It takes two to tango-Claudia Hasse

Adrian Ladbury: How has the Munich Re Corporate Insurance Partner (CIP) business developed over the last year and which areas have you focused upon? Claudia Hasse: Last year we started the process of looking into the performance of our business over the last 10 years to see which areas have performed well and which not so well. We found this very interesting because you may have thought it would be the big losses that caused the problems but actually there were quite a huge number of medium sized and smaller losses that made certain segments not so profitable such as food, aluminium, steel and to a certain degree also paper. Others such as pharmaceutical, semi-conductors and real estate performed significantly better. Therefore this in-depth analysis really changed our risk appetite and indicated where we should focus our investment. We talked about this a lot with brokers and the customers and have been as transparent as possible about it. It does not mean, of course, that we have pulled completely out of certain sectors and focused entirely on others but in some cases attachment points have been increased or the limits reduced. Also a lot depends upon the performance of the individual account too. If there have been no losses and high quality risk management then we may not do anything. That is very important. AL: Is it possible to generalise about what caused the main problems and sparked action or which were the best type of risks?hideCH: It is not easy to identify common themes and of course the quality of risk management varies within sectors depending upon the risk strategy and activities of the individual company. What we did note was that, while we have traditionally focused mainly on fire risks, actually many of the losses were related to machinery breakdown. Traditionally the property insurance market has not focused so much on this type of risk and more on fire and natural catastrophe. Perhaps we ought to look more closely at other lines such as machinery breakdown and apply our risk engineering skills more to this area. AL: How has the business performed? The market remains pretty flat overall, competitive and you are being selective in your underwriting so I cannot imagine you posted huge increases in premium volume? CH: Actually overall we did make some progress last year and in the first six months of this year in terms of volume and profit. The overall portfolio is more profitable and so this is a positive development. This came through a combination of winning new business, expansion in new markets and also do not forget that the US market, which is a significant market for us, started to harden in the first six months of the year. This was not dramatic, perhaps about 10% overall, but it did help a lot. Also we started to see movement in Asia too, the semi-conductor industry in Taiwan for example. AL: Why did the US market start to turn and what is your outlook for the European market in terms of capacity and prices? CH: My hope is that Europe will follow the US but this is a wish, you cannot be 100% sure. Why did the market change in the US? There was considerable natural catastrophe activity in the US last year and RMS introduced its new model, RMS 11 and this meant the US nat cat market hardened. Overall I think you can say that this was caused because of improved underwriting discipline rather than a fall in capacity across the board. But we will have to wait and see whether this really will have a significant impact in Europe and in Germany. Germany is a particularly competitive market and currently not a big market for Corporate Insurance Partner. The risks are very good quality but the prices are too cheap. AL: The German industrial insurance market has been very competitive in recent times with plenty of new capacity arriving. Is there any sign of perhaps some of the fringe capacity withdrawing as the overall combined ratio tops 100%? CH: Not really. There are no clear signs of a reduction in capacity in Germany. I do not see that. AL: Is the way ahead in markets like Germany therefore to work much more closely with risk managers to assess their risk exposures and needs and focus on innovation and service more than price? CH: We are a technical market and we can help risk managers a lot with the analysis of their risks and risk management and transfer requirements. We also have our global information and database that others simply do not have and this enables us to offer some real in-depth analysis of risk trends by industrial sector, size of client, territory and the like. Risk managers are very interested in this and do not just want to look at attachment points. You have to be very careful about how you handle such information and do it in an appropriate way so that sensitive data is not disclosed. AL: Is this not what the brokers should be doing as the ‘independent’ third party in the middle of the chain? CH: Yes but they perhaps cannot provide the same kind of in-depth benchmarking analysis because they do not actually assume the risks and do not do the same detailed risk assessment. This means that they do not generate the same depth of information. We can, and do, explain in detail for example how we arrive at our prices, it is no longer a black box. We can show what makes coverage more expensive or cheaper nowadays and risk managers find that really helpful. We also have a lot of knowledge in natural catastrophe for example and can really help clients assess their risk profiles. So often the risk is closely aligned between the risk manager and ourselves, particularly if there is a captive involved. AL: What about claims? We are finding that many risk managers across Europe are keen to sit down with insurers