Product innovation must speed up say European risk managers

Insurance buyers across the continent agree that the catastrophic events in Japan and Thailand last year and their impact on supply chains plus rising concern over cyber and reputational risk have exposed the basic inability of the insurance market to react to fast-changing customer needs.

The insurers need to wake up to the fact that the global economy has changed and adapt their structures and ways of doing business to meet evolving customer demand, say the risk managers.

Most risk managers recognise that the insurers cannot underwrite such complex and fluid risks blind. They generally accept that more information needs to be shared and that no sensible insurers would expose investors’ capital to risks that have not been properly measured and managed.

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But the risk managers say that reaction time to changing risk exposures needs to speed up and the brokers and insurers need to focus on what works for individual customers rather than what suits their organisational structures. The annual renewals process and established product lines also need to be re-thought, claim many European and international corporate insurance buyers.

These big challenges for the insurers and brokers were some of the key findings to emerge from this year’s Risk Frontiers survey, to be published in full with next month’s Commercial Risk Europe and sponsored by XL Insurance and Willis.

CRE has published national reports from Spain, Portugal, Germany, Russia the UK and Switzerland in recent months already and the need for more innovation and flexibility from insurers and brokers has been high on the agenda.

This issue carries the final five national reports that cover France, Italy, Netherlands, Belgium and Austria and we are also publishing a second German report in our daily papers at the annual DVS Symposium in Munich this week.

Interestingly, risk and insurance managers in South Africa who took part in our first major non-European research project focused on global programmes and cross-border exposures in Sub-Saharan Africa, also published in this issue, expressed much the same concerns on innovation as their European peers.

It appears that the bottom line is that, if an insurer wants to be best of breed and win business from the competition in this highly competitive large corporate market, then it needs to look long and hard at how it communicates with customers and reacts to their fast-evolving demands.

Eric Bloem, Manager Global Insurance, Global Tax & Financial Markets, Insurance at Heineken, the global brewery firm in the Netherlands and former president of Narim, the Dutch risk management association, said that the insurance industry does not even seem to be able to deliver the goods for standard risks, let alone more exotic emerging risks. He believes that this means the insurance industry is in danger of becoming ‘irrelevant’ for the larger corporate market at least.

“If you look to the insurance industry you see that it adds less and less value because there is less and less capacity available for the real and normal standard insurance risks. If you look to hurricanes, if you look to earthquakes—the kinds of risks that can really hit you hard—you see that basically the insurance industry is withdrawing. That is the main problem of an insurance manager,” he said.

Mr Bloem conceded that the insurers had paid a considerable amount in damages but added that the major part of the damages was not insured. “In real major catastrophes the contribution of the insurance industry has been relatively low,” he said.

Mr Bloem told the insurance market: “Don’t come to us with solutions for exclusions.” He said that the insurance industry does not always respond to customer needs and needs to seriously think about that approach.

“We have a lot of colleagues here with loss limits on their programmes that they do not take voluntarily. I accept that insurers have to take care of their company, but that is not the same as adding value to our business. There is a difference between what the insurance industry is selling to the clients and what the clients would like to have,” he said.

“Restricting capacity is fine if you are protecting your needs but it makes the insurance industry, as a whole, less relevant for industry. And that is exactly what is happening. We do not see sufficient potential to solve our needs. So we look for other solutions,” added Mr Bloem.

Hans Gorree, Directeur Corporate Risk & Insurance at VolkerWessels, and also a former president of Narim, said that insurers need to be prepared to leave their offices and get their boots dirty to really understand the risks and what the customer needs and wants.

“Sending emails with silly questions causing pollution of the mailbox is rife. The dialogue that is necessary to understand the risk within a company or with business partners cannot be achieved by sending emails, but rather by standing in the mud on the project. We could have emailed each other hundreds of times, but going to the project together we understood what was going on and within two hours everything was solved. I often see in our offices, those of brokers, insurance companies and loss adjusters, most people just sitting behind a laptop. Leave your desk and communicate!” said Mr Gorree.

French risk managers expect the insurance market to be more proactive in the search for solutions for new risks.

Some French risk professionals who took part in this year’s survey said that insurers and brokers have tried to listen more attentively to their clients, and that tailor-made products are sometimes designed for big companies.

