DVS to tackle emerging risks with insurance market

And, the DVS has decided to act through the creation of a formal dialogue with the insurance and reinsurance companies to try and discover a better way of meeting buyers’ needs, it revealed during the meeting.

“This is a situation that is constantly changing and it is felt that insurers are not waking up to follow the development of the risks. There are new technologies, changes in the application of technologies and risks and it is felt that the insurers are too hesitant in their reaction and slow to respond to changing needs,” Günter Schlicht, Chief Executive of the DVS, told Commercial Risk Europe during the meeting.

“We therefore are proposing that the buyers and insurers enter into a dialogue on the development of new concepts to meet these changing needs. This is our message to the insurers and it needs both sides to participate to make it work. We do have discussions with the GDV [German insurance association] on a regular basis and we will take it up in future to at least discuss how we go about this. Non-material damage business interruption is an example of this, where there is a black hole developing where nothing happens. We have to dig into that. This is both a German and pan-European issue,” said Mr. Schlicht.

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Hans-Jürgen Allerdissen, Managing Director at Deutsche Verkehrs-Assekuranz- Vermittlungs, the inhouse broker for Deutsche Bahn based in Frankfurt told CRE that he believes part of the problem is the lack of skilled people within the insurers nowadays.

“In the past insurers built up a lot of experience and knowledge on the engineering side, people with decades of experience of logistics, engineering and the like, but, this does not seem to be the case anymore and they do not understand the risks as they did in the past. The same seems to be the case with reinsurers. They are not entrepreneurs and the insurers do not have the skills they did in the past because of cost cutting. If they do hire experts they are in the claims handling departments which is not good for us. So you do not have the same experienced technicians you used to have 20 years ago when insurers would hire ex-marine captains, engineers and so on,” he said.

Gregor Kohler of Bayer told CRE that innovative products are a problem, but he said that insurance managers have to understand that such new solutions will only be developed at a price. “We are struggling to get new products for our chemical and pharmaceutical products so to an extent it is true the insurers are not reacting. But, you must be clear and understand that the insurance industry does not have the robust data for non-physical damage business interruption for example and so you must be clear that the price will be high for the first years at least,” he said.

Harry Daugird, President of ABB Komposit Risk Consultant, the insurance operation of engineering group ABB, said that he believes that the buyers need to be a little more understanding of the insurers’ position with new risks. “The buyers are seeking protection and to simply state that the insurers are not innovative is a little short sighted really. BI without property damage is a most pressing issue, but, even this question has been around for quite some time therefore I am a little surprised that we are talking about this,” he said.

During the AGM it was also formally announce that Dr. Stefan Sigulla, Head of Insurance and Risk Manager at Siemens in Munich, has been voted President of the DVS for another three year term.

Mr. Schlicht, who has been with the association since 1987, traditionally gives an extensive overview of the main topics faced by German insurance buyers and tackled by the association at the AGM. This was his last such speech as he will step down on June 30 to be replaced by Dr. Phillip Andrae who has worked for the DVS since 1999.

This year Mr. Schlicht said that the DVS had had a busy agenda and Solvency II was certainly one of the items on the list, he told CRE.

“Solvency II is a worry because the standards were getting so tough it would really hurt the market and this was going too far. This concern has been expressed by all the market bodies such as FERMA and ECIROA and so CEIOPS took a step back and said that they do not want to damage the market. Michel Barnier [the EC Commissioner in charge of Solvency II] said the same thing at the recent public hearing on Solvency II. This was encouraging but these are just words and it is still too early to jump to conclusions. We have to wait for the next text so we are still worried about Solvency II, not about Solvency II per se, but the way it is implemented.”

Mr. Schlicht said that the DVS is comfortable with the new Block Exemption Ruling that, among other things, gave consumers the right to access more information such as statistics.

“The new rules proposed by the Commission are fine and we have no serious objections to these. Access the statistics is good for competition, but, you do have to ask whether the publication of such statistics will really be useful because it is not clear that what the insurers may publish will be understood. This is detailed information that only really an actuary may be able to understand.”

The Commission also recently published new guidelines on standard policy conditions which the DVS welcomes. It is, however, not so sure about the EC’s separate renewed interest in the workings of the co-insurance market.

“In Germany the GDV publishes wordings and will continue to do so without the exemption which is useful. If we are consulted then this is a good idea and we appreciate this. What we don’t like so much are any constraints that may be placed upon ad hoc co-insurance arrangements in Germany. This is not against EU competition law and the market works well.”

In terms of the market outlook, Mr. Schlicht said German buyers are relatively happy but focused on cost control. “There is reasonable industrial insurance capacity in Germany and has been over the years. It is a flat market currently and is liable to remain so for the rest of the year. There is no indication that it will change unless there is a major event. Buyers are paying very close attention to prices and have to watch what is bought closer than ever before, including insurance and in some branches of insurance revenue is down along with insurance and this of course influences what happens in the market,” he said.

The credit insurance market has caused headaches for German buyers in recent times, however, and the DVS would like to see that market up its game.

“There was a lot of criticism about this market last year about inadequate coverage when it was needed and without warnings. The Federal Government stepped in to fill up limits, but, this new coverage has not really been used, there were only 245 cases where it was used. We were unhappy with the communication between the credit insurers and the buyers as they were changing and withholding limits on a daily basis and they should have done better to communicate the changes,” said Mr. Schlicht.