and brokers and really work out what will happen when a claim occurs, what is actually covered and what is not and how the claims process works. And this is actually happening, particularly in the UK. It seems obvious to a third party that this should happen and be a fundamental part of the industrial insurance process. But it has not happened so much in the past, possibly because of the pressure of the annual renewal process. Are you spending more time doing scenario analysis and the like with customers? CH: Yes we are seeing more of a stress on this areas and specific questions from customers in renewal meetings. We and the industry as a whole probably still does not do this as often as could or should. But it is not easy. Sometimes both parties may sit down and analyse scenarios and agree what will happen if something occurs. Then something does occur but it is slightly different to what was discussed. This can lead to disputes as the insured may say that it had been agreed previously but actually in reality it had not. This is difficult but it can be overcome. A lot still depends on trust and how close the relationship is and we should do more in this area because we can all learn a lot more and improve wordings understanding of wordings. AL: But how do you pay for this? Taking time out to carry out such discussions is great but it costs money. Who should pay for this and how? CH: To a degree it is part of the administration cost that we as underwriters charge for each risk. In some of the more complex areas we sell the service in addition, for example in the area of natural catastrophes when specialist engineering services are required and in-depth analysis. For this kind of service we have to charge a fee which can be quite difficult. AL: What about innovation which is still such a hot topic, particularly in Germany and will again be a hot topic at the DVS Symposium this week. What can you do to help speed up the process and deliver the goods for customers? CH: It is important to understand that innovation is not necessarily about delivering the one product that you can sell. It is really about developing an idea to solve problems which is very often difficult and needs time and expert resource. Five to six years ago we launched an Enterprise Risk department which does nothing other than look at risks that clients would like to transfer, make it clear what is required and whether we are capable of doing it. This requires robust methodologies and we are quite successful at that. But we cannot always develop a solution especially when we do not have sufficient data. AL: What about supply chain? Thorsten Jeworrek, at this time last year, made a clear statement at Monte Carlo during the debate that I hosted that, for the reinsurance market to maintain or improve coverage, insurers and risk managers would have to improve their analysis of the underlying risks and information provided. He said that if this did not happen then reinsurance capacity would be pulled in 18 months. My sense is that, since then, progress has been made and you may not have to take such drastic action. Is this the case? Will Mr Jeworrek be giving a more positive message at the Monte Carlo Rendez-Vous next week? CH: We have had a lot of discussion over the last 12 months, via workshops with clients in areas like automotive and semiconductor. A lot of these have been really intense and positive discussions because what we learn about our clients really brings the discussions to a new level for both sides. I think that a lot has changed for customers and for insurers and we have a lot to think about. There is supply chain risk but also reputational risk as an extension of that, the threat of losing market share and the like which is also very important to manage. The customer needs to see a return for investment. In the past clients have focused on the credit risk in this area but not so much on natural catastrophe risk and we can really help with that and have tools that clients can use wherever they are operating in the world to assess the natural catastrophe exposures. AL: Could and should the market come up with new models to try and measure and manage supply chain risks more accurately? Is enough being done in this area. Or is it simply too difficult and the insurance market would be in danger of falling into the same trap as the banks by thinking models are the answer to everything? Should the focus actually be more on the adequacy of risk departments and systems more generally? CH: We are not done with this area for sure. When it comes to IT solutions for the natural catastrophes part we, as Munich Re, are rather advanced and can provide a tool to the customer that helps them analyse the natural catastrophe exposure of their suppliers. But I do fear that to take one step further will be very difficult. Suppliers change very quickly and we may never be able to say what effect this will have upon the whole supply chain and this is an important point. We will never have a full understanding of the exact impacts of changes to supply chain arrangements on a real-time basis. So we have to do our risk assessments generally. It is best not look at every nut and bolt but ask whether the company has the right people who do the right things. Does the risk manager have the right access and information and relationships with the right people such as supply chain managers who are really dedicated to this job? We are actually finding that we talk much more to supply chain managers now as well as risk managers and it is very interesting and useful to understand how the company manages the risk and therefore the risk profile.

It takes two to tango-Claudia Hasse

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