HDI Germany back on front foot but further tight renewal looms

HDI Global was one of the first insurers to move decisively to re-underwrite its German and overall industrial fire and business interruption book, as losses sustained by the company and wider market for some 15 years became untenable.

As the German insurance management community gathers for the GVNW’s annual Symposium, Andreas Luberichs, executive board member at HDI Global, told Commercial Risk Europe that the job is pretty much done.

He said HDI Global has now adjusted the bulk of its book as part of the 20/20/20 strategy, which was designed to increase premium income in the fire line.

German insurers came in for a lot of flak from customers during recent renewals because of a reported brutal approach in many lines and sectors, with longstanding relationships damaged. Mr Luberichs said that while some relationships had been “stressed” to their “boundaries”, overall he felt the renewals carried out by HDI Global last year were “orderly”.

The good news for HDI Global is that 2020 saw growth for the first time in three years. But GVNW members should not expect a sudden change in direction from the company at coming renewals. Mr Luberichs expects the overall market hardening that started two years ago to continue.

Cyber and D&O have been two of the most challenging areas of late, partly because of tightening reinsurance capacity on the back of rising losses. So, German customers can probably expect tough discussions in these areas again.

Communicating and collaborating early on, and being as transparent as possible, will be key to achieving less stressful renewals for customers, said Mr Luberichs. “It is about partnership and trust,” he said.

He added that HDI Global has focused on communicating pricing changes, discussing adjustments to terms and coverage, listening “avidly” to customers and offering targeted solutions.

“And the facts speak for themselves in this regard as we have extended, not reduced, our customer base over the last 12 months. We will be working hard to continue on this basis,” said Mr Luberichs.

Read the full interview below.

Q: How did your German industrial book perform in the first half of this year compared with last year? Did the business grow and if so, in what lines and how? What were the more challenging areas? Is your re-underwriting process now over?

A: While we don’t release individual country results, I can confirm that overall HDI Global recorded single-digit growth in the first half of this year, the first time we have done so for three years. This increase was driven by a mixture of inflation adjustments, rate corrections and the development of new customer relationships across all major lines.

Our re-underwriting strategy reflects our present attitude and appetite for business, and while it is an ongoing process, we have now adjusted the bulk of our book as part of the 20/20/20 strategy. This 2019 initiative was designed to increase premium income in the fire line, which accounts for about 20% of industrial lines business, by 20% by the year 2020. This programme was completed successfully last year and, as a result, the book has been recalibrated. We have set the foundation for our future success in this market.

Q: What is your strategy for growth in the German market? In which areas will you be focusing your resources and why?

A: As with all the territories that we operate in, we are looking for long-lasting customer relationships. To this end, we channel all our resources across the business when looking to set up an insurance programme for a client, taking a holistic and professional approach.

There are of course always resource constraints, particularly against the backdrop of the Covid-19 pandemic, so we use our experience and knowledge to focus on identifying the best possible solution for our customers. At the same time, we are relentlessly reviewing the entire value chain to identify operational efficiencies and cost reduction for our customers.

Q: What do you expect will happen in the coming renewals – will they be as difficult as last year for customers or will they be more orderly, and if so, why?

A: I believe that renewals last year were in the main orderly, certainly in our experience, partly because of our naturally collaborative and partnership approach with our clients. That said, we do realise that some of our partnerships have been stressed to their boundaries.

HDI Global remains committed to the industrial and corporate market in Germany, developing customised and long-lasting solutions. To remain viable, however, we need to ensure contributing profits to our overall 8% to 10% ROE target. Looking at our own results across the cycle, for HDI Global in Germany we expect the overall increase in rates and hardening of the terms that started two years ago to continue.

Q: What must brokers and their customers do to help ensure as few nasty surprises as possible this year?

A: As is always the case, the key to successful insurance placement is for all parties to communicate and collaborate early on about any challenges and changes, to be as open and transparent as possible. It is about partnership and trust – the more transparent clients can be about the risks they face, be that natural or man-made catastrophes, and vice versa, the better for all parties.

