As we head into renewal season across Europe, Etienne Champion, chief underwriting officer APAC and Europe at AXA XL, discusses the major trends affecting risk and insurance, and how communication is vital in transferring risk.
For more than 18 months, the world has been grappling with the effects of the Covid-19 pandemic and the changes brought to all aspects of business and life. As well as the immense human tragedy and devastating societal impact, the pandemic brought with it new risk challenges as companies pivoted their business models, dealt with supply-chain issues and sought to manage colleagues’ health and wellbeing.
Against that backdrop, the insurance market too has been undergoing a period of change. After more than 12 years of soft market conditions, a series of large losses across the industry had resulted in rate increases for many lines of business, even before the pandemic struck. As we head towards this year’s renewal season, we can expect a continued tightening of terms and conditions for many business lines.
Recent disasters such as the German floods this summer, Hurricane Ida last month, and wildfires in Europe, the US and China, have served to exacerbate the capacity constraints that were already being seen. Insurance capacity for most property and casualty lines continues to be strictly controlled, and the hardening trend observed in the reinsurance market is also having an effect on primary layers.
Our European risk manager clients will be well aware that coverage in many areas of their property, casualty and international financial lines will likely be subject to continued rate increases at the 2021/2022 renewal. Good communication between risk manager, broker and insurer will be a key factor in ensuring that clients are able to secure the insurance capacity they require. We remain focused on our clients and brokers, and open to discussions about their risks and the solutions needed to manage and transfer them.
Risk management rewards
As renewals discussions take shape, it’s not all doom and gloom for buyers of insurance. One very noticeable trend is that there is a tangible reward for good risk management when full, transparent risk information is provided by clients.
Many of our clients have demonstrated a great deal of sophistication in their risk management toolkit. For those with captives, these have been used to manage risks, to retain a portion of those risks and to use the insurance and reinsurance markets to transfer higher layers.
Many clients have been retaining layers of risk that they hadn’t, until now, put into their captive, such as cyber, for example. This not only demonstrates to underwriters that risk managers have ‘skin in the game’ when it comes to managing those risks in a robust way, it also typically serves to improve the quality of risk information garnered by the client and communicated to us.
When buyers are able to demonstrate sophisticated risk management and transparent risk information, this is typically rewarded in the terms and conditions and capacity that insurers will deploy.
It might appear that insurers are asking for increasing levels of information, or new information, from clients and brokers for certain coverages, such as cyber. This is a necessity as technologies and risk evolve, and in tandem insurers need to understand the prevention measures in place. This is not a new concept and with good tripartite communication between risk manager, broker and insurer, the right coverage and structure can be secured.
Just as the insurance market goes through cycles, the world of risk management is constantly changing too. In recent years, the issue of climate change has risen up the agenda for corporates and individuals the world over. This is not just a challenge for governments, it is a challenge for us all.
Climate change and the risks it poses – both short and longer term – cannot be ignored. And it has become clear that climate change will have huge ramifications for the ways risks are presented and transferred.
Addressing the climate challenge has been at the heart of how AXA Group operates and will increasingly be a major factor in how we allocate our capacity going forward. When clients are able to demonstrate ESG practices, this is a differentiating factor and translates positively into our risk assessment.
In recent months, we have increasingly seen clients including ESG information in their risk presentations. This is a very welcomed trend. When ESG is truly embedded in a company’s operations, there is, we believe, a strong correlation to its loss ratio.
The coming months
As we all look towards the fabled ‘new normal’, insurers remain ready to work with their clients to manage and transfer their evolving risks.
We are seeing encouraging signs from our political risk, credit and bond clients of an uptick in economic activity and investment in construction projects. Our aerospace clients too have begun to report an increase in activity.
The pandemic has underlined the importance of being prepared for major risks and being adaptable. The role of insurance as a provider of greater certainty in uncertain times has perhaps never been so relevant.
And just as we are requiring buyers to provide ever more granular and detailed risk information, we recognise that the insurance market must work to provide greater clarity to its clients around wordings and what is covered under the policies we underwrite.
It all goes back to communication. As we head towards this round of renewals, we look forward to the discussions to come. Let’s keep talking.
Contributed by Etienne Champion, chief underwriting officer APAC and Europe at AXA XL