Risk manager concerns, the hard market, and Rims’ support role

Global Risk Manager spoke to Rims president Patrick Sterling about US risk managers’ major concerns, the state of the commercial insurance market in the US, and the twin problems of nat cats and social inflation. He explained how risk managers have been forced to be creative in response to the hard market, and how Rims as an organisation is helping risk managers to connect and share experiences.

What are the most pressing concerns for risk and insurance managers in the US at the moment?

Patrick Sterling: Top of mind for most risk professionals in North America is how are we going to move forward after the last two years and what will this new way of doing business look like? Organisations were forced to quickly adapt strategies but now, as we look toward the future, risk professionals can help their organisations identify what shifts in strategies might have been temporary fixes and which ones are here to stay.

We have seen a greater dependence on technology. In many ways, the quick embrace of new technology has actually made conducting business more efficient. Risk professionals can step in to provide strategies to successfully integrate these technologies into future plans, as well as help their organisations to identify and monitor all of the new exposures that they present.

The disruption in our supply chains has pushed us to re-examine them to make sure we are diversified, resilient and compliant. While its impacts will go beyond just supply chains, risk professionals are closely watching the conflict in Ukraine. Political risk is not new to risk professionals, however almost every political incident (international and domestic) has a different effect and outcome. Risk professionals cannot neglect the conflict. In fact, we should be leading discussions about its potential impact on business, property, people, energy needs, supply chains, partners, technology and insurance programmes.

Talent risk is a tremendous threat. With so many people resigning, the competition to attract and retain great people has become a priority. Risk professionals can certainly be involved in developing hiring, onboarding processes and initiate conversations about succession planning. Building a corporate culture that is safe and cares about its people is another way to address this growing risk.

Determining what the top concern is will vary from organisation to organisation. That’s where risk professionals can really demonstrate value by helping our businesses identify and understand their risks, and empowering our business leaders to make strategic decisions and allocate resource effectively.

How would you describe the pricing environment in the US? Has the hard market peaked?

Patrick Sterling: There have been some signs of stability in the market. The most interesting impact of the pandemic has been a complete shift in insurance programmes for some organisations. A great example is commercial real estate and workers’ compensation, especially as more employees are working remotely and some organisations reconsider their physical spaces. The pandemic has forced all risk professionals to reassess their insurance programmes to make sure they are still appropriate for their post-pandemic business model.

Additionally, fallout from the hard market has seen more organisations deciding to self-insure risks.

Which commercial insurance classes are particularly distressed in the US in terms of capacity, rates, and terms and conditions?

Patrick Sterling: Cyber insurance remains a challenge for risk professionals. A combination of the varying breadth and scope of a cyberattacks makes quantifying an exposure difficult. Additionally, the increase in cyberattacks, particularly ransomware attacks, has intensified the challenge. With a rise in the amounts of cyber claims being paid, rates are high and, I would imagine, capacity is decreasing. Some risk professionals charged with securing financial backstops for cyber incidents and data breaches are turning to self-insurance and captives to address this top risk.

With nat cats increasing in frequency and severity, and the issue of secondary perils, are risk and insurance managers in the US looking at cat modelling to get a better handle on the risk and to help with finding appropriate coverage?

Patrick Sterling: Increasingly severe and frequent weather events have devastated new regions and no longer seem to follow seasonal patterns. Now, all organisations must reassess this risk and calculate the impact of disruptions caused by natural catastrophes. This is where risk professionals need to be proactive. If you start planning for a natural catastrophe once one hits, it is too late. Risk professionals are constantly asking themselves: “What steps can my organisation take so that we do not trigger our insurance?”

Managing climate change is not always something an organisation must manage on their own. Instead, some organisations have started to manage this risk by choosing eco-friendly and environmentally conscious business partners and vendors.

How much of a concern is social inflation in the US?

Patrick Sterling: To address social inflation and nuclear verdicts requires risk professionals and business leaders to focus on corporate culture. Organisations that can demonstrate that they are ‘good citizens’, that they are environmentally responsible, that they care about employee safety and about their surrounding community, will be better able to establish trust. They will also, most likely, experience better results in the courts.

One of the ways risk professionals can be proactive about this ESG risk is by establishing training programmes for employees. Teaching them how to be safe and how to care for the environment and community are cornerstones of a great corporate culture.

There are tons of regulations out there on how keep employees safe and the environment clean. However, it is up to the organisation on whether they just want to ‘check the box’ or go above and beyond.

The captive market seems to be thriving at the moment – are US organisations looking at other alternatives such as ILS, parametrics, etc?

Patrick Sterling: At this time, everything is on the table. Risk professionals have had to get creative to navigate both a world of new risks and a hard market – both hitting our organisations simultaneously.

The key to developing the most comprehensive and relevant risk financing programme for your organisation is to establish great relationships throughout the industry. Rims has been a tremendous asset to me throughout my career. In addition to connecting with great people on the insurance side of the business, at captive domiciles and other Rims solution providers, the society helps you connect with other risk professionals. Every day on Rims’ website, members share information about their programmes, the challenges they face and the strategies they are using to overcome them.

Risk management is all about learning from other’s experiences – and Rims gives this profession the platform to do it.