The ongoing hard insurance market is providing an opportunity for risk managers to prove their worth as they now compete with each other for scarce capacity, leading risk professionals told colleagues attending Ferma Talks.
Carlo Cosimi, president of Italian risk management association Anra, and Mario Ramirez Ortuzar, vice-president of Spanish association Agers, said the hard market has hit firms across Europe and continues to cause problems.
According to the two experienced insurance buyers, this means risk managers are now battling hard for the limited capacity on offer, which may not sound ideal but is in fact giving them a real opportunity to boost risk management and show their value.
“The truth is that we are competitors now. We are each trying to get the low capacity that the market is offering us and we need to show that we are better than the other clients and doing things better. So, it is a good opportunity internally in our organisations to talk more about risk management and increase our mitigation measures,” said Ramirez, who is also risk and assets manager at Exolum.
“It is an opportunity for risk management because we need to deal with risk ourselves now. For example, in the soft market we used to do around four or five site visits with insurers, and now this is increasing. All the insurers want to come on these site visits in the hard market. That is a good opportunity for us to show how we deal with the risk internally,” he added.
Cosimi, head of corporate insurance and risk financing at Saipem, said after years of the soft market risk managers were in a “comfort zone” during renewals, with price reductions handed out without many questions about risk management.
The rapid change from soft to hard market, accelerated by the pandemic, put risk managers in a very difficult position, but is allowing them to prove what they can do, he added.
“The positive is that it gives risk managers the chance to recover our position within companies, our visibility. It is an opportunity to show our professionalism, our creativity and our ability to manage risk in this kind of situation. It is not easy but I believe we will come out of this stronger,” said Cosimi.
He told delegates that, like many others, his firm has had to change its risk transfer strategy because of the hard market and is putting more risk into its captive.
He explained that top management asked for more support from the captive, with a higher deductible now taken within the vehicle to compensate for increased rates in the traditional market.
Ramirez said Exolum has also had to retain more risk in order to send a message to the market that it is prepared to share exposure, in an attempt to reduce some of the rate rises. But he said it has taken a big amount of risk retention – be it through captives, alternative risk transfer or self-retention – to get any reduction in price from insurers.
He also said that although this is causing a problem for larger firms, they can ultimately deal with higher insurance costs and retain more risk. But he and Agers are concerned that smaller companies cannot and are really struggling in the hard market.
“Large companies can cope with higher premiums but we are very worried about medium-sized and small companies. We have seen in some cases that they are not buying insurance anymore for certain risks, because they are not able to pay the premiums that the market is asking. They often don’t have the capacity or tools to retain more risk. So that is one of our principal worries,” said Ramirez.