Risk and competition to drive innovation in 2014

Recent years have been characterised by natural catastrophes, political risks and risks that stem from the financial crisis and economic slowdown. At the same time, complex and inter-related risks that are difficult to insure such as cyber, reputation and supply chain have also grown in relevance. These trends are likely to continue and may even accelerate, according to brokers and insurers. "It's true that we have seen a lot of new and emerging risk in the past couple of months and years," said Hartmut Mai, Chief Underwriting Officer, Corporate, at Allianz Global Corporate & Speciality (AGCS).hide"I expect this trend will stay and the speed of new topics emerging which we will have to deal with in the future is likely to increase-in both the diversity of the challenges and their potential magnitude," he said. Mid-sized natural catastrophes cannot be described as an emerging set of risks. But they have increased in frequency in recent years. The 2011 floods in Thailand highlighted the potential for large supply chain and business interruption exposures. The recent typhoon Haiyan in the Philippines was another reminder that while premium growth may be good in emerging markets, such markets will increasingly become a source of losses for insurers as values increase and insurance penetration rises. Climate change is increasing the impact of natural catastrophe events as well as the frequency, said Fredrik Rosencrantz, Chief Executive of Zurich Global Corporate in the EMEA region. "This poses several challenges to both insurance and reinsurance companies, as well as their customers, and there is an increasing need to re-evaluate insurance programmes, products and services," he said. Reputation and cyber will also remain top risk issues, according to Mr Rosencrantz. The latest company crises clearly demonstrate that reputation is no longer merely nice to have but, rather, a strategic asset that affects every company's bottom line, said Mr Rosencrantz. "The world has also witnessed an unprecedented transformation in information technology, with an increased reliance on computers, mobile devices and electronic communications," he added. "What is clear is that companies would benefit, not only from economic loss coverage, but also from a broader range of protective and reactive services, including cyber risk assessments, security practice reviews and post breach services," said Mr Rosencrantz. Insurers clearly recognise the demand for risk transfer solutions and services for complex exposures such as reputation or supply chain. But they have yet to respond with adequate products, according to Charles Beresford-Davies, who leads the Risk Management Practice at Marsh in the UK. Brokers and insurers do care about service and innovation and invest a lot of time and money to improve and differentiate their value propositions, said Ken MacDonald of insurance broker Miller. "However, I appreciate that many clients want the industry to move faster and jump higher. And they would like to see this, especially innovation, directed more at their own risk needs rather than more market facilities that, in our opinion, primarily benefit brokers," he said. These trends in risk are continuing and also amplifying, added Mr MacDonald. "We hope to see ever better solutions to these risks being offered in the market. As a broker, we have invested in these areas as we also see the growing need from our clients; be it cyber risk, environmental insurance or business interruption, clients need good advice and effective solutions," he said. It is important that the insurance industry follow these trends in risk and that it finds innovative solutions, according to Mr Mai of AGCS. "If the insurance industry doesn't change its product offering it will become irrelevant to our clients in the next five to 10 years," he warned. "It is important that we gain speed to follow new market trends and changing need of our clients in respect of new products, new services, new processes and the like. This will become a huge differentiator amongst the lead insurers. Timing in this respect is key," he said. AGCS has invested in innovation, said Mr Mai. "We have invested a lot to change people's mindset to be more open to this necessary change. With their buy-in we will be able to think more cross-functional to find compelling answers for these new needs by connecting the dots in the already existing service offering," he said. For example, AGCS has already launched new products to cover reputation, cyber and non-damage business interruption. "There will be much more to come in the near future," said Mr Mai. Christian Wertli, Head of Strategic Solutions to Corporates at Swiss Re Corporate Solutions, also sees cyber, natural catastrophes and reputation as big risks. He agrees that such risks will have more impact in the years to come. "Corporates realise they have these exposures and that they are not always insurable in the traditional market," he said. The drive for innovation in the insurance industry reflects a genuine desire to 'tackle new areas of risk and to come up with new solutions and ideas,' said Mr Wertli. "I do not see it as a response to competitive market conditions," he added. The insurer sees its role as a provider of customised solutions, which lend themselves to growing awareness of risks like reputation, cyber and non-damage business interruption, according to Mr Wertli. The insurer has also been working on natural catastrophe and weather-related solutions for clients in the energy, food and drink, construction, sports and other industries, he added. According to Mr Rosencrantz, Zurich has also introduced new products, including supply chain insurance and security and privacy insurance for cyber risks. It now plans to launch an environmental impairment liability insurance for international programme customers in early 2014. "We want to sharpen our customer focus. In other words, we want to go beyond just thinking about products in order to design distinctive customer propositions-products, services and customer experience-that address those needs," said Mr Rosencrantz.

Risk and competition to drive innovation in 2014

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