Risk managers frustrated by current insurer practices as renewals approach

Corporate risk and insurance managers across Europe are becoming increasingly frustrated by what appears to be a coordinated attempt by leading insurers and brokers to impose sometimes dramatic insurance price increases, and it is beginning to look like the 2020 year-end renewal could well be a bloody affair. Peter Den Dekker, past Ferma president and head of insurance and risk management at Royal Philips in Amsterdam, for example, said he kicked off his 2020 renewal process back in January with the aim of getting it completed by 1 October. However, insurers are dragging their feet, which suggests they intend to leave things till the last minute to secure the best terms possible. Mr Den Dekker and other risk managers Commercial Risk Europe has spoken to have also expressed frustration about the continued lack of progress insurers have made to address their cost base, particularly commissions paid to brokers. The feeling is that brokers are rubbing their hands with glee at the prospect of a rapidly hardening market. They seem to be seeking to make as much money as possible out of the shift in conditions by cashing in with their own facilities and managing general agencies, rather than focusing on the core needs of their customers, not least through badly needed innovation for emerging risks. Any insurance market shift is likely to be felt more keenly in Germany than many other European countries, because the combined ratios reported by leading German industrial insurers have been so poor in recent times. Both of the biggest German insurers – Allianz and HDI Global – have made it very clear that they are taking determined action to address profitability in their industrial fire books in particular. They have reported good progress, from their perspectives, at half-year results stage. Commercial Risk Europe asked Reiner Siebert, former managing director of Albatros, the captive insurer of Lufthansa Group, and now joint CEO of the GVNW, about the state of the industrial market in Germany, and whether German risk managers are worried about market developments. He said the picture remains uncertain. Mr Siebert suggested there is definitely an air of unease in the market. “If you listen to the insurers, it sounds dire. When you look at the GDV (German insurance association) figures for the industrial insurance market, they report combined ratios of mostly well over 100% for most of the past seven years, less pronounced, but still negative for the SMEs. However, some insurers reported figures even below 90% and the first six months for AXA XL looked very positive as well. So, it seems to be a mixed picture,” said Mr Siebert. “We have also heard from our members of demands for rate increases; whether the realised increases are at the level reported, however, is another matter. One could argue that a risk with a good and stable loss record is currently adequately priced, which is often disputed by insurers,” he added. Mr Siebert was asked whether there is currently adequate capacity available for the core risks that GVNW members want and need to cover. Again, the response was mixed. Clearly, cyber is increasingly a concern for risk managers. “On the whole, I’d say yes there is still adequate capacity. However, there seem to be some notable exceptions in terms of certain industries, for example some areas of food production. I would also argue that standalone cyber cannot always be adequately covered as insurers are cutting back their capacities,” said Mr Siebert. Mr Den Dekker no longer has an official role at Dutch risk management association Narim and European federation Ferma, so can perhaps talk more freely. He is not happy with the current approach of leading insurers and brokers. He said they are trying to make up for a sustained period of poor underwriting by simply whacking up the rates. “I am very unhappy with the way the market is behaving currently. Both insurers and brokers are damaging the reputation of this market again. They do not seem to realise that it is their clients’ money they are playing with. I think the insurers have failed to underwrite properly for some time, there has been poor technical underwriting, and now they are trying to make up for it by trying to impose ridiculously high price increases, reducing capacity, particularly in certain lines such as D&O and property,” he said. Brokers aren’t really covering themselves in glory at a stage when they should be focusing on their customers’ needs as the market tightens, rather than working with insurers to talk the market up, suggested Mr Den Dekker. “Above all, it looks like the brokers are happy with this development. They are posting healthy increases in revenue each quarter and this is based on higher commissions from the insurers and from the customers, not because they are adding value and innovation for the risk managers. At the same time the brokers are setting up facilities and managing agencies here in the Netherlands and worldwide to try and generate more money, not better solutions for customers,” he said. “This is very disappointing. The global insurance market participants give the impression of working together to raise prices and reduce capacity, and do not seem to be concerned about delivering continuity and solutions to their corporate customers,” added Mr Den Dekker. Commercial Risk Europe has heard similar concerns from the German risk and insurance management community about the level of cost buyers ultimately have to bear because of charges made by brokers, not least when specialty products are needed from the London market. Mr Siebert said he believes the market needs to look “long and hard” at the cost of distribution. There is also rising concern about insurers’ approach to claims in this increasingly tough market, he added. “In my opinion, insurers will have to improve on cost. It cannot be that 20-odd percent of premium is spent on administration. A trend to delay or deny part or all of claims payments is also not very welcome. Lastly, they need to look long and hard at distribution cost,” he said.

Risk managers frustrated by current insurer practices as renewals approach

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