Here to stay – Claudia Hasse, Munich Re’s Corporate Insurance Partner

Munich Re’s Corporate Insurance Partner (CIP) business is using the deep worldwide know-how offered by the parent group, combined with state of the art analytics and new IT tools to offer customers solutions to complex needs, said Claudia Hasse, Chief Property Underwriting Officer at the company.

The property market is by no means easy for insurers as customers can still access plenty of cheap capacity. The temptation to opt for easy and cheaper cover is obvious in a period of still tough economic conditions and tight budgets.

But Ms Hasse says that there are still customers out there who are prepared to pay extra for deeper and broader solutions to their increasingly complex risk challenges and that the CIP model is ripe for the times.

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“So far 2013 was a pretty good year for profitability in all CIP lines of business with loss ratios somewhat below what was expected on a worldwide basis,” Ms Hasse told Commercial Risk Europe.

“Though it has to be said that we are still in the middle of the hurricane season and given the high US CIP Property exposure, US NatCat has a huge impact on the profitability of CIP as a whole,” she added.

In CIP Property, underlying progress is, however, solid and based upon a comprehensive reassessment of its portfolio and key loss drivers carried out over the last couple of years to help lay foundations for the business.

“We identified the key loss drivers and other areas where we were particularly successful. As a result, over the last two years we reduced our participations in the more difficult areas and increased them in the more successful areas. This has really paid off, especially the resultant reduction in smaller and mid-sized losses which really adds to the overall result,” said Ms Hasse.

The key to growth currently in competitive and mature markets such as Europe and the US is clearly to focus on those specialist and complex markets in which the mass market cannot operate on a sustainable basis because they simply do not have the expertise and knowledge to do so.

This is exactly the CIP strategy. “We have introduced a number of excellent initiatives developed for exposure in complex industries such as telecommunications, semi-conductors, auto, pharmaceuticals and rail. The key to this is to really understand the client. You have to be able to talk at eye level. This makes the underwriting easier and enables you to understand the exposures better, particularly the more difficult industries such as auto,” explained Ms Hasse.

‘STRATEGIC ADVANTAGE’

To underwrite such complex and fast changing risk areas does, however, need deep knowledge backed up by an ability to gather, manage and manipulate data. This is where being part of the world’s biggest reinsurance group becomes a significant strategic advantage.

“We started many things at Munich Re generally over the last five years, improving IT systems, collecting more data and monitoring and steering our business in a more systematic way. We have much better information than we did five years ago. We can now really slice and dice the information much more effectively. You can always improve of course but we have really made good progress and I expect to see further big steps forward over the next five years or so as there is so much going on at Munich Re in this field currently,” said Ms Hasse.

One of the important aspects of this IT investment is the ability to share information with customers. During CRE’s annual Risk Frontiers survey of risk managers across Europe one of the most striking responses has been the obvious thirst for more feedback. Customers want analysis and transparency from insurers, particularly to help them benchmark against peers.

Ms Hasse said that she has definitely seen this demand. The need to respond is one of the reasons why CIP and the wider Munich Re group is prepared to make the investment, she said.

But she also voiced a word of caution. Anonymity, she said, is very important for customers, especially in highly competitive markets with a relatively small number of leading players such as the auto sector.

Also, CIP may invest considerable amounts of time and resource into the delivery of such information and not win the business. This is a big risk for the company.

“We can’t always share as much as someone may want because of the need to be anonymous. In some industries we have carried out analyses of all property losses since 1999, the cost of the losses, how big the property damage business interruption (PDBI) was and can share this top-level information with our clients. But this takes time and of course also does cost. The reality is that customers are not always prepared to pay for the work which is a risk for us,” said Ms Hasse.

Interestingly, this investment tends to bear more fruit in the US market than Europe. Ms Hasse believes that this is because of the different structure of the two corporate insurance markets.

“In the US it is easier to gain differential terms on programmes than in Europe. This is because in the US there does not tend to be just one leader and the others follow, it is much more equal and negotiated individually with the various insurers on the programme,” she explained.

Asked why this system has not spread to Europe Ms Hasse said that the main barrier is simply tradition. “This makes it more difficult to show our advantages. We want to be seen as a qualified follower not just a provider of capacity. It really depends upon whether the risk manager is open to discussion and prepared to pay the extra for the extra service,” continued Ms Hasse.

It would help CIP and its rivals of course if the overall level of pricing was adequate before added services are even considered.

But, as has been well documented in CRE in recent weeks as we reported the first half results of the leading corporate insurers and brokers, there are still few signs of a general hardening of the market.

This means that responsible corporate insurers need to remain vigilant and choosy about the business they are prepared to underwrite, said Ms Hasse.

“The German and wider European industrial insurance market has not reached an overall price level that is acceptable yet but we have still done well especially in the German market. Germany is a tough market with overall market combined ratios considerably over 100% over the past three years, but we have been selective in Germany and Europe and so have delivered positive results for the group,” she said.

As noted above, the key to success in such tight and competitive markets is to offer something truly different and be able to deeply analyse the risks on offer so that a profitable growth portfolio can still be achieved.

CIP is of course not the only company to reach this conclusion and adopt a strategy of careful risk selection and focused investment in more profitable lines at the expense of those less rewarding.

‘SELECTIVE APPROACH’

Each industrial insurer that this reporter has interviewed in recent times has said it intends to cope with the stubbornly soft market by following this selective approach.

The obvious question for Ms Hasse therefore was: ‘If you are all focused on the same profitable lines and exiting the less profitable lines aren’t you all chasing the same business and inevitably pushing the rates down in these lines?’

She conceded that this was a logical question to ask. However, she pointed out that not all companies will come to the same conclusions because they have differing levels and ranges of expertise and even approaches to business. This is also where being part of the global Munich Re group and brand helps, she argued.

“The German property market is still quite small for us. But we have a small group of very happy clients and are able to grow the business by deepening the relationships in areas such as contingent business interruption. We have a much closer dialogue with customers. They like our expertise, brand, capacity and financial strength and are prepared to pay for the extra which is good. Germany is an extremely well risk managed market but still the price is too low and we are generally at a price level where we cannot do more,” said Ms Hasse.

But the CIP executive does see some indications of a market turn—so it is not all doom and gloom for the industrial insurers.

The underwriter was asked to be more specific about where she believes the growth will come from for the rest of this year and beyond. She said that in property it will come from those target markets in which CIP managed to obtain growth in 2012 and so far this year—US, European and Asian property business.

By sector, Ms Hasse picked out the oil and gas industry as a particular success story for CIP. The insurer also had some success in a number of liability lines, especially on complex accounts.

In addition to that, she said, success is based on the ability of the insurer to offer true innovation, another comment that backs the findings of CRE’s Risk Frontiers surveys of the last couple of years. One example is the photovoltaic panels market.

This type of ‘business enabling’ coverage is very important for CIP and the wider Munich Re group, explained Ms Hasse.

It also again fits neatly with what the risk managers tell CRE about their need for products and services that help them grow their business.

The challenge, as ever in the insurance business, is to maintain the competitive advantage once it has been gained. Insurance contracts are all too easily copied. “You cannot guarantee that someone else will not start underwriting in the same area, so the important thing is to be one step ahead,” said Ms Hasse.