Insurers need to up their game and rebuild trust

The German and international insurance market did not cover itself in glory during the recent, and at times brutal, market hardening. It now needs to focus on improved service, consistency and innovation to win back the confidence of the insurance buying community, Christian Böhm, vice-chairman of GVNW, tells Adrian Ladbury.

A key challenge for members of the German risk and insurance management association GVNW has been the often “erratic” behaviour of the insurance market that has been hard to explain internally, Christian Böhm, managing director of insurance at global technology group Freudenberg, told Commercial Risk.

Straight-talking Böhm stepped in on a temporary basis as president of the GVNW at the end of last year when Alexander Mahnke resigned as CEO of insurance at Siemens to take on a new role at Mitsui Sumitomo.

He is a highly experienced insurance manager whose chief focus is to secure the coverage needed at the best possible terms and conditions to provide greater certainty and business resilience and continuity for his company.

The dramatic, sudden and poorly communicated loss of capacity in key lines such as cyber and D&O at the height of the market hardening, and now evaporating appetite for property lines from insurers under pressure from spiralling reinsurance rates, did not make this core role easier for any GVNW members.

“Due to the insurance capacity shrinking and significant premium increases, the last years have not been very easy. The sometimes seemingly erratic moves of the insurance markets were hard to explain internally. The insurance risk manager´s task is to safeguard the insurability of the company and to bring the company safe through such rough times, while keeping good insurance terms and conditions at reasonable pricing as far as possible,” said Böhm.

The GVNW vice-chairman said that not all insurers could be accused of the same brutal action. But he said that the longer-term ramifications of putting industrial insureds into “boxes” could backfire on the insurance market over time.

“Insurers have performed differently – some performed ok but others seemed to not have the customers in their focus. Years of writing red numbers were followed by a harsh ‘emergency stop’. The following premium increases led to – sometimes – excellent results of insurers without a lowering effect on the premium. This is obviously not in the interest of the industrial insureds. The shrinking of capacity and the increase in premium might lead to the formation of new captives,” said Böhm.

“Not looking at the individual customer and their exposures, but putting customers into boxes of industrial sectors – like in liability – which will not be insured, or companies with significant business in the US, which also will not be insured, might decrease the value of insurance for industrial insureds. All these developments might lead to a decrease of relevance of insurance for industrial insureds,” he continued.

The most challenging lines for GVNW members this year are likely to be cyber, property damage/business interruption and liability for certain industrial sectors, said Böhm, who does not expect an overall softening any time soon.

The Covid effect

The Covid-19 pandemic raised the profile of risk management and profession as a whole across Europe. But this was not necessarily the case for most GVNW members, who are generally insurance managers first and risk managers second.

“In many of the German companies, the insurance risk manager traditionally is part of the company risk management and responsible for the insurance related risk management. So the pandemic in my view did not change the profile of the insurance risk manager in those companies,” commented Böhm.

Insurance managers in Germany are, however, inevitably being pulled into the fast-emerging and evolving field of ESG, as they are throughout Europe. Böhm generally sees this as a positive development but has seen little impact on insurance negotiations and placement so far.

“There is a special task force in the company that involves the insurance head regarding insurance-related topics. How does a good ESG strategy benefit a company and its risk profile? It will keep the company acceptable and attractive for customers, suppliers, authorities and, not to forget, for its own employees. What impact does it have on your insurance programme, if any? So far, ESG did not play a big role in our discussions with insurers,” he said.

Not surprisingly for Böhm, the big three risks facing German companies are in line with his peers at the GVNW and across Europe. They are big, macro and potentially systemic risks: the worsening economic situation, the political environment worldwide and cyber risks.

There is a rising groundswell of opinion in Germany and across Europe that such systemic risks need a more joined-up and risk management-based approach with state or even EU-level backing at catastrophe level because the commercial insurance market cannot cope alone.

Böhm agrees and believes that the existing German terror pool Extremus could be used as a catalyst for such public private parternships in wider areas.

“As there is Extremus, the German terror protection public-private partnership, as a kind of role model, it should be extended or similar vehicles should be set up,” he said.

For now, in this tough market and faced with rising systemic risks, using a captive remains a useful option for insurance managers.

Böhm is head of Freudenberg’s captive reinsurance company – Freudenberg Rückversicherung AG – that is wholly owned by the parent company, regulated by BaFin and writes only parent company risks.

Böhm said that the tool offers excellent risk financing and risk management options, providing insurance capacity and “smoothing” premium increases by charging appropriate premiums for the captive. He is still thinking about further options to take more risk to help manage the continued tough market.

Transparency and efficiency

As with many of his peers at GVNW, the big questions for Böhm on the insurance market are not just based around price and consistency but also transparency and efficiency.

The rise of the cyber insurance market has raised many questions about the consistency of approach from insurers as insurance managers grapple with the quantity and variety of questions asked by carriers when negotiating coverage.

Some have suggested that this needs to be simplified and that possibly market-wide industry forms or even wordings could be created to the benefit of all. “Both would definitely be good,” said Böhm.

Related to this is the big question of what industrial insurers need to do to improve their service, lower costs and deliver more innovative coverage.

“They should invest not only in – hopefully – good IT but also in qualified personnel. The shortage of qualified people cannot be compensated by better IT and better IT tools,” concluded Böhm.