Partnership remains key

We spoke to Frank Harting, a member of the executive board at Risk Frontiers Europe sponsor HDI Global, about the some of the big issues facing the risk management and transfer professions. Alack of skilled labour topped a recent poll of German CEOs, followed by concerns about cyber and then political risk. The poll of 150 mid-market CEOs/managers, conducted by HDI Global, revealed that these companies are struggling to attract the right talent, often losing out to the global giants from the automaker and IT sectors. Frank Harting, a member of the executive board at HDI Global, told Commercial Risk Europe that all three of these challenges can be addressed by the insurance market. However, he stressed that while the poll is useful in identifying the top three risks on average, the key to success is being able to address each company’s individual needs. Mr Harting was clear, however, that addressing customer needs should not come at any price. Sustainability is key, he said, for both insurer and insured. In the past year, HDI Global has initiated a worldwide restructuring programme in fire insurance, with the aim of raising average premiums. On the German property book, for example, this means an uplift of more than one fifth, as well as a reduction in capacity. Mr Harting said the implementation of the programme is making good progress. However, there is still a long way to go to turn the portfolio around by 2020, he added. Not everyone will see the same increase and much will depend on claims experiences, exposure and risk quality, stressed Mr Harting. He said insureds need to remember the fundamentals of insurance – that building an insurance collective is essential to managing the risk. In effect, all members of the collective exchange a smaller, more certain financial contribution for protection against a larger, unforeseeable loss. “How many smaller companies can absorb a loss above €10m on their balance sheet?” he asked. “That is the value of insurance.” However, for insurance to continue to add value, it must be sustainable. “It takes two to tango,” he said. “It is a two-way relationship.” Mr Harting pointed to German Insurance Association figures showing that since the year 2000, rates in industrial insurance for the whole German property market have fallen by 60%. In 2018, German industrial fire insurance’s combined ratio reached a whopping 129%. “The problem is not with the insureds. It’s with the insurers,” he said. “We are the ones who have been reducing our rates,” said Mr Harting. “The number of claims has been reducing but the value of each of those claims has been rising. This is mainly driven by BI claims in the last ten years,” he added. As an insurer deeply rooted in German and European industry, HDI has a responsibility to its insureds, he said. “Our value is also our willingness to pay, and our decentralised model means we have a good understanding of the risks facing clients,” Mr Harting added. Most of HDI Global’s business in Germany comes through the in-house broker system. But, like insureds, Mr Harting called on traditional brokers to maintain their relevance and not cut costs to the point where they start to fail their clients. “For the past decade, some brokers have been focused on downsizing and efficiencies, but there comes a point where there is a breakdown in service standards. They need to be careful they don’t reach that point,” he warned. Mr Harting stressed the value of the tripartite relationship between insurer, broker and insured, which allows healthy negotiations around risk analysis. Cyber risk is an area in the spotlight and Mr Harting thinks it should be transferred to a specialist market. “It makes sense for us as an organisation to keep cyber in a single line because from an underwriting point of view, you need complete attention on this complex line and a certain reinsurance solution,” said Mr Harting. He also said it becomes unwieldy if customers see cyber coverage on several lines. It is easier for everyone if it sits alone, he argued. On the complex issue of supply chains, Mr Harting said comprehensive information from the client and broker about underlying risk exposures is key. But he said going down into lower tiers is not easy. “We observe, however, that in terms of tier three suppliers it´s nearly impossible to analyse the entire supply chain including replacement options,” said Mr Harting. “It’s quite simple in our business: fewer information gaps increase the degree of insurability of risks and, in principle, also have a positive effect on the pricing. Uncertainty on the insurer’s side, however, is causing opposite results. Uncertainty decreases the degree of insurability,” Mr Harting concluded.

Partnership remains key

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