Honest risk-based discussion to dominate Ferma Forum

The first in-person Ferma Forum for three years is due to take place in Copenhagen between 9-11 October. For many, this cannot come quick enough given what has occurred in the intervening period.

It is also a chance for insurers, insureds and brokers to embark on a more collaborative approach to risk management – something which Fred Kleiterp, CEO EMEA, Swiss Re Corporate Solutions, believes is critical.

“Three years ago at Ferma Forum in Berlin, it was the beginning of the hard market, driven largely by significant large losses and natcat events,” says Kleiterp.

The hard market has subsequently arrived and the challenges facing risk managers have become even greater. The pandemic may be in its final stages but the supply chain disruption it created is still ongoing. Added to this is an energy crisis, war in Ukraine and global inflation. Plus, insured losses from natural catastrophes continue to rise as the impact from climate change becomes more visible.

According to Swiss Re Institute’s data, between 2013 and 2016 there was $48bn in natcat and man-made losses per year, whereas between 2016 and 2021, this rose to more than $117bn. Strikingly, in the first half of 2022 alone there has been $35bn of insured losses from natural catastrophes only, 22% above the average loss of the last ten years ($29bn).

The relationship between risk managers and insurers became more complicated, fueled by the perception that insurers are retreating from the market at the worst possible time. “Risk managers have been confronted with increased price levels and reduced capacity for critical classes, so I can understand their perception,” says Kleiterp.

More engagement is necessary across the market and all players in the insurance process need to look again at the risks in more depth, says Kleiterp.

“We need a more data-driven, risk-based dialogue. It is a joint effort between customers, brokers and insurers to quantify, assess and model risk with the aim to improve risk mitigation, and to optimise risk retention strategies as well as risk transfer solutions,” says Kleiterp.

Collaborative and data-driven technology

To date, industry players have primarily used technology to optimise their own processes and generate cost efficiencies, but there is an opportunity to address industry inefficiency through more collaborative use of technology and developing common standards.

To this end, Swiss Re Corporate Solutions has opened up its international programmes platform, Pulse, for third parties to use in order to achieve greater interoperability between systems, thereby increasing efficiency and reducing costs.

There is also a huge opportunity to combine data and analytics to provide more transparency around evolving customer risk landscapes, allowing for a more robust and in-depth risk dialogue including those risks that are currently more difficult to insure, says Kleiterp.

“It is not enough for insurers to model the risks in the privacy of their offices and then offer x capacity at y premium. Risks are still insurable, but we need to change the way we do business. We will go through this together and find ways for risk managers to take back control of the risks based on shared data. For example, can you identify and reduce bottlenecks in the supply chain? How is risk landscape changing over time due to climate change? ” he says.

“Creating transparency in risk exposures, risk accumulations and being able to quantify and model risk better, will allow risk managers to take better informed decisions on risk mitigation, risk retention and risk transfer,” he says. “And collaboration between industry partners will only lead to even better outcomes.”

Alternative risk transfer strategies

In the hard market environment, many alternatives provide efficient risk transfer in addition to traditional insurance. Captives, international programmes and parametrics are important tools designed to optimise risk transfer strategies. For customers that do not yet own a captive, for example, Swiss Re Corporate Solutions has developed the ‘virtual captive’, a structure that emulates the workings of a captive and has seen strong demand from clients, says Kleiterp.

Swiss Re Corporate Solutions will be taking a large delegation to Ferma Forum representing almost all lines of business to address concerns of the insurance industry, Kleiterp says.  In line with the Forum’s motto ‘transitioning together’, they will explore the ways for a more meaningful and data-driven collaboration with all relevant stakeholders.

“Remote working helped us all get through the pandemic, but we need to get again into those face to face meetings to have an honest and open risk-based discussion,” he says. “Risk managers are critical of the insurance industry. The hard market came as a surprise to many and it should not have been. We need to change the way we do business and focus on the risk and not only the insurance capacity and we need to use technology and data collaboratively so that we can jointly address the many pain points.”