Insurers and risk managers need to work harder and closer on innovation say top German risk managers

The topic of innovation took up a large part of the debate held at CRE’s Risk Frontiers roundtable at the DVS AGM earlier this year and it was again a big subject during the round of interviews with leading German risk managers that CRE carried out for the annual symposium in Munich this week. The DVS members were asked whether the insurance market has done anything over the last 12 months to help buyers meet new challenges such as supply chain and cyber risk and what needs to be done to foster more innovation and avoid capacity shortages. Hans-Jörg Schill, Managing Director at Airport Assekuranz Vermittlungs-GmbH, the captive broker for Frankfurt Airport—Fraport AG, said that in his view the only notable change was that the insurance market has given cyber risks more attention.hide“Insurers and companies talk more about such risks. Insurers take the companies’ risks more seriously. This is because they themselves have become the target of hacker attacks with their huge IT systems,” he said. But Mr Schill added that he has seen no significant breakthrough in terms of ‘adequate cover at acceptable prices’ in the cyber risk insurance market and complained about the ever-rising level of information demanded by the insurers. “In the end insurers have to be willing to cover such risks. They should not try to refuse adequate cover by demanding excessive information and never-ending questionnaires,” said Mr Schill. Gregor Köhler, CEO and President of Pallas Versicherung, the insurance arm of chemical giant Bayer, said he had seen some improvements in the cyber risk area. He said that available limits are not sufficient currently but added that insurers have at least come up with new constructions. “And I am quite optimistic that the limits will be increased to a proper level in future,” he added. Mr Kohler said, however, that he has been a little surprised about insurers’ reaction to the supply chain questions raised by last year’s catastrophic events, particularly in Japan and Thailand. “They have insured this for years, and now everything is to be changed only because there were big losses in 2011. I think that’s the wrong approach. I feel the insurance industry has failed to discuss the issue with the companies. Now they want to know everything, but that needs some time. Bayer had no difficulties as a result of the flooding in Thailand or because of Fukushima, which shows that we are in good shape at that level. Still, capacity shortage is an issue with this risk as well. And again, cover without sufficient volume is of little help,” he added. Sabine Segor, Risk Manager of Hugo Boss, said that, in her view, the proportion of risk that is traditionally transferred to insurers has decreased in the past few years. She conceded that this is partly because the amount of non-insurable risk has increased. “Nevertheless, insurance for major risks is still important for Hugo Boss’ risk handling. However, it’s in the insurance industry’s best interest to take care of the clients’ risks and develop operative solutions that are effective,” she said. “This was not possible especially for new risks because of the limited experience available or because of the potential for cumulative damage,” Ms Segor told Commercial Risk Europe. “A company should focus on developing strategic and operative counter measures on the basis of a risk quantification that is as resilient as possible. Only as a second step, companies should financially transfer their risks to insurers. This approach is also advantageous as it enables risk managers to shape the necessary insurance limits more selectively,” continued Ms Segor. “Risk management and insurance as a measure for handling risks are immediately interconnected. For that reason, both functions were concentrated into one sector at Hugo Boss some years ago. That’s why we are able to create transparency for insurers by providing information about insurable risks. However, we then expect insurers to provide adequate limits,” she said. Alexander Mahnke, CEO of the Business Unit Insurance at Siemens Cross-Sector Financial Services, said that an on-going professional discussion among companies, insurers and brokers is critical to tackle emerging risks but does not think that the market is doing such a bad job. “I do not agree that the insurance market does not foster enough innovation. It is at least as much up to the insurance risk managers to express their needs and worries, to express what kind of support we need when analysing and potentially transferring our risks. And, of course, we have to be prepared to pay money for newly developed products,” he said. Hans-Jürgen Allerdissen, Managing Director at Deutsche Verkehrs-Assekuranz-Vermittlungs, the insurance arm of Deutsche Bahn, said, however, that the insurers have not done enough. “I criticise the industrial insurers because they have failed to understand their clients’ risk landscape during the past five to ten years. At the moment many voices in the insurance industry are saying that some issues have to be reworked. This is the way forward. It is not sufficient to wait until there are enough claims to develop statistics to do business risk-free. If insurers want to call themselves enterprises they have to take some entrepreneurial risks,” he argued. Mr Allerdissen said it is therefore more important than ever to talk about these difficult risk areas on an institutional basis and develop a real dialogue between client and insurer. “It is also significant that clients contact insurers at an early stage. Clients, too, have often been slow to detect risks,” he conceded. “I think that insurers have to be in closer contact with their clients, and I don’t mean for the sake of drinking a cup of coffee together, but to meet the client at their plant to discuss changing processes. Both have to carefully observe what changes are happening, and not only once year,” said Mr Allerdissen, echoing a rising feeling among many European risk managers for more in-depth discussion on a more regular basis. “In addition, companies and insurers have to assess how the known mega trends like internationalisation and the growing importance of the internet will impact companies in the future. It is important to act in an anticipatory way and not only react. Then there is enough time to collect capacity and to talk about what is insurable and what is not—and not just say: ‘This is and never will be insurable,’” he said. On the broader question of insurer service Mr Kohler said that IT is one big area that the insurers need to focus upon. “As far as IT is concerned, insurers still live in the Stone Age. A modern IT structure could make a real difference, for example to tackle supply chains. The insurance industry is just not moving and I don’t know why. Banks are demonstrating what you can achieve with good IT and a corresponding strategy. Insurers, on the other hand, have nothing to offer and the situation is even worse in the relatively small market for industrial risks. I think it’s clear that insurers as well as brokers need to invest more in IT in order to realise the potential with regard to costumer services and claims handling,” he explained.

Insurers and risk managers need to work harder and closer on innovation say top German risk managers

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