European Risk Frontiers Survey 2014–The insurer’s perspective

ADRIAN LADBURY (AL): How has the risk landscape changed over the last ten years in your view? DR EDGAR PULS (EP): There have been a lot of changes. Firstly, when you look at the industrial landscape there have been a lot of new technologies developed such as solar panels and windmills both onshore and offshore. The technology of customers changes a lot and this creates new risks that we try to follow and find new solutions for. Interdependency is a huge factor that has arisen in recent times. The way companies work has changed a lot. They can no longer be defined by industry or territory as in the past because they are part of the global economy. Any loss could be followed by complex business interruption problems because one plant does not produce everything as in the past. They rely on other plants and have customers worldwide. Industry is also now more based on information technology and a range of service providers. The change from local PLC (programmable logic controller) to an integrated computer-based steering of production lines increases the dependence on IT. Furthermore, the increase of losses due to natural perils such as earthquake, flooding, windstorms and the like has changed the risk landscape in the last years. AL: How could and should the insurance industry adapt to meet such a fast-changing risk landscape and requirements of customers? What are the opportunities?hideEP: The opportunities are not so obvious. The key for the whole insurance industry is to try and keep pace with the evolution of what our customers do because every change in their business leads to a change in the risk landscape. We have to really understand the needs of customers and build solutions for those needs. Our underwriters and claims experts have to understand the needs of our customers and their evolving business but we need experts in the business of our customers. This is why we now have more than 100 specialist engineers worldwide who work for the group who are able to help customers work out their changing risk profile and think about the implications. AL: This complex and rapidly changing risk landscape surely needs you to have wholly bespoke solutions. Commoditised products are surely no longer relevant in this environment? EP: Indeed, we try to cover the individual risks of every customer. Different exposures have different impacts on every company’s balance sheet. We try to evaluate what is acceptable to the customer and build risk solutions. Of course windmills are the same product. But they are used differently by every customer. So they need a bespoke solution for their individual circumstances. AL: What is your view on the apparently rising level of uninsurable risk? Do you think that the supposed gap is widening and is the insurance industry doing enough to try and close this gap? EP: In theory nothing is uninsurable. First and foremost we take what appears to be uninsurable risks to a customer because they are incalculable and try to make them calculable for us. For that we need data and information about the potential and probability of losses. We need quite a broad range of risks to make this work. We cannot insure what is potentially a multi billion-dollar loss with the need for more capacity than the insurance market can provide. We cannot be expected to take on the entrepreneurial risk of the customer. It has to be balanced. We need to be able to properly analyse the risk. AL: It does appear that some risk managers realise that their companies are taking big risks by venturing into new markets or ways of doing business that have not really been properly analysed and so cannot really expect you, as an insurer, to carry such risks. The Cloud seems to be a good example of this. Companies are using it but how many have really assessed the risk? Do you often have to tell customers that you really can’t insure them because they have not properly assessed their risk? EP: Clients have most often assessed their risks intensively. We carry exposures over all kinds of lines of business. At the end of the day we have to identify the real risks, where the trigger for insurance may lie and what kind of coverage is applicable. Cyber risk is a good example of the challenges involved. It is quite hard to understand the whole cyber risk question. Are we talking about a worm that can attack every computer in the world at the same time or a specific attack on the ICT system of one company. Or is it a question about whether data is stolen? These are very big questions. We have sat down together with customers to try and evaluate the risk and what really needs to be covered. We have engaged a lot of experts and universities and developed liability solutions that have non-damage business interruption (NDBI) elements. But the exposure needs to be specific not just a general worm that attacks everything at the same time because this brings huge accumulation risks. AL: Do you think that the insurance industry is doing a good job with claims handling? How can this area be improved? EP: Claims are actually what the customer pays for, not just a nice policy. It is the promise that matters and this is our day-to-day business. To do this we need claims experts who really understand the customer’s business and to be prepared for a big loss. Our claims handlers will handle a considerable number of big losses a year whereas for the risk manager it will hopefully be a once-in-a-lifetime experience. Therefore it is critical that we work together. Also claims handling needs to be a local approach and not just managed by a central department in our view. We have own claims handlers in our worldwide organisation with a lot of experience in all branches. We determinate the questions of coverage by