Negotiating a tough market needs skill, partnership and commitment: Malan

François Malan, chief risk and compliance officer at Eiffage, sees three core reasons for the continuing tough primary corporate insurance market: the rising cost of reinsurance, high inflation and, depending upon the sector, mounting claims.

“In July things seemed OK but the Ukraine war continued and then Hurricane Ian hit the US and so the reinsurers sent the message in September that rates would have to rise to maintain margins,” said Malan, as part of our Risk Frontiers Europe survey, sponsored by HDI Global.

“Then – partly because of the Ukraine war and energy crisis – inflation accelerated, which has a direct impact on the cost of materials and subsequently claims,” he continued.

There has also been a loss of appetite among leading insurers for some sectors that are perceived to be at higher risk, such as construction and not least in the liability arena. “This was a tough renewal. Not necessarily worse than last year but still tough and I don’t expect it to change soon,” said Malan.

The captive option

One obvious response is to make greater use of an existing captive or set one up. This is a hot topic in France after the Treasury announced rule changes to make it more attractive to creates captives in the country.

Malan definitely thinks this is a great option and he has a project underway aiming to create a captive this year. But he stressed that launching a captive is no quick fix and takes time and effort.

So Malan said the news from the French Treasury on creating a more attractive environment for captives is very positive, but will not happen overnight and is not a miracle cure.

“Hopefully we will have a good environment to build captives in France. This is a positive development. But this is part of the solution not the solution. A captive cannot perform miracles. For a captive to work you need deep knowledge of your risks – you need to be ‘in’ the risk. The group also needs to appreciate that this is a long-term project not a quick fix. Explaining it to your board can be a challenge. You need skill and experience to do this,” he said.

Captives give risk managers more control and transparency about risk and enable more effective negotiation with carriers, added Malan.

Tension in partnerships

But the breakdown in many long-term relationships between risk managers and their insurer partners during recent tough renewals remains a problem.

Ideally risk managers need to work with carriers that really understand their business so their risk can be technically assessed and priced.

But this has sadly too often not been the case in recent times, as insurers simply demanded blanket increases to hit their margins with often no real justification, said Malan, who won Private Sector Risk Manager of the Year for 2020 in the European Risk Management Awards organised by Commercial Risk and Ferma.

“If claims have increased then perhaps it is fair, but some insurers just imposed 10% increases with no reference to risk management or loss record,” he said.

Talent and decision-making

Malan adds that a big problem for the whole corporate insurance sector is loss of talent and experience. This does not help build partnerships and trust, he said.

“There is a problem of turnover because a lot of people move from one insurer to another, so you can lose a lot of skills and knowledge of your risk and have to explain it all over again with the new person. It is the same with the brokers. This is a real challenge,” he explained.

“Also, the new people do not necessarily have the tough market experience and don’t know how to deal with such a market. It seems as if the brokers are trying to deal with too many issues with too few people and this affects service levels, which is particularly important when dealing with claims,” continued Malan.

“This is made all the more difficult when underwriters have to refer to headquarters and can’t make a local decision. This makes the life of the broker difficult and they need to be able to make local decisions too. We need the worldwide brokers to be more efficient,” he said.

There remains some concern in the sector about the chain between risk manager, broker and insurer, and who is actually working for whom and on what basis.

Malan is one of many who thinks that clarification is needed. “You are sometimes not sure who is doing what and who the broker is working actually for, the insurer or us. The risk managers need to take power and more control, and demand more transparency,” he said.