Interest in captives and loss prevention jumps among European risk managers as market hardens

European risk managers are turning to captives and loss prevention as the insurance market hardens, finds Ferma’s 2020 survey. The federation’s 2020 Risk Management Survey reveals that 90% of insurance risk managers polled are concerned about limitations and exclusions of specific emerging risks as the insurance market hardens, and 88% are concerned about tougher conditions generally. Meanwhile, 68% are worried about concentration in the insurance market. The survey of 764 risk managers across Europe between January and 13 March took place when Q1 renewals were not materially affected by Covid-19. But concern over insurance market hardening will no doubt have risen as the pandemic makes things even tougher for buyers. It looks set to be the big issue facing many Ferma members this year and into 2021. “The market was already hardening before the pandemic. Premiums had increased while coverages were contracting, with the Covid-19 outbreak adding even more pressure. Insurers are expected to add more restrictions and exclusions in property and casualty insurance policies. Some of the major risks discussed in this report are likely to be affected by these tougher conditions,” said Ferma on the survey’s findings. The federation’s president Dirk Wegener added: “Post-Covid-19, we are seeing a market that is unsettled and tougher, as insurers deal with losses on both sides of the balance sheet. Capacity for some lines of cover may be very limited and expensive. The insurance risk manager’s skills and experience will be especially valuable in protecting their companies at this time.” In response to the hardening market, 60% of survey respondents said they will strengthen loss prevention activity. This is up from 44% when the biennial survey was last carried out in 2018. Ferma says this “demonstrates a desire for reduction of the company’s exposure and balance sheet protection”. Just over half of insurance risk managers (53%) are also looking to negotiate long-term agreement or rollovers. Ferma says this shows they expect further changes in pricing levels and wish to invest in a long-term relationship with their insurers. But perhaps the most striking survey finding is a huge increase in captive interest. Some 43% of respondents are considering this option in 2020, compared to just 15% in 2018. Just over a quarter (27%) say they will use an existing captive for hard-to-place risks, compared to 1% in the 2018 survey. Meanwhile, 16% of risk managers plan to create a new (re)insurance captive compared to 14% in 2018. “This finding demonstrates the attractiveness of captives when risks are difficult or very expensive to place on the insurance market. It reinforces Ferma’s emphasis on the value of captives as a genuine risk management tool for organisations. Some 37% of risk managers continue to show confidence in captives,” says Ferma. “Captives are an efficient risk management tool that can bring together ERM and insurance management methodologies, especially in the need for a clear understanding of risk exposure to drive risk and insurance management decision-making. In a hard insurance market, risk managers may have to make sensitive decisions about financing more risk with a captive because of the market’s underwriting restrictions or pricing,” it adds. European risk managers ranked cyber and uncertain economic growth as the biggest short-term threats facing their organisation in the 2020 Ferma survey, while digital transformation and climate change are the top medium- and long-term concerns.

Interest in captives and loss prevention jumps among European risk managers as market hardens

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