Q: What do insurers need to do to make sure there are less nasty surprises this year? 

A: The answer is the same as it has been since we started writing industrial insurance in Germany more than 100 years ago – collaboration, communication, openness and transparency, coupled with the ability on all sides to generate a profit on its business.

Q: Do broken relationships need to be fixed and how?

A: These are certainly challenging times, with market rates increasing at a time when many customers are reeling from the impact of the pandemic. However, by working with our customers, with honesty on both sides, I would say that rather than being strained, we have formed ever-stronger relationships with our customers and our brokers.

Key for us has been communicating the changes in pricing, discussing adjustments to terms and coverage, listening avidly to our customers and offering targeted solutions. And the facts speak for themselves in this regard as we have extended, not reduced, our customer base during the last 12 months. We will be working hard to continue on this basis.

Q: Which do you think will be the most difficult lines? Cyber and D&O again, and any others? Why have these lines become so difficult? What is your strategy in these key lines?

ACyber insurance is an excellent product but the reality is that it was often very badly explained and sold at the wrong prices vs exposure levels. As an industry, I think it is fair to say that we have not done a great job for our customers in terms of cyber. The market was caught on the back foot as losses picked up speed. In hand with this, the market was also very slow in responding with the provision of prevention advice and support.

D&O is an equally important product but one that is much more mature in its evolution than cyber. Again, the market has not covered itself in glory. Despite a background of increased rulings against individuals and businesses, the market continued to offer terms at uneconomical levels in order to win business. The impact of Covid-19 on business has accelerated the pressure for some industries.

The bottom line however is that we are working relentlessly, in partnership with our clients, on both D&O and cyber, to identify the best solutions. However, HDI Global finds itself constrained by the reinsurance market, with the latter significantly tightening terms and heavily increasing prices, putting us in a tough spot for our customers.

Q: What are the options for customers in areas where they cannot find adequate capacity at acceptable prices? Higher self-retentions?

A: It is certainly possible that customers will consider the use of higher self-retention, including the use of captives. That said, the captive route is certainly not for everyone and it is not a quick fix or a direct replacement for traditional insurance. A captive can cater for one set of risks, helping to balance capital and exposure. The cost and complexity of setting one up – including setting aside the necessary funds and establishing the governance – is an aspect that needs to be well considered.

Q: Do you still think there is a case for further public-private partnerships to tackle systemic risks such as pandemic and/or a major cyberattack or systems failure? Why has this not happened to date and what needs to happen?

A: There is certainly some merit in the idea of investigating public-private partnership solutions for systemic risks such as future global pandemics or major cyberattacks. I would also add nat cat to that list as well.

However, a prerequisite for such a partnership approach is that all the stakeholders need to have a shared understanding of what they are aiming to achieve. This is also reliant on broad cross-party support and agreement by the main political parties, as any public-private partnership needs to have a longer lifetime than just one electoral term.

Q: Were you shocked by the scale of the recent Bernd catastrophe and losses? What does the insurance market need to do, perhaps in partnership with customers and government, to improve loss prevention and raise levels of insurability for these risks? How can the industry help in the battle against climate change?

A: The Bernd catastrophe was indeed shocking, and a wakeup call for the market. Events of this scale, ranked as one in 250 years, are part of the cat modelling we do to determine our book exposure and set capital aside. What we do see is an increase in frequency – there has also been an undeniable material uptick in the impact of these events during the last 25 years. In addition to concerns about rivers and lakes flooding, and increased incidences of flash floods, we are also concerned about increased hailstorms and tornadoes.

At HDI Global, we are working hard to assess all forms of nat cat exposures, to develop and offer solutions to help our clients mitigate the risk. Take the example of flash floods – we have developed our own tool, ARGOS, which allows our clients access to flash flood exposures. It has helped our customers during past years to access and mitigate losses. That said, we are dismayed that, despite the growing threat of nat cat, we continue to see planning being granted for new building projects in known flood plains, or in areas prone to risk of damage, and this is something that needs to be addressed.

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