Sunny Léons, chief executive officer of Léons NL, Brokerslink’s partner in the Netherlands, talks to Commercial Risk Europe about the changing landscape for brokers and their clients, as part of our Risk Frontiers Europe project.
Q: Are insurance rates continuing to harden this year?
A: Financial institutions and property business remain difficult but we are seeing more moves by insurers to negotiate rates, rather than adopting the ‘take it or leave it’ approach we’ve seen previously. The position differs from insurer to insurer but I think we may be seeing the start of a change in the cycle of hardening.
Because of the challenges we’ve seen globally around Covid-19 coverage and in areas such as cyber, the Dutch market moved very early to remove any such discussions through the use of clauses. For example, cyber was never covered under property policies and it is now excluded by Dutch insurers, and it is the same for cover for communicable diseases.
In terms of D&O, several insurers have excluded cyber coverage from these policies. If the client provides additional information, they are willing to give an affirmative coverage. They maybe also want to exclude areas such as ransomware.
There are more exclusions and we see these extended beyond elements already excluded to areas where some coverage would have been provided in the past – such as terrorism, riots and civil commotion. This relates to broker wordings. So now you must cover these risks on top of our own wording and pay an additional premium for it.
Q: Which lines are most affected?
A: Cyber is by far the most affected. The rates are incredible and we have seen some insurers that offer cover no longer accepting new business. More and more insurers are withdrawing from the market and cancelling all policies. Other lines affected include D&O and financial institutions.
Q: Are claims more difficult to settle this year?
A: Yes, claims are becoming more difficult to settle, in part because insurers see claims handling and settlement as a budget item in their P&L, but for us claims handling is the ultimate service to the client. Insurers are scrutinising claims more closely. They consider claims payments to be like giving a present to the client rather than customer-orientated claims handling. This is a huge mistake. Our clients and ourselves don’t need ‘presents’, we need a good claims settlement service. Some insurers seem to have a problem with that. Our clients are entitled to a process based on integrity.
While other countries are seeing disputes and a raft of litigation around the payment of claims as a consequence of the pandemic, it is not the case in the Netherlands. Even on an all-risks property policy, it is clear the trigger is material damage so where there is no material damage, there is no coverage.
Q: Has the relationship between insured, broker and insurer changed?
A: The relationships between the broker and insurer, and the insurer and insured, are more difficult. Insurers are taking tougher positions, driven by the pressure on their financial performance rather than as the result of a change in attitude or thinking. That is not wise and will be punished in the future if the market changes again.
Moves by some of the larger international insurers, which are making blanket changes in appetite or capacity regardless of how long [they have had the account] or how much business the client has on their books, are making it harder.
There are a few insurers in the Netherlands that are taking their responsibilities seriously and trying to do business in all areas.
Q: What do you see as the key risks ahead?
A: The key risk is cyber but there are also challenges with supply chains that are very evident, as are aspects such as the impact of certain country- and politically-driven trading sanctions.
Q: How do you think risk managers fared in the pandemic?
A: They have fared better than we thought. While some industry sectors faced very difficult trading conditions, there was strong government support for businesses.
The change in approach driven by the pandemic is most evident in the ability of a lot of firms to operate with employees working from home. The pandemic led to many firms resetting their organisations to work with more flexibility. The impact of technology and greater digitalisation enabled more businesses to respond to the challenges of lockdowns.
In my opinion, Covid-19 has not provided a boost to risk management, primarily because the risks that firms are now looking to cover are, currently, uninsurable.
Q: What are the key lessons learnt from the pandemic?
A: We have learnt how small the world is, as we saw how a virus in China can affect the world in a matter of weeks.
We could have never foreseen or really prepared for the impact of such a global event. However, what we have all learnt is that businesses can adapt thanks to technology. In our own experience, we have had one of the best years ever in terms of performance. It has been a real eye-opener for us. From having not considered such flexible working previously, as we come through the pandemic with a broad level of vaccination in the population, we are continuing to offer this flexibility to our staff.
The biggest risks are certainly economic and the likely significant wave of business insolvencies as government support for salaries ends.
An area that our clients are talking about is the shortage and costs of raw materials and shipping, which are growing significantly.
Cyber must be a real area of focus. From a time not that long ago when firms were questioning the need for such cover to now, where cybersecurity and risk management practices are paramount, the need is there and the understanding growing, but obtaining cover, significant rate increases and lack of capacity are real challenges.
One final lesson has been the global broking businesses struggling to respond to the needs of clients during the pandemic. There is a great opportunity for smaller, independent brokers to demonstrate their capabilities and value.