Insurers losing touch with market realities, warns AMRAE

Decision-makers at insurance companies are becoming estranged from the market realities facing customers, according to French risk management association AMRAE, which will be pleased to hear new rules to make it easier to set up captives in France appear closer to fruition and could be in play from next year. The criticism from AMRAE comes at a moment when the hard insurance market has become an unavoidable fact of life for French companies, with a lack of appetite from underwriters for vital risks such as cyber. The grim reality faced by French buyers is exposed by AMRAE’s latest State of the Market report, an annual study on trends in the country’s commercial insurance market. It paints a nasty picture for buyers and reveals that capacity is down, prices are up, covers are more restricted and deductibles are on the rise in the vast majority of insurance lines across France. A survey of 65 insurance buyers found that 95% suffered rate increases in their P&C covers during the latest renewals. Exclusions have escalated and wordings are becoming more generic, which indicates that underwriters are taking less heed or risk management at individual company level. The situation is particularly worrying in segments such as cyber, where buyers are struggling to find the limits they need when their exposures are growing at breakneck pace. “At a moment when companies try to address the risk, and have understood that cyber insurance is important, the market has had a tendency to evaporate,” said Léopold Larios de Piña, a vice-president at AMRAE and head of group risk management at Mazars, speaking at the report’s launch in Paris. Among the small group of underwriters that show any appetite for cyber risk today, conditions are getting tougher and tougher for buyers, and deductibles are on the rise, the survey found. P&C insurance rate raises endured by the survey’s participants have often reached double digits, and many have paid prices 70% to 80% higher than before, the research found. Mr Larios stressed that, for companies purchasing high volumes of insurance, this is far from an insignificant financial cost. “That represents millions of euros for companies,” he said. “It is a heavy burden to manage.” “Quoting Marshall Lattre de Tassigny, we need to act so that we do not suffer,” Mr Larios writes in the introduction to the report. “We act to strengthen the resilience of companies to make up for the feebleness of insurers, whose decision-making powers seem to be becoming estranged from the realities of the market since the creation of international underwriting hubs,” he adds. The report also notes that, due to the difficulties faced by French companies to guarantee coverage levels, many risk managers are looking at alternative risk transfer tools, and especially at captives. “Unfortunately, we are in a situation where… insureds are being forced to self-insure a growing share of their risks,” Mr Larios states. A survey released by AMRAE earlier this year showed that some 50 French companies were considering setting up reinsurance captives. To make it easier to do this job in France, AMRAE and other entities have set up a working group with their government to update legislation in order to turn the country into an attractive captive jurisdiction. New legislation has been proposed and is under negotiation in the French Parliament. In a roundtable organised by risk consultancy Optimind in late September, Lionel Corre, the sub-director of insurance at the French treasury, expressed hopes that the new rules will be included in the forthcoming Budget Bill, which needs to be approved by parliament “in the following weeks”. If that is indeed the case, the new rules could be in place next year. Valerie Faure-Muntian, member of parliament who is head of the insurance group at France’s National Assembly, said several issues have emerged from the discussions that are being addressed by the proposals. She also noted that many different kinds of organisations, including SME’s, have shown an eagerness to learn more about captives and other risk financing tools. “It is clear that it is necessary to strengthen our companies’ capital reserves. This is a flaw of French companies, as we have seen during the pandemic crisis,” pointed out Ms Faure-Muntian. “Mid-sized companies have shown much interest in captives, even though they were not necessarily the initial focus of the group,” she added. In the meantime, however, French buyers need to deal as best they can with a difficult insurance landscape and will be interested in some of the other key findings from AMRAE’s State of the Market report: P&C – AMRAE expects capacities to further shrink by 20% to 30% due to the impact of nat cats, supply chain issues, political violence and the Covid-19 pandemic. Terms and conditions stabilised during the July renewals, thanks to heightened competition in the French market. But buyers could still see rate increases of 10% to 50% in future renewals, and in some cases as high as 80%. Deductibles should also keep on rising. Cyber – A “very hard market”, in AMRAE’s words. Capacity has disappeared and the association identifies plenty of uncertainty surrounding this cover for the foreseeable future. Most insurers are only keen on offering Ä9.5m to Ä10m primary layers, while followers will usually fork out no more than Ä5m. The quality of cover has deteriorated, while deductibles have sometimes doubled in value. Rates have also seen increases, sometimes upwards of 100%. Construction – Capacities have dropped between 20% and 30% for French companies, while prices have increased by up to 30%, and deductibles by up to 20%. Motor – The rare silver lining in a pretty dire overall market. The availability of coverage has not changed this year, while prices and deductibles have seen increases limited to 10%. It may be a turning point for a segment that started to correct before the general hard market. Transportation – A segment where pressure on prices and capacities has been limited, with rates going up by about 10%. But AMRAE has found that terms and conditions have been tightened, with a number of new exclusions added to wordings. Civil liability – No changes are expected for 12 or 24 months, which suggests a difficult renewal season in January for French companies. While prices have gone up by 10% to 30% in the latest renewals, AMRAE reports that the financing of liability risks via captives has gone up by about 25% of late. A sharp rise in deductibles, reaching up to 50%, helps to explain this move. D&O – The French association believes that, thanks to the arrival of new capacity, the segment may stabilise in 2022 and even turn around in 2023. In recent months, however, both prices and deductibles have gone up between 10% and 50%. Political risks – Another segment where prices are going up, by between 10% and 20%, with a proliferation of cover restrictions.

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