German market facing a perfect storm of risks: HDI Global

Cyber risks remain high up the agenda of German risk managers, as a result of the rise in cyberattacks following the pandemic and subsequent increase in home working.

Barbara Klimaszewski-Blettner, country manager for HDI Global in Germany, says it is no longer a question of ‘if’ but rather ‘when’ companies will be a victim of a cyberattack.

“Our experience is that there are still many companies that have yet to wake up and address cyber risk adequately. Some seem to only take it seriously after having suffered an attack. We can only provide cyber insurance to clients that have a clear risk awareness and a certain maturity in their level of security,” she says.

At the same time, German companies are also waking up to rising nat cat risks, following the severe floods last summer. “Ten years ago, this was a conversation about low-frequency but high-severity risks. Now it has become higher frequency as well as high severity,” she said.

Aligned to that, Klimaszewski-Blettner says supply chain risks are on the rise following the pandemic and Ukraine war.

Add that to rapidly rising energy prices and it is no wonder that both nat cat and supply chain risks are, in turn, putting real pressure on business interruption (BI) policies. The perfect storm, she says, is a problem for risk managers who need a physical trigger to be able to make a BI claim.

The good news for risk managers is that all the present uncertainty and concerns are giving them a much higher profile within their organisations than they had, say, five to ten years ago.

“For me, risk managers have a really important job to keep a broad view on the risk landscape. They have to ‘think the unthinkable’ and they have a much higher responsibility on their desk,” she says.

From an insurer’s point of view, there is some good news too. “Companies are more open to discuss possible future risk scenarios. For example, the insurance industry had always talked about the risk of a pandemic but now clients are listening even more carefully when we talk about future risks.”

ESG is the latest example of that, Klimaszewski-Blettner adds. “We are now talking about it as part of the latest round of renewals, which is a good thing.” Companies and their insurers have plenty to work out, she says, but she feels it’s good to give the subject attention.

Some of these discussions go beyond insurers and their clients alone. For example, the pandemic sparked many conversations across Europe between governments and industry about the need for insurance pools as the ultimate backstop.

Ms Klimaszewski-Blettner says the German insurance industry has, via the Gesamtverband der Deutschen Versicherungswirtschaft (GDV), started conversations that can then be elevated to government. The current energy crisis is one of those examples, where conversations are ongoing at all levels, but which is not necessarily something the insurance industry can provide a solution for beyond settling other claims, which incur greater costs.

All of this leads back to the latest round of renewals facing risk managers and their insurers. Klimaszewski-Blettner believes transparency will be key for risk managers looking to get the best out of their renewals – that and working well ahead of time.

For the German market, 1 January is the big renewal season and Klimaszewski-Blettner says they have already started discussions with clients – and have even already successfully renewed some accounts.

“We need to have a trusting relationship as we start those conversations,” she says. “A lot of clients have that with us. Our clients understand that we need to earn sufficient money to be a sustainable long-term partner for taking their risks and we also need to be talking about how much of the risk they should be retaining for themselves,” says Klimaszewski-Blettner.

The hard market is still here, she says, and shows no sign of melting away, not least because of the increased cost of claims and the need to maintain a sustainable book of business.

“Claims inflation is the biggest topic. It is incredibly high and shows no sign of changing in the short term. We see the increased costs immediately on the claims side and if we don’t factor those into premiums now, then it will be challenging for us to maintain a long-term profitable business and continue to support our customers,” she adds.

All in all, most German companies continue to use the traditional market rather than making the leap and launching their own captive. “There were plenty of captive feasibility studies in the past couple of years,” she says, “and there is acute interest in this alternative form of risk transfer, but there is a lot to be considered before companies make the final move. Those who have a captive already tend to shift more risk into them.”

Business as usual expands to international programmes as well, stresses Klimaszewski-Blettner. Clients want stability in those programmes, she says, and despite the Russia-Ukraine war, that is something HDI Global is proud to be delivering, based on its experience as lead insurer for more than 5,000 international programmes worldwide.

“We are not going to stop cover tomorrow, even for those operating in Russia. Instead, we are working closely with our clients to find a solution that works for them and allows for coverage or orderly exits. We always try to find a way.”