are still delivering decent results.

“There are product lines today that are already seeing adjustments, and in some countries more aggressively than others. In some areas rate decreases have slowed to a minimum, but it is really spotty. The combined ratios of many carriers are still good, so until that changes and capital stops flowing into the business, you are not going to see much change in market conditions. They call it the new normal. I don’t think we will see an old-fashioned hardening of the market,” argued Mr Scheffel.