Insurers concede they must up game to maintain relevance

The insurers who took part in a panel debate at the close of Commercial Risk Europe's Global Risk Frontiers debate in London late last month conceded that the level of insurable risk is falling. In response to questions about how this trend could be halted or even reversed, the insurers called for increased discussions and cooperation between risk transfer partners. Risk managers on the panel agreed with the insurer representatives that the market also needs to exploit the use of bigger and better data, particularly in order to service complex and emerging risks.hideOne leading insurance executive boldly urged insurers to increase collaboration via consortiums and risk pools to help maintain relevance and tackle emerging and difficult risks more effectively. Nigel Bamber, UK Country Manager and Regional Manager UK & Ireland at XL Group, pointed out to the gathered audience of risk professionals that today less of the top ranked business risks are insurable than they were in the past. He noted that Aon's annual Global Risk Report now finds non-insurable risks, such as economic slowdown, regulatory changes and increased competition, dominate the corporate risk agenda. This has changed from 2007 when insurable risks such as business interruption, third party liability and supply chain failure rated most highly. Mr Bamber stressed that the insurance industry remains 'very strong' in core property and casualty lines. But he conceded that it has 'clearly become less relevant' in the overall effort to manage business risks. "You might argue it is not our job to protect you against such risks so perhaps we need to look at how we operate against your insurable risks. But I think in this latter part, again, we have become slightly less relevant," he conceded to the risk manager delegates. "I think there are areas like emerging risk, cyber insurance for example, where we have to provide a better product for you to buy-that is a reality," he added. John Hurrell, Airmic's Chief Executiven was quick to agree that less corporate risk is now insurable. "If you look at the average corporate risk map and say what percentage in 2013 is insurable compared with 2003, the answer is very much less," he said. "If you look at assets now on the balance sheet they are all around things like technology, intellectual property, brand and reputation, it is not around how many factories you have and the value of your buildings. So again, as a value of corporate assets, the insurance industry is covering less," he added. Insurance executives who took part in the Future Role of Risk Transfer in Enterprise Wide Risk Management panel debate all agreed that their industry must work harder to maintain relevance in today's economy. Nicolas Aubert, General Manager at AIG UK, said he is continually 'surprised and shocked' that insurance solutions still tend to take the form of products. There remains a 'very big gap' between the way carriers and buyers manage companies' overall capital risk, he said. "I think the real relevance of insurance is to structure solutions from products from time to time but also from alternative mechanisms in order to redeploy our capital in front of your risk and not to deploy our products in front of your risk. For big companies there are a limited number of players that can do that and we encourage you to stretch our minds and your minds in ways to deploy our capital to supply you with solutions," he said. Fellow panellist Joseph Clabby, Regional President at ACE Continental Europe, said that a high number of risk managers seem to question the relevance of the insurance industry and so it is easy to conclude that its relevance is diminishing. Signs of this include the expansion of captives and a perceived lack of innovation, he said. "But I think that is an easy conclusion and just because these emerging risks are happening and happening fairly quickly and we really don't perhaps see much of a response as yet, that doesn't mean the industry isn't responding and that the industry isn't actually investing," he argued. "It will take some time and I think sometimes the industry is a little more cautious than the buyers need us to be. Buyers are saying they need solutions today and we are taking a more patient and pragmatic approach until we get a little more comfortable with some of the solutions," he explained. For his part, Fredrik Rosencrantz, CEO of Zurich in Europe, said the insurance industry is probably more relevant than ever when talking about insurable risk. "However, if we talk about the increased demand for uninsurable risk for that we are probably not becoming increasingly relevant, but rather less relevant," he added. In order to improve what they offer and address coverage gaps insurers are looking to make better use of data and analytics. This involves getting to grips with the huge amount of information potentially available to them from a variety of sources-both within the organisations from which they transfer risk and external sources. It will require a greater use of experts and increased dialogue with, and cooperation amongst, insureds, brokers and even competing insurers, they say. "We need much more skills in our companies-a lot of diversity from a