ourselves and use external loss adjusters mainly for the assessment of technical questions, the loss amount or the determination of loss. We also have claims experts focused on specific business areas such as chemical and automotive and in particular areas like business interruption that can be very complex nowadays. We believe it is also very important for the claims experts and underwriters to work closely together to clarify wordings and what they really mean. We evaluate policies from time to time. That is a useful exercise and can avoid complications in the future. When I meet a customer I always ask what we can do better and particularly about claims handling. Two years ago we carried out an independent analysis of our performance with customers and found that claims was regarded as a very important area and thankfully we received a very high level of satisfaction among customers in this area. AL: We asked risk managers who took part in this year’s survey about how they go about deciding which risks to retain and which to transfer and whether price is the key factor. How do you advise customers in this area? EP: Risk managers today are highly expert and know a lot about the balance sheet needs of their company. They know what the maximum loss is that the company is prepared to accept under their current strategy. They also need to have a very technical understanding of their companies and what products they sell. And thirdly, they have to be experienced in insurance and risk management. Nowadays risk managers are well skilled in these three pillars. They know very well what level of retention they wish to keep and what savings can be made by taking higher retentions and the potential impact on the balance sheet. We find that risk managers are very professional in this regard. AL: Do you feel there is adequate capacity available currently in the corporate insurance market and do you think that there is potentially a role for capital markets to offer solutions to large corporate insurance buyers through special purpose vehicles and the like? Could such capital be used to tackle the so-called uninsurable risks or is it unreasonable of risk managers to expect insurers to carry risks that they themselves cannot adequately model and measure? EP: In general there is adequate capacity. There is plenty of capital in the market currently. The low interest rate scenario worldwide has attracted a lot of fresh capital into the market. The question is whether the insurance market can offer the margin that this capital requires. On the question of uninsurability for more difficult areas of risk quite simply often the rates expected are not adequate. But there are many areas where the insurance market has stepped up. Look at the capacity on offer today for natural catastrophe risk compared only with ten years ago. There has been a big increase. On the capital markets these are generally specific bonds and financial guarantees for specific losses. But every corporate client has very individual requirements for their industrial coverage and I find it difficult to see how such needs could be met by a financial market bond. When you go to the financial markets you need a track record of at least a couple of years. The risks need to be tradeable and calculable and there needs to be a big spread of risks and a clear trigger. I cannot really see how financial solutions as they exist today can meet the individual needs of corporate insurance customers. AL: Global programmes remain a hot topic. Do you think the insurance market is doing a good job in this complex area and how could they be improved? EP: Global programmes have definitely become more and more important in recent times and not just for the biggest companies. Demand for such solutions is rising for companies with smaller turnover too as they enter the global market. This was speeded up by the economic crisis and particularly for companies in southern Europe as they sought new markets to compensate for lack of growth in domestic markets. We can implement such programmes for companies all over Europe and worldwide where it makes sense for the customer. A lot of mid-sized customers are expanding to Asia and Latin America and we are supporting that growth. We now have the ability to provide cover in over 130 countries and up till now have never come across difficulties. We try to work out the real needs of the customers and what kind of impact a loss would have in a certain country. Local colleagues double check the proposed coverage to make sure that it complies with local regulatory requirements—that is very important. *Dr Edgar Puls, 41, is Member of the Management Board of HDI-Gerling Industrie Versicherung AG. Dr Puls is responsible for the Motor Insurance Division and he also controls the European units (with the exception of the United Kingdom and Austria) of HDI-Gerling.

European Risk Frontiers Survey 2014–The insurer’s perspective

Want to read this article?

Read Next

AXA P&C increases premiums by 7% as rates rise at AXA XL

Swiss broker Kessler names head of special risks

Four in five non-EU companies to align with CSRD

Multinational corporate client practice launched by Crawford

Hiscox London market rates up 3% in Q1

AXA P&C increases premiums by 7% as rates rise at AXA XL

Swiss broker Kessler names head of special risks

Four in five non-EU companies to align with CSRD

Multinational corporate client practice launched by Crawford

Hiscox London market rates up 3% in Q1

Want to read this article?

Read Next

AXA P&C increases premiums by 7% as rates rise at AXA XL

Swiss broker Kessler names head of special risks

Four in five non-EU companies to align with CSRD

Multinational corporate client practice launched by Crawford

Hiscox London market rates up 3% in Q1

Related Articles