But they would like to see a more proactive stance because risk managers themselves are only just getting to grips with such threats.

“Cyber risks are complicated for a risk manager to understand, as they are connected to IT and to new regulations,” said François Malan, a member of AMRAE’s board.

“A few companies offer some coverage for cyber risks, and we have to work with them because we are still trying to understand this risk. They offer cyber risks policies, but they are very often translations of American policies with high deductibles; I do not think they are so far well adapted to the local market,” he pointed out.

Even when a particular product appears to meet the needs of the firm, Mr Malan said, there is the problem of costs in times of stretched budgets. “Premium for this could be high and is an extra cost,” he pointed out.

“When we have to convince our bosses about the need to purchase such insurance, they say it is too expensive especially in this crisis period. It is also hard to convince them why we need it, because the majority of French risk managers haven’t faced claims so far,” added Mr Malan.

The president of AMRAE, Gilbert Canameras, also urged the market to make a further effort to offer innovative coverages for emerging risks. “Insurers have presented some innovations, but not enough,” he said.

He also stressed that capacity is a concern. “Insurers offer us new products with a capacity of about €20m, which is not enough,” Mr Canameras said. “Perhaps such products will develop further, as happened with coverages for environmental risks. But for the moment they remain embryonic,” he added.

Catherine van Cauwelaert, Head of Group Insurance Management at Euroclear, the Brussels-based banking clearing house, said that one key problem is that the risk manager has to kick-start the process. “You cannot expect the insurer to come to you and offer you solutions out of the blue,” she said.

“Insurers need to be more proactive to suggest solutions to their clients. It seems that we always have to explain the risks we face to the insurance brokers and insurers. They never seem to take the initiative and come to us when they develop something that may mitigate an exposure,” she continued. The Belgian risk managers agreed with many others across Europe that one key stumbling block is a basic lack of talent and continuity at the insurers. The annual renewal round also does not help, they said.

Sonia Cambier, Risk Manager with Solvay, the international chemicals and plastics group, said: “Underwriters change all the time, you have different account managers and it is the same with brokers. It is so rare to keep the same contact with an insurer or broker which is not good. This is a people business because it is based on trust and so you need stability,” she said. Olivier Moumal, Vice President Risk Management at Belgacom, said that one problem is that insurers generally do not really seem to understand their customers’ businesses. “You have to explain it to them. You need expertise and skills and continuity,” he said.

In Austria, Klaus Grothe, Risk Manager with Andritz, the plant engineering group, simply said: “We have problems. The insurance process is not meeting our needs. The cover comes in more and more lines. But we are completely dissatisfied with the approach of the insurers on the topic of sanctions for example. It is not clear what is insured or what is not,” he said, referring to recent complications about coverage caused by sanctions applied by the EU on trade in certain Middle Eastern territories.

On behalf of the insurance market, Claudio Ades, Country Manager for Willis in Italy, said that the broker for one is looking for solutions but added that risk and insurance managers should not expect silver bullet solutions.

“It is a very difficult question that the insurance community must think about very carefully. For sure solutions will come but not the solution in one single move. You cannot cover the risk of a market disappearing because of a changing mood. But there can be some kind of solutions for other emerging risks. Political risks were covered by governments in the past and now it is private companies. Therefore we will find some solutions but not the solution,” he said.

Maurizio Castelli, Country Manager for XL in Italy, said that he fully agreed with Mr Ades that, in this complex world, the solution is not one and final. It probably needs to be a mix of traditional insurance, alternative funding, risk engineering, self insurance and the like, he said.

“For example, we have seen an inflation of risk on the supply chain side. Is the coverage available for all these big exposures? No it is not, but coverage is available for a big part of the exposures and this certainly must be coupled with proper risk assessment and engineering. For instance, if you know nothing about your supplier then there is very little possibility for coverage or for alternative ways of handling the associated risk,” he said.

But the former risk manager and president of Ferma did concede that the traditional insurance market is not as fast as it should be in coming up with solutions and certainly, in his view, the Italian domestic market is worse than other countries.

“You have to look ahead and find solutions that you can’t perhaps find with the local Italian players. In cyber risk, for example, the global players are offering solutions,” he said.