Every cloud has a silver lining

There are always positives to find, even from a global pandemic, says Juan Aznar Gáldiz, director general at HDI Global in Spain

While an enormous amount of harm has come from the global pandemic at personal, business and political levels, one of the few positives to emerge has been an improvement in communication.

This, according to Juan Aznar Gáldiz, director general at HDI Global in Spain, has not just been about our ability to use Microsoft Teams or Zoom for calls, but in spending time talking to each other.

He believes that unlike in past years when everyone was in such a hurry, there is more time for longer and more meaningful conversations now that so many are working from home.

But despite this positive, Mr Aznar Gáldiz is among the first to admit that the hard insurance market conditions have impacted Spanish organisations, particularly for certain lines of business. Like so many other parts of Europe, he reports that terms and pricing remain tough for financial lines, cyber and product liability in particular.

“It is not a question of price but a question of capacity. The availability of insurance is not there for every risk and every company,” he says.

Renewable energy business is, for example, a difficult area. Spain is home to many renewables businesses, thanks to its plentiful sun and wind, however the risk of theft remains high and insurers are often cautious about offering cover.

Another issue this year for Spanish insurers has been demand from customers with interests in Latin America. Mr Aznar Gáldiz reports an uptick in demand from his customers in Spain looking for capacity from within the country to cover their Latin American risks. But the region is catastrophe-prone and claims have been constant.

All of these factors have put pressure on available capacity, which Mr Aznar Gáldiz  thinks will mean prices remain high into 2022 and maybe beyond.

And as the world hopefully moves out of the Covid-19 pandemic, Mr Aznar Gáldiz says insurers are watching and waiting to see the economic impact and its fallout in terms of insurance claims.

Spain is home to many small and medium-sized enterprises that have found it tough to ride out the pandemic, Mr Aznar Gáldiz notes. So, the question for insurers is whether these problems translate into claims, particularly in lines such as D&O.

However, to date it has been a case of so far, so good, says Mr Aznar Gáldiz, as claims levels in 2020 and 2021 have not risen much above expectations. As a result, those claims coming through are being settled smoothly, he suggests. 

Insurers have also been mindful of any possible uptick in fraudulent claims but, again, so far, so good, and fraud levels have not risen sharply.

In these challenging times, with insurance prices on the rise and capacity shrinking, many across Europe report a surge of interest in alternative risk mechanisms such as captives. However, Mr Aznar Gáldiz says those smaller companies are less tempted by such vehicles.

“Captives are expensive options – you need financial strength, so at the end of the day it is not easy for smaller operations. What is happening instead is that many of them are choosing to retain more risk, increasing deductibles,” he says. 

Again, Mr Aznar Gáldiz believes this is good news for risk managers, who have a bigger role to play internally. And in many ways, this has helped the relationship between risk managers, insurers and brokers.

“Risk managers, brokers and insurers have had no choice but to work more closely together this year. If risk managers can’t find insurance policies, then the company can’t operate, so it has been an imperative to find the right solution. Because they have a greater understanding of what is going on, we are also seeing the purchase of insurance becoming a main board topic. This is good news for risk managers, whose profile within companies has increased,” says Mr Aznar Gáldiz.

“Beyond that, more board members want to understand what is happening in the insurance sector. I have had calls from people on boards asking me what is happening in the insurance markets so they can understand and relay that to the rest of the board. Having a better understanding of the insurance market function can only be a good thing for the longer term,” he adds.

He says board members have realised it is not just a question of price, but also capacity, and there is a new realisation of the importance of insurance to their operations, as well as market dynamics. 

“This is not purely about the pandemic. We have had 15 to 16 years of soft markets and there had to be a realignment. Nobody likes to be told that there will be price increases but if they [customers] want to continue to have insurance as a risk mechanism, then it is important that insurers make profits too,” he continues.

Mr Aznar Gáldiz stresses: “If you talk to people and explain what has been happening, they do understand. It is important to communicate and, actually, that is what has been able to happen through the pandemic. This has to be a positive thing.”

It is essential, he adds, that risk managers start renewal conversations early this year to ensure they find the right levels of capacity in good time. “We are seeing reports about insurance reaching the mainstream media – because it is such a key topic for business right now – so risk managers and their boards need to work ahead,” says Mr Aznar Gáldiz. 

And of course, businesses face many risks beyond the pandemic and economic fallout. Mr Aznar Gáldiz says short-term risks include things like cyber, as criminals continue to take advantage of pandemic-related weaknesses in company systems.

He says there is also a growing risk of political fallout – something that has already started in parts of Latin America. Political risk, he says, is escalating as Latin American countries such as Peru, for example, face elections.

But it is not all doom and gloom. There are lessons to be learned from the past 18 months, which could well prove valuable as some of the longer-term risks, such as climate change, begin to materialise, says Mr Aznar Gáldiz.

“Given the tough times, we have still been able to provide solutions and enable businesses to keep functioning. Our own resilience has been important, not just to us, but to our clients too. We have been able to support them through this,” he concludes.