Insurance industry must improve products and modernise contracts warns reinsurer

Experts also discussed the difficulties of providing transparency on supply chain risk as risk managers shed light on how they tackle this conundrum. "Our products were good, maybe ten or twenty years ago. Now we have to go forward and match the needs of our customers," Peter Bütikofer, Head Property Centre Reinsurance at reinsurer Swiss Re, told delegates. Mr Bütikofer also called for simplified insurance policies. "Our products have become very difficult to understand."hideMr Bütikofer also saw the need for changes in the way the insurance industry deals with contingency business interruption cover. "I am convinced that contingent business interruption is insurable but it has to be underwritten very carefully," he said. Transparency is a key issue for insurers regarding CBI cover. "The greater the transparency we can achieve, the higher the limit the insurance industry can provide," he added. The reinsurer distinguished between three scenarios. In the first, the insurer has full information about suppliers and full transparency about the exposure. In addition, natural catastrophe perils are excluded. "In this case, I do not see a reason why a limit should be below the normal BI policy limit," he said. In the second scenario, the insurer knows the names of the suppliers but does not have information about their location and natural catastrophes are not excluded. In such cases, the insurer will have to reduce the CBI limits to compensate for the uncertainties, he said. In the third instance where the insurer has no information on the suppliers or their locations, limits will have to be rather low, Mr Bütikofer said. Insurers need as much transparency about suppliers and exposure as possible to handle the accumulation risk, according to Mr Bütikofer. "If one supplier fails, this could have consequences for many insureds," he said. "If natural perils were also covered, this could result in much bigger losses than those we have seen from fires or explosions." In addition, one problem experienced by the insurance industry is that it has difficulty assessing past CBI losses, which could give an indication of the fair pricing. "We are currently unable to really capture those CBI losses specifically. We need to improve our loss statistics," Mr Bütikofer said. Adrian Clements, Corporate Asset Risk Manager at steel giant ArcelorMittal, provided the companies' view on the problem of complex supply chains. "We tried to solve supply chain issues by also becoming a mining company. However, by doing this, we created other problems," he said. Managing supply chain risks is all about finding the 'sweet spot', which means the individual risk appetite of a company, Mr Clements said. The question every company has to ask itself is how big a loss it can sustain? For ArcelorMittal it lies in the area of €70m to €80m. "That is where we start having a problem," Mr Clements said. Airbus aircraft manufacturer EADS has implemented a three-stage approach to manage its supply chain risks, according to Udo Kappes, the group's Corporate Property Insurance Risk Manager. The first step is to identify potentially vulnerable suppliers. These are then monitored every two months. If problems arise, the group decides whether or not it will support the supplier. "In the event of a potential insolvency, we would think about taking over the company to make it fit and sell it again later," Mr Kappes said.

Insurance industry must improve products and modernise contracts warns reinsurer

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