technical, cultural and geographical standpoint-because this is about imagination and tuning our solutions to the very specific issues that you are facing across your companies and across the world. That requires a very different use of data and analytics," said Mr Aubert. "The way we look at data at AIG has very much changed over the last couple of years and to be honest it is a revolution for us. We have always been big data users but the way we look at it now is totally different. Instead of just using actuaries we are using much more varied skills and capacities than in the past," he continued. Mr Aubert added: "When we talk about data we talk about big data and this is the big thing at the moment. But data is not only about the accumulation, it is also about understanding how your companies are operating." Singing from the same hymn sheet, Mr Bamber said that a key reason why insurers have not been able to tackle the more tricky risks is because they are not close enough to their clients. "We need to understand your risks better and you need to get your key people in front of us so we can understand them. I think that is a failure on our part because we should be pushing for that," he said. Mr Bamber also laid down the gauntlet to insureds over the provision of deeper and better information on their risks. "The fact is we are not a gambling industry. We look to judge risk and price accordingly and what we need is good data...we understand it is incredibly difficult for insurance buyers to get their head around supply chain risk, for example, but without that knowledge it is very difficult for us to price the risk," he said. Mr Clabby believes a dynamic tripartite relationship between insureds, brokers and insurers is developing and providing better information exchange. His company is also making greater use of experts and the huge amount of data at their disposal to achieve a better understanding of emerging and complicated risks. "I think the data is there, it is really a question of the volume and the velocity of it. We have access now to data we didn't have five years ago, the challenge is how do you mine it and how do you navigate it-you can drown in this stuff very quickly," he said. Mr Clabby called on insurance companies to work together to tackle this dilemma. "A challenge is how do we take external data and begin to understand some of these broader issues so we can begin to understand solutions. I think unquestionably it will require a sharing of that information among the industry, an element of that has to happen. If we are going to stay relevant and keep pace some level of information sharing has to happen," he said. Mr Hurrell of Airmic said that dialogue across the risk transfer chain needs to increase and that his members would welcome such a move. He added that there should be much more coordination between insurers to build capacity and broader cover for certain risks. For him, better use and analysis of data is a must. He also criticised brokers for failing to drive innovation and push the market to its full capabilities. "I just sense that brokers have lost some of the edge they had a few years ago in driving innovation," he said. "Somehow the broking industry has got to rediscover its enthusiasm for innovation." The insurers on the panel agreed that this represents a huge opportunity to the broking community. "I think that is really, really important. Maybe it's a bold statement but I would say insurance companies are not that willing to develop new products. We don't invest a lot of money in that because we don't see it as a sustainable advantage because they become so easy to copy. So brokers have a very important role in daring us to develop solutions," said Mr Rosencrantz. Fellow panellist Carl Leeman, President of Ifrima and risk manager for Belgian-based international logistics firm Katoen Natie, said that the insurance industry has a problem with its reputation and is failing to address the needs of the modern economy. Furthermore the Ifrima president poured scorn on assertions from some panel members that a spirit of cooperation exists between insurers and their clients to tackle complex and emerging risks. "I haven't seen this change in dynamic. I have seen a lot of compliance, procedures, reporting and due to that underwriters do not spend time with clients. I have not had any insures come to me and say we can be creative and inventive and work together by talking," he stated. In a refreshingly honest and imaginative suggestion Mr Bamber said insurers should and could work together to deliver solutions to risks that individually they cannot supply for reasons of capacity and scale. "My view is if you are looking at emerging risks, or risks that are very difficult, the reality is you probably have to look at some sort of industry solution. I don't see why you can't do that for some risks. So in effect you could have some sort of pooling or consortium that provides some mutualised cover for you as companies. I see that as a possible and credible way of getting some sort of solution. They do it in the defence industry so why can we not do it in the insurance industry?" he said.

Insurers concede they must up game to maintain relevance

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