Nordic risk managers vent frustration at insurers’ retreat

September was a pivotal time for Nordic risk managers as their associations were able to hold their first in-person events since the pandemic. After a three-year absence, there was a lot for risk managers to catch up on given how the risk landscape has altered in that time. 

“In the EU, we are in a critical state,” said Lene Ritz, corporate enterprise risk and insurance manager at Danish shoe manufacturer ECCO.

As the pandemic subsides, an energy crisis, war in Ukraine and an escalation in natcat events have emerged. Risk managers in the Nordics are facing many of the same macro issues as others across Europe – skyrocketing interest rates, double-digit inflation, global supply chain pressure and an overheated labour market.

However, the feeling among Nordic risk managers we spoke to as part of our Risk Frontiers Europe project is that insurers have not stepped up to meet the rising risks. They point to a reduction in capacity for construction all-risks, large D&O placements and cyber.

“The next six months will be tough,” said Ritz, who is also a board member of both the Danish risk and insurance management association Darim and the European federation Ferma. “We are facing a lack of insurance capacity on one side and economic sanctions [connected to the war in Ukraine] on the other. And the energy crisis is affecting every company and all risk managers need to urgently review their energy supply.”

Nordic countries’ proximity to both Russia and Ukraine puts them on the front line of the energy crisis. In late September, both Denmark and Sweden reported gas leaks in the Nord Stream 1 and 2 pipelines that carry Russia’s natural gas to the EU. 

There is also reputational risk for Nordic companies still doing business in Russia, plus the risk of falling foul of various sanctions imposed at both a national and EU level. 

All of these events have conspired to put risk management in the spotlight but also highlighted a potential skills shortage in the profession. “There is a higher demand for risk and insurance managers, so we need to be prepared and to have the necessary competencies,” said Ritz

“This state of needing new talents in the profession will continue for years to come, so it is up to us in the profession and the organisations such as Darim to get younger people into the industry.”

State of the insurance market

Darim recently polled its members on their areas of concern. At the top were supply of new materials and the food crisis, the energy crisis, global trade, insurance and political risk.

Claims handling, D&O and captives have also been important issues this year. “The possibility of using a captive in the Nordics has increased,” said Charlotte Hedemark Hancke, Ferma vice-president and senior risk manager in customer success risk assurance services at software company SAP. 

“The hardening market has left risk managers looking for options beyond insurance. It is both the increased premiums and the reduced capacity for certain risks. This is especially true for things like cyber and pandemic. It was predicted back in April that rates would be high and that has proved to be the case, and it is visible with an increasing trend in exclusions,” she said. 

Darim members have also had to focus on cyber risk and travel restrictions, as well as the Russia-Ukraine war and sanctions.  “Some member companies were unsure if they should continue doing business with certain companies with ties to Russia,” said Hedemark Hancke.

Swedish risk management association Swerma held its annual forum recently, titled ‘Living the New Normal’. It covered a variety of macro topics such as the social media landscape and so-called ‘infodemic’, the changing climate and rise in political risk. 

“A changed risk landscape means new ways of working and continuous risk management and assessment have never been as important and useful as they are at the moment,” said Karl-Johan Rodert, Swerma president and insurance/captive manager at Autoliv. “The new normal seems to be constantly changing.”

But, from speaking to risk managers at the event, the dominant theme was the deteriorating relationship between commercial insurers and their clients. 

Risk managers have been left chasing capacity in a number of lines for both traditional and emerging risks. 

“We are even chasing capacity on product liability, which had been abundant for years,” said Athina Pehrman, board member SEB boards in the Baltics and director of group risk management, captive and insurance at Autoliv.

It is a similar story for other well-established lines like property and machinery breakdown. Meanwhile, emerging risks like cyber are experiencing a rise in retentions as well as a reduction in capacity. “You won’t even get a quote without some significant skin in the game,” said Pehrman. 

Consequently, risk managers are increasingly looking beyond the insurance market. “The insurance industry has always been very traditional and insurers thought they were driving the market. But we passed them long ago. Their declining risk appetite is decreasing the number of options available for us. The external insurance market is nowadays less able to help you,” said Pehrman. 

With the risk appetite of insurers declining, captives have become a good option for larger insurance programmes or certain specialty lines, said Pehrman. “We saw captives closing down in Europe because of the administrative burden following regulations such as Solvency II, but with how the world is evolving and the hardening market, captives are going to be much more widely used by companies,” she said. 

“Some businesses are doing great things with their captives. For example, they are using it for their workers compensation insurance programmes and other insurance solutions,” said Pehrman. 

She called on insurers to talk to risk managers and find out the type of innovation they desire.

“Some commercial insurers have been genuinely innovative in their use of parametrics and catastrophe bonds. But in general, the development of new insurance products has been a very slow process,” she said.

In some areas, insurers could become irrelevant, warned Pehrman. “They need to pay attention to the increasing use of captives. Some brokers have become better at driving innovation, new risk transfer solutions and finding the right carrier. And what makes the right carrier? It is a combination of state of mind and resources/capability, and having enough in-house skills, experience and global reach,” she said. 

Sweden has experienced the same challenges as other European insurance markets, said Laurence Eeckman, vice-president, group risk management at Swedish home appliance manufacturer Electrolux. The country’s risk managers have had to deal with tightening terms of conditions, higher premiums, increased exclusions and reduced capacity. 

Similarly the energy crisis is as acute in Sweden as other European countries. “The Swedes are suffering and there is some anxiety for a manufacturing company,” said Ferma board member Eeckman. “The transition to alternatives will take time. In the long term we need to find alternatives, but in the short-term this may mean a greater reliance on fossil fuels than would have been hoped for.”

Buy-in

Another challenge facing Swedish risk managers is getting boards to buy new cover when existing policies are getting harder to place. 

“Business interruption (BI), cyber and financial lines are all really difficult. We understand that insurers have suffered a lot of losses and need to get back to profitability. But we don’t have the coverage we had before – it has got worse,” said Eeckman. 

“That is a problem for the board. We are asking them to buy new insurance products for new risks but we can’t extend existing products like BI or cyber because of war or other exclusions. It is hard to persuade the board to buy new insurance products for emerging risks when they are facing more exclusions on their existing policies,” she added. 

The insurance market is not moving as quickly as the risk landscape, which has led to a shortage of new covers. This clearly leaves risk managers and insureds with a problem. 

“We need insurers to be with us now, rather than after the transition. We are getting more digital and facing ransomware risks… We need to have more customised insurance and more collaboration and not simply come up with more exclusions,” said Eeckman. 

“Maybe this means more involvement with the captive so that both insurer and insured have more skin in the game. We cannot have these systematic exclusions and the idea that insurance is a one-size-fits-all solution. There has to be dialogue,” she continued. “We need more engagement.”

This is where risk management associations like Swerma can help, said Eeckman. “We need to use the scale of the associations,” she said.

But she stressed that individual risk managers must also step up to the plate and look at alternative risk management options to traditional insurance. 

“It is typical in a hard market that insurance capacity reduces… and some risk managers have never worked in such an environment. But you can’t just accept it; you need to do something about it. The risk landscape has changed and I am convinced this means more use of alternative risk transfer, self-insurance and captives – this is what the c-suite is after,” said Eeckman.