Insurers and brokers under fire for excess data demands and poor risk analysis

During roundtables held across Europe for this year’s Risk Frontiers survey, risk and insurance managers across Europe have expressed frustration with the data demands of insurers and are not confident that they really know what to do with the information once they have it. Many risk and insurance managers have also expressed frustration at the apparent inability or unwillingness of the insurers to apply the data correctly once they have it and help differentiate risks. There appears to be a rising feeling among risk and insurance managers who work for bigger corporations in more challenging markets such as energy, construction and pharmaceuticals that the apparent limitations of the insurers are severely hampering their ability to offer meaningful capacity.hideExpect the leading insurers and brokers to therefore come under fire and explain their positions at the annual DVS meeting of German risk and insurance managers in Munich this week and the Ferma Forum in Maastricht at the start of next month. German risk managers who took part in a second leg of this year’s survey in time for the DVS conference said that the insurers have to start improving their IT and risk models to help tackle difficult risks. “The insurers’ risk analysis models which in the last instance lead to capacity approval really leave a lot of room for improvement,” said Klaus Greimel, Risk Manager of energy company E.on. Mr Greimel believes that many insurers do not know the risks that they hold on their books very well at all. “When you ask insurers about a portfolio or cover element: ‘What does your global portfolio look like? How many losses do you have in this particular portfolio? Are there any new risks?’ Then they tend to look at you and say: ‘We don’t know exactly but it is a very bad risk,’” said the former DVS president. “This kind of response can drive one up the wall,” he added. And the absence of proper risk models does not only apply to new risks such as cyber and supply chain, but also to classical segments such as natural catastrophe, added Mr Greimel. “There are many regions for which insurers have no nat cat models or only very limited ones. None existed in Thailand at the time of the flooding a few years back,” he said. “The actual key to tackle risks much better would be a perfectly functioning IT system which insurers could use to make a better analysis of their own portfolio, taking certain risk factors and exposure into consideration,” continued Mr Greimel. From his point of view almost no progress has been made in the past ten years. “I do not understand why insurers are so slow to act,” he said. The lack of investment in proper risk models is leading to critical lack of capacity in key markets and particularly for bigger risks, according to insurance managers. “At present I see the tendency for customers not being able to access the cover they really need as far as limits are concerned, even in classical cover,” said Mr Greimel. Gregor Köhler, Chief Executive of Bayer subsidiary Pallas Versicherung, pointed out that while adequate capacity may be available for small and medium-sized enterprises, big companies like Bayer struggle to cover all their risks. “When an insurer offers me cover of €50m and I can eventually get another €50m from a second insurer, then I have €100m in risk cover,” said Mr Köhler. “The question is, does that really help me, if for instance I have exposure of €1bn? If I lose €50m, then I do not have €7bn EBITDA, but only €6.95bn. That is annoying, since €50m is a lot of money, but that doesn’t mean the end for us,” he added. Mr Köhler is also not happy with the insurers’ IT systems, particularly in the increasingly important area of global programmes. “That is a permanent theme where the insurers, but also the brokers, are not especially good,” he said. “Even big broker networks like Marsh, Aon and Willis have no convincing solution which can reflect what we have in the different countries without a major effort,” he explained. “If I want to have an appropriate analysis, then these firms start working manually, and that cannot be so in the era of Facebook and iPhone.” Creighton Twiggs, Risk Manager for Clariant International, the Swiss-based international specialty chemicals group, said that his company operates in industrial parks such as the one that was so badly hit by the Thai floods two years ago. He therefore recognises the potential accumulation risk and information problems faced by the insurers. But, during the Swiss Risk Frontiers roundtable held earlier this summer in Zurich, Mr Twiggs said that he has become increasingly frustrated in recent times by questions from insurers about what exposure his operation has to its neighbours’ risks. “I say: ‘You tell me and then we will buy the limits’. If the insurers do not know my neighbour’s exposure then how the heck am I supposed to know!” he said. Heinz Risi, Risk Manager for elevator giant Schindler, also said during the Swiss roundtable that he is sometimes also frustrated by the information needs of the insurers. “The