Insurers undermining trust  and confidence

Agroup of leading German risk managers taking part in Commercial Risk Europe’s Risk Frontiers Europe 2021 survey feel that insurers should have improved their results by now and cleaned out bad risks, and therefore the market should not harden significantly further at 2021/2022 renewals. Alexander Mahnke, president of German risk association GVNW and insurance risk manager at Siemens, said: “The change in terms of insurers’ profit margins was understandable and necessary. Our insurance partners need to make money. Although we sometimes feel there has been a backlash and some exaggerated behaviour in the past year.” But in his view: “We have dealt with the bottom of the market.” As a result, he said, insureds should not have as difficult a time at next renewals as during the past year. But Mr Mahnke stressed that risk managers should be under no illusions – those tough conditions are unlikely to soften either. There are also a number of German companies reaching the end of pre-existing long-term agreements that may well face the same pain other risk managers experienced in 2020, as their portfolios come under extreme scrutiny and realignment by insurers. The last year has been very tough “not just in terms and conditions and in pricing but also in the way the changes were communicated by insurers”, said Mr Mahnke. He added that this has not helped long-term relationships between insurers and insureds, and will have simply eroded confidence in the insurance market. Much, as always, depends on the precise sector involved, and Mr Mahnke said some were affected much more by terms and condition changes than others. But everybody faced exclusions across the board on pandemic coverage, he added. GVNW board members Mathieas Kohl, risk manager at Draegerwerk, and Christian Boehm, insurance risk manager at technology group Freudenberg, agreed that some of the worst market hardening should now be over. But they foresee further trouble ahead for both cyber and D&O cover. Mr Kohl predicted that conversations are likely to switch from increased rates towards exclusions and changing wordings. D&O excess layers are becoming particularly challenging, he said. It is now “a puzzle, fitting the pieces of a programme together”, he added. “It is getting harder and sometimes it becomes a little strange in that it is harder to find the second excess layer than the third layer. It is not logical,” Mr Kohl said. Widespread impact The hardening market has impacted all parts of the German economy, said Stefan Rosenowski, managing director of the GVNW. “What we are seeing in the middle market is a hardening of rates across the board,” he explained. He reported that all liability classes have been impacted, particularly product recall cover, with many insurers limiting capacity. His views were echoed by Mr Boehm, who pointed to the auto supply sector as another that is hard hit. He said insurers told him that the higher rates and lack of capacity were directly linked to the claims landscape. He added that one of the big problems facing German insurance buyers is “insurers acting on the different industrial sectors as a whole”. “They are not looking at the customers individually. Whether it is an automotive supplier or a chemical plant, they don’t look at the individual loss history. Instead, they put their customers in the respective sector box,” he added. Mr Mahnke agreed. “I am not judging, I am just saying. But if a company now decides to move its money out and find another alternative to managing its risk, when the insurer comes back in two years and is willing to offer capacity again, it is not going to happen,” he warned the insurance industry. “It happened within the past 20 years and it happened especially in D&O. To a certain degree, I am a little disappointed that at the moment it has come to corporate musclemen – the larger insurance companies seem to forget a lot,” he added. One of the drivers of these changes, said Mr Boehm, is the way underwriters are looking at risks, including increasing use of data. “From what we hear from our members, the feeling sometimes is that underwriting is not being done by the underwriters anymore but by some algorithm-driven tools. They seem to feed their customers’ information into tools and not long after that, they announce – surprise, surprise – that the premium must go up. But ‘hiding’ behind those tools is not a good thing when it comes to building trust and confidence,” he said. “So, it seems that the actuaries are doing more of the underwriting than the underwriters. This has changed through the years from a time when it was more about underwriting on an individual basis,” he added. Mr Kohl said it often appears that underwriters are being forced to ask standard questions as part of their internal compliance, and when challenged they are unable to provide a reason why the question is being asked. More than that, he said, it appears they do not understand the implications of the answers and the impact of those on the pricing. However, that does not mean that the panel of risk managers were totally against the increased use of data. In fact, Mr Boehm said the use of data should improve underwriting decisions and perhaps should have been used more in the past, especially to support customers.

Insurers undermining trust  and confidence

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