Emerging risks demand solutions not products–Switzerland

The reality is that such broad-based risks are very difficult to pigeonhole in such a manner and require a more holistic approach that involves services and consulting support more than risk transfer, argued the risk managers. More fundamentally, business strategy should not be based upon the availability or otherwise of insurance, agreed the risk managers. “If you look at the top 10 risks identified in surveys, at the end of the day always four or five of these risks, and usually the most important ones such as reputation, compliance or demographic change, are not insurable. There is no insurance solution. Do we really believe there is only insurance coverage for a risk as broad as cyber?” asked Maurizio Micale of STM.hideStuart Martin of Bombardier Transportation agreed. “This is where we keep letting ourselves down. We keep looking for insurance solutions such as in cyber. I am on the customer advisory board of the one of the biggest corporate insurance groups based in Europe and we recently had a meeting to discuss cyber. We asked how this risk can be quantified and received a set of blank stares in return! How can insurers be expected to come up with coverage that really works if they don’t know how to quantify it? Especially when the customer asking for the insurance product doesn’t know how to quantify it himself or herself,” he said. Mr Micale said that the current range of cyber risk products available look more like marketing efforts that do not have a great deal of substance. This is a concrete example of how insurers will find it increasingly difficult to sell products to diverse and complex multinationals in a manner that fits their historic business model over time. “The reality is still that the insurers and brokers struggle with corporations’ needs and expectations. There are still a bunch of risks that are not fully insurable. Ultimately, what corporations need are suitable solutions. In my opinion, over time insurance shall combine risk management IT professional services with financial capacity and the coverage will become much more of a commodity business and insurers will differentiate themselves for the global proposal they might offer to meet corporate market demands and needs,” said Mr Micale. Dominik Ebneter of Swissport International agreed with fellow participants that it is dangerous for risk managers, brokers and insurers to think that complete solutions can be found in such complex and diverse areas such as cyber. However, he does not think the market is completely wasting its time on cyber, but is rather just finding its feet. “To just focus on what is insurable is completely wrong, it is ‘putting the cart before the horse’ as you say in England. Insurance is a risk financing tool, it is just a potential mitigation tool and not the answer or right tool for every risk. You have to assess and evaluate the exposure first then consider the risk financing options along with other risk mitigation measures available to the company. That is not to say that elements of the risk are not insurable. It is a soft market and insurers need to look for new products. We had a similar situation 20 years ago with D&O and now everyone buys it. The insurance market is doing the right thing,” he said. Mr Ebneter also said that the insurance market needs to focus its efforts on industries that have real exposure to cyber risk and not try and sell cover to everyone. “We have made an assessment of our exposure and decided that our industry is not exposed to cyber risk. The insurance industry needs to think what business clients are in, what cover is relevant and focus on areas like IT and financial services where companies are dealing with sensitive customer data on a daily basis. Other companies may need to look at technological solutions rather than insurance to protect the risk,” he said. Hans Mazenauer, Head of HDI-Gerling in Switzerland, said that cyber insurance is an area ‘under development’ and has some way to go before it is perfected. This is clearly one risk area that needs true partnership between risk managers, brokers and insurers, he said. “Of course it is an interesting business opportunity for us. But we have not ‘made up the risk’. It is there and more and more visible,” said Mr Mazenauer. “The fact is that many customers are looking to their insurance providers as sparring partners to support them in the analysis of the risks and share some of the experience we have. So it is about getting the process started, we can help there,” he continued. Such discussions are not only confined to cyber. The risk manager needs to go through the same evaluation process for all of his or her company’s risks. Mr Ebneter said that his company, like many others currently, is expanding to new markets in potentially politically unstable parts of the world such as the former Soviet Union, Africa and the Middle East. His job is to assess the risks attached to this expansion and, as part of that process, investigate whether political risk insurance is a viable option. “Political risk insurance is possible to help mitigation but we may decide to retain the risk on the balance sheet. As a risk and insurance manager I have to carry out a proper evaluation and prepare for a conscious management decision. It is not just about buying insurance and thinking the risk has been managed,” he explained. Mr Martin agreed. “You have to remember that there are three options—manage, transfer or finance the risk. There can be a tendency to just go straight to insurance but you need to ask first if there is a better alternative. You have to ask whether the coverage you buy in some parts of the world is worth the paper it is written on and whether you would simply be better managing the risk,” he said. Sabrina Hartusch of Triumph added that it is important to present the analysis and options to management so that informed decisions can be made when expanding. “There are a lot of big companies moving to Africa. This is a pure business decision. One of the main drivers cannot be whether it is easy or difficult to find insurance. I never see myself as holding up expansion,” she said. Mr Micale agreed. “Any company business model should never be based on insurance. Insurance is an option to help manage to mitigate the residual risk and the risk appetite as self-insurance retention. Over the last 20 years, the insurance industry has contracted severely on a number of occasions following major losses and so it cannot be relied upon. Managers have to build the business models without insurance!” he said.

Emerging risks demand solutions not products–Switzerland

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