German brokers say risk managers must brace for further tense renewals

German risk managers must brace for another round of “tense” industrial insurance renewals in key lines such as property and cyber, according to leading independent Hamburg-based broker Funk Gruppe. The recent half-year results posted by German and international carriers support the conclusion made by Funk that geopolitical and financial uncertainty driven by the conflict in Ukraine and related supply chain and inflationary pressures will prevent insurers from softening their stance at coming renewals. Funk strongly advises its customers to do their homework on risk management and loss prevention measures, so that they can differentiate their risk profile and seek to maintain or renew long-term partnerships with carriers, to secure the best deals in such a market. Funk’s analysis echoes comments made by rival Dortmund broker Leue & Nill, which recently published its latest market report advising risk managers that the worst of the hard market may be over but tough renewals are still to be expected, particularly in lines such as cyber. Funk’s market report states that the Ukraine war hit companies unexpectedly and severely. “It exacerbates existing supply chain disruptions and fuels inflation. Insurers are also feeling the effects because the higher prices for raw materials make claims significantly more expensive. As a result, the pressure on premiums continues, albeit with a weakening tendency, and the supply of cover capacities remains reserved,” states the broker. It doesn’t foresee a turnaround in industrial property insurance yet. “The situation in property insurance remains particularly tense. Insurers have recently been able to push through higher prices and thus improve their income. At the same time, claims expenses increased, which led to losses overall. For this reason, companies must expect further premium increases and capacity reductions when they renew their contracts. This applies in particular to contracts with claims and exposed risks. Inflation exacerbates this situation,” it states. Cyber remains another challenging area for German risk managers, just as for their peers across Europe and worldwide, says Funk. “Securing against cyber threats is also challenging. For insurers, cyber business holds risks that are difficult for them to assess, as there is still no reliable data on cumulative events such as a far-reaching attack on cloud providers. Companies are well advised to analyse their risk situation as comprehensively as possible, create risk transparency and optimise their IT security,” advises the broker. Funk also points out that the conflict in Ukraine has led to territorial exclusions, for example in liability insurance. The broker says it is therefore in negotiations with many insurers to achieve the best possible terms and conditions for customers. Ralf Becker, managing partner of Funk, advocates long-term partnership between insurers and customers at this tricky time. “Companies need planning security. Fluctuations in offers from insurers for premiums and capacity cannot remain permanent,” says Becker. He adds that Funk is committed to ensuring companies are viewed individually. Becker stresses that risk management initiatives and higher self-financing are important factors to bring up during negotiations with carriers. "Risk-improvement measures such as operational risk management with damage prevention and increased self-financing must be rewarded significantly when determining premiums," he says. Cyber remains a particularly tricky area for German risk and insurance managers, according to Funk’s rival broker Neue & Lill. It doesn’t think the cyber market will “calm down” anytime soon. “The issue of capacity per insurer and the question of the ‘right’ insurance premium continue to concern risk carriers in an environment of increasing claims frequencies. Added to this are the ongoing, or new, discussions about the insurability of certain cover elements in the field of cyber insurance. We fear that, with a foreseeable increase in the burden of major losses on some of the dominating risk carriers, there will be a further shortage of capacity and that risk transfer solutions will become more expensive in combination with significantly higher retentions,” state Rüdiger Dülfer and Danilo Strunk of Leue & Nill. Members of the German risk and insurance management association GVNW have complained loudly that carriers are failing to recognise their risk management and loss prevention efforts when applying centrally forced exclusions and price increases during “brutal” renewals. Dülfer and Strunk advise carriers to take a more measured, analytical and customer-focused approach in future negotiations, despite the uncertainty over cyber exposure. “With the discussion about cross-sector exclusions and clarifications, ‘silent cyber’ remains a central topic for risk carriers. We recommend that insurers, regardless of the competitive situation, look at the insurance portfolio of their customers as a whole and act in a way that is goal-oriented for all parties involved in a mutual balance of interests,” they state. GVNW’s latest member survey also found that the reputation of insurers and level of trust has fallen during recent tough renewals. Insurers need to focus on this, say Dülfer and Strunk. “Because of the sometimes-tough adjustments made in the last round of extensions, we have noticed that there has been a loss of trust, particularly among industrial and corporate customers. Discussions about how the usual exclusions from war in connection with the Ukraine conflict work are currently not suitable for promoting this trust again,” they say. The brokers suggest, however, that there is light at the end of the tunnel and acceptable solutions can be found as long as dialogue remains healthy.

German brokers say risk managers must brace for further tense renewals

Improved dialogue will be key in tough lines such as cyber

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