Insurance market hardening has eased a touch in Spain, say risk managers

Spanish companies continue to face a hard insurance market but rate increases have slowed in several lines and risk managers say they have been able to find the capacity needed for most of their programmes.

But the Spanish risk and insurance mangers that we spoke to for our Risk Frontiers Europe 2022 survey noted that the exceptions are finpro and, in particular, cyber, where the market continues to be as hard as nails and capacity is well below levels demanded by buyers.

“Capacity is available in the market right now but it is expensive. And capacity issues remain with cyber and professional indemnity,” said Daniel San Millán, president of Spanish risk management association Igrea. 

In his view, the property market has loosened up a bit and even D&O is not under the same kind of pressure of the past two years. The placement of professional indemnity (PI) risks, however, remains a challenge for buyers in Spain. For example, there is virtually no PI capacity for construction projects that last five or six years, San Millán pointed out.

Ivan Delgado de Robles, risk manager at ACS Servicios y Concesiones, has also witnessed a less unfriendly market overall, especially compared to recent renewals.

“This year, we have found the capacities we need in conditions that we can consider ‘acceptable’. But in previous years, although we did not have to reduce our limits, we had to take exclusions, higher deductibles and disproportionate rate increases,” he said.

For her part, Lourdes Freiria, general director of risk and insurance at Grupo San José, said she was able to find enough protection for her main P&C programmes at reasonable terms and conditions in the latest renewals.

“However, in some segments we cannot say that the capacities on offer are adequate, and even less that prices and conditions are acceptable,” she said. “I believe that D&O, cyber and fraud are clear examples of that.”

Challenging

Even though the hard market is not as dramatic as in the past couple of years, placements continue to be very challenging, said David González, the director of risk and insurance at Sacyr.

“We have been able to obtain our capacities but with a complexity that we had not seen in the past 15 years. When it comes to prices, they have not been reasonable for us as insurance buyers, that is for sure,” he said. 

Adding: “The hard market, in addition to restricted capacities, has also brought a reduction in the range of limits. The result is that one is paying more for a narrower perimeter of insurance protection. In some lines, when one goes to the market, the capacity is limited, and this limited capacity is not the one that you were expecting to find in terms of the depth of coverage.”

González noted that problems are even found in some segments of the property market. 

“In waste recycling, capacity is very scarce and the little that is available is offered at prices that are not worth it. The solution then is to opt for self-insurance,” he said.

A risk manager at a large Spanish retailer who asked not to be named, expressed a similar view. They noted that cyber capacities could not be found and there is little reason to feel more upbeat about this part of the insurance market. 

“The situation in the market is not going to improve in the short run, at least not in 2022 and 2023,” this risk manager said.

This is a stark change from the situation that buyers faced in the recent past, when carriers pushed cyber insurance at very competitive terms.

“Five years ago, when we bought a property or casualty policy, insurers would practically gift us a cyber cover on top of it,” Delgado de Robles said. “Now it is an odyssey when a company has to buy cyber insurance. If previously it was possible to buy £40m of limits, now insurers will barely offer £10m.”

González stressed: “The line that concerns me the most is cyber. Finpro as a rule has been difficult to find capacity, but it is hard to see the future of cyber insurance. Perhaps we must start considering the possibility that it is not an insurable risk in some of its extremes.”

This is a huge concern because Spanish companies feel they have growing need for protection against cyber risks.

“Cyber is the top risk for companies today. No matter the sector, we are increasingly exposed to higher insecurity in the digital world,” González remarked.

Self-insurance

With placement still challenging despite the deceleration of the hard market, risk managers have dusted off their captives to increase risk retention and obtain larger limits.

“Companies that do not have a captive will suffer more than those that do. The market is imposing higher risk retentions and the most efficient way to retain risk is with a captive. And even if we may see at some point a softening of prices, it looks unlikely that it will happen with retentions,” San Millán said.

Risk managers at companies that still don’t have captives are looking at the best options to get into the retention game.

“We do not have a captive because, at the moment, it does not figure as the best solution to transfer our risks, and to set one up is not in our plans in the middle or the long run,” Freiria said. “However, we have found ourselves, in some specific segments and projects, forced to increase our retention levels significantly and for that reason we are very interested in studying all the alternatives to traditional insurance,” she continued. 

“The captive is not a tool to solve current market difficulties. It is a strategic tool to manage similar situations in the future with more efficiency,” González said. “We are studying it right now. We see captives as a very interesting proposition, as the hard market could happen once again in four or five years from now.”

Risk manager profile

The risk managers also believe that the search for more sophisticated risk transfer solutions has raised the profile of risk managers in the business community.

“The insurance side of the risk management function has gained relevance in the past two years due to the hardening of the market. I have seen several smaller companies becoming interested in creating the role of insurance manager. In a situation of high prices and restricted capacities, it is something that can make a difference for a company,” González said.

And Delgado de Robles stressed that, as a result of increasingly complex renewals, risk managers will need to continuously sharpen their skills.

“Risk managers will need to become more specialised. Not least because insurance will be ever more customised and specific to the needs of each client. Insurers now require much more information before underwriting a risk. Companies need increasingly comprehensive covers, and to obtain that they will need to rely on data analysis and the running of risk models. Risk managers must be able to work with technology and have data analysis capabilities,” he said.