insurance company is asking for as much information as possible from the customer. But we are currently placing an international property damage programme and the first question is about the zip code then they model it!” he said. “I have a lot of information prepared that covers the last 20 years’ loss history but the insurers seem to be not interested in all this history and loss reports. I have to sort out all the information that they want for the catastrophe modelling and then another insurer comes to the market, demands no information, just asks for a zip code and gives a quote which is the same! So I do a lot of work and do not see any benefit,” continued Mr Risi. The risk manager also said that the insurers currently demand more information about suppliers. He said he has prepared risk reports on all the main suppliers and also prepared a list of all suppliers that runs to 6 pages of A3 paper including turnover, products involved and locations. The question is: “What do the insurers do with all this information? Can they really handle it?” said Mr Risi. Carlo Cosimi, Vice President of Insurance at SAIPEM, the Italy-based oil and gas contracting company, said during the Milan roundtable also earlier this summer that data exchange is definitely a rising concern. “We are aware that a complex activity means complex risk to manage and consequently to transfer. We noted in recent years, probably as a consequence of big events such as the Macondo Deepwater Horizon oil spill disaster, that the insurers are requiring more detailed information than in the past, and on a periodical basis during the policy period, not only at renewal time, “ he said. “In some cases such detailed information requested from insurers contrasts with the increased level of information that becomes price sensitive for the assured, which needs to be carefully managed, especially for assureds listed in the Stock Exchange markets. The support expected from the broker is to help to find a reasonable trade-off between the two opposing needs,” continued Mr Cosimi. Jorge Luzzi, Risk Manager for Pirelli Worldwide and President of Ferma, agreed with the others during the Italian roundtable that the insurance market does appear to be trying to provide solutions. But he equally agreed that it is clearly a challenge for the insurers with big companies such as his own. “The insurers need to understand the needs of the captive more than ever. For the level of coverage required for such companies the market is not pushing real solutions for the full value of the risks faced by big companies so the captive has to retain a significant level and must have the data to underwrite it itself and find excess coverage,” explained Mr Luzzi. “The other big problem is that with every new risk that comes to the market underwriters tend to be very conservative about loss history and loss ratios. Naturally if there is less knowledge about the loss history then insurers will be more conservative with the pricing and over time and when knowledge is built up the pricing can improve. But to help this to happen there has to be a greater spirit of cooperation. This is needed because of the need to build more experience and achieve better pricing and capacity with bigger deductibles,” continued the Ferma president. This subject was also a hot topic during the Austrian roundtable. The risk managers who took part in this discussion suggested that it also represented an opportunity for a good broker. But for the brokers to improve the exchange and use of information they have to truly add value to the process, warned the Austrians. Richard Krammer of worldwide construction group Strabag said: “In an ideal world the independent broker can see the bigger and broader picture and can prepare and improve wordings. But sometimes the world is not ideal and brokers are obviously not doing the job for a hobby, they do it for money. So the question is: Are they offering value for money? One thing to also look out for is the fact that sometimes information can get lost in transition to insurers. It is fine if all three parties sit around a table but this is not always the case,” said Mr Krammer. Michael Kleiter, Country Manager of XL Group and project sponsor, firmly agreed during the Austrian roundtable that it is best when the relationship acts as a triangle and not individual links between the three parties. He also agreed that one of the key attributes of a broker is its ability to bring a wide network to the table, particularly in the increasingly important area of global programmes. Mr Kleiter also agreed that the broader perspective brought by the broker can be a big help for insurers as well as risk managers. “The market knowledge that brokers should provide is also important. A broker can give advice on a variety of products and help select them. And when it comes to new risks we all face the same situation and ideally brokers need to engage and understand these risks and help create solutions,” he said.

Insurers and brokers under fire for excess data demands and poor risk analysis

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