Financial lines capacity remains buoyant despite economic uncertainty

Commercial Risk Europe talks to Andrew Jackson, director for technical and special risks at Charles Taylor Adjusting, about the risk and insurance developments in financial lines for Spanish corporates.

The risk landscape in Spain is not dissimilar to other developed countries, according to Andrew Jackson, director of technical and special risks at Charles Taylor Adjusting.

The first of these risks is IT disruption – not just cyberattacks but also technology failures that result from internal projects or updates. A Spanish financial institution suffered a €200m loss when an IT update went wrong. And, as Jackson says, such failures also have a reputational cost.

The second significant risk for Spanish corporates is the current economic uncertainty that makes it difficult to make financial forecasts. Inflation and rising interest rates have added further challenges, especially for any highly leveraged businesses.

The third significant risk is supply chain disruption. “As with other European countries, supply chains for Spanish businesses tend to be international and just-in-time, so any disruption can have a big impact on business continuity,” says Jackson.

Claims management

When it comes to claims, Jackson has observed a rising expectation among insureds for speedier settlement, thanks largely to the development of technology that has quickened so many other commercial processes. But while the insurance industry faces a challenge to meet these expectations, there is also an opportunity for insurers and service providers to use automation and artificial intelligence, particularly in the volume claims areas, to make their own processes more efficient, says Jackson.

Another claims-related challenge facing the insurance market is a potential skills shortage, especially in financial lines. Charles Taylor is looking at the possibility of creating an internal academy to help train the next generation of loss adjusters and go out to schools and other education establishments to promote the insurance industry as a career option. “It is easy to show how exciting the insurance industry is once you are already in it but the challenge is to make it exciting for those outside the industry,” says Jackson. “If we don’t do that, we will be faced with a skills shortage and a knowledge gap.”

Financial lines

Jackson’s main focus as a loss adjuster is on financial lines, covering everything from financial fraud to professional indemnity and D&O. “One trend we have seen recently is a rise in invoice finance and lease finance fraud. This tends to happen at times of economic uncertainty,” he says.

Jackson says that there hasn’t been a significant drop-off in social engineering claims, at least not in terms of frequency. “We may not currently so often see the really large sums involved with individual cases but there continue to be losses at the lower to mid-value range, as well as the continued targeting of bank customers in Spain and elsewhere, very often obliging the banks to compensate customers who have been victims of such crimes,” he says.

But while some forms of financial fraud have become more commonplace, the expectation that the pandemic would lead to a massive rise in cases has not materialised. Instead the market has been relatively benign, says Jackson. This may be down to the financial support that many businesses received during prolonged lockdowns and other restrictions put in place to deal with the pandemic.

But now that these supports have disappeared and the economic environment has become more challenging, the rise in fraud could yet come to pass, as could a jump in professional indemnity claims, says Jackson. “We are starting to see some evidence of that… when you get volatility in stock market valuations, investment managers are often targeted by investors who have lost money.”

There may also be a rise in D&O and other claims over ESG disclosures and the spectre of greenwashing. But while Jackson says there has been a huge amount of talk on this subject, there appear to have been few claims to date.

Despite these trends and the potential for more claims, capacity in Spain’s financial lines has remained buoyant, thanks to the arrival of new entrants, says Jackson. “We have seen a combination of MGAs and traditional insurers interested in developing a financial lines book, with Barcelona becoming an additional financial lines hub – partly because it is such a nice place to live but also because there are a growing number of experts and service providers in the city, which helps to provide momentum,” he says.