Risk managers won’t forget brutal renewals as pandemic response threatens coinsurance, warns Den Dekker

The rush by insurers to exclude pandemic risk from policies is threatening the future of the coinsurance system as the market struggles to deliver consistent and aligned wordings, warned Peter den Dekker, past Ferma president and head of insurance and risk management at Royal Philips, the Dutch multinational and leading health tech company. In an exclusive interview with Commercial Risk Europe, Mr Den Dekker also joined fellow leading European risk managers in sharp criticism of the clumsy and often brutal way in which insurers are handling renewals as they seek to restrict wordings, pull capacity and raise prices. And he asked where brokers are in the public discussion, as risk and insurance managers struggle to secure adequate coverage in what is shaping up to be another bloody year-end renewal. Mr Den Dekker said that brokers, who are supposed to be fighting their customers’ corner, instead appear to be publicly supporting insurers and telling risk managers to start renewals as early as possible and brace themselves for a very difficult renewal. Mr Den Dekker warned that the sudden dash to exclude pandemic risks from policies is threatening the very foundation of the co-insurance market, which is so critical for larger multinationals with huge programmes. “All insurers now want to exclude Covid-related claims, whether direct or indirect. I can understand why they are looking at it, but the problem is that the insurance market cannot agree on a text or wording. You may have a couple of insurers agree on your programme but others don’t. If this continues, then the co-insurance market is dead. You can’t continue with different terms and conditions. They have to get their act together. If the risk is excluded from the coverage already, why does it need to be added as an additional exclusion anyway?” he said. The risk manager added that insurers will suffer longer-term consequences if they are too brutal in their treatment of customers in coming renewals and continue to remove any local underwriting power and decision making. “I do see some insurers really showing commitment to long-term partnerships, which is good and appreciated, but the majority are really not showing any partnership or use the excuse that they have no power to make a decision. In the long term, if we still have the luxury of choosing a partner, this period will make a big difference in our selection process, because this is really disappointing. We will not forget,” Mr Den Dekker said. He pointed out that the warning signs came before the arrival of Covid-19, but added that insurers have used the crisis to step up pressure to further increase prices and reduce capacity. “In early 2019, the market was severely going up in pricing terms and there were capacity problems, especially in financial lines. So we decided to start the 1/1/2020 renewal early, in March. Despite starting so early, we still only managed to complete the renewal the day before Christmas and this was one of the most frustrating times I have ever had,” said Mr Den Dekker. “Now, Covid-19 is being used as the excuse to further increase prices, reduce capacity and impose more exclusions. But this is not justified because it is only really those insurers with big shares of directly impacted lines, such as the events and hospitality industry, that have been hit by the pandemic. Business interruption coverage is generally not exposed, so this is not a real catastrophe event for the sector,” he added. Mr Den Dekker said the market’s overall response has been irresponsible and there is no justification for trying to make up for a decade of underpricing, and therefore poor underwriting, in one dramatic and brutal effort. “If you look at the overall response of the global insurance market, it is really irresponsible. In what other commercial markets do you sell a product for one price for years and then suddenly increase the price by 100%, 200% or even 600%? The excuse is that the cover has been underpriced for ten years, which may be so, but that is no excuse to try and make up the shortfall in one go – it should be done more gradually,” he said. Mr Den Dekker does not like the way all the leading insurers seem to be reading from the same script, with remarkably similar statements that, disappointingly, are also being used by brokers. “At the end of the day, it is the risk and insurance manager, not the insurers, who has to explain this to the CFO and the business leaders – and they hit back and ask how it can change so suddenly. They [insurers] are hiding behind the broker and the insurance manager, and this is a really big thing. I am flabbergasted,” he said. The risk managers’ job is made even harder by the fact local underwriters are losing decision-making power as head office takes over, said Mr Den Dekker. This is storing up another big problem for the market, he added. “There is no way of discussing these problems currently. I am really worried about how the underwriters will emerge from this storm. Underwriters are totally frustrated because all they get is instructions from HQ about what price to charge and how much capacity to reduce. They are given a list of questions to ask and if you don’t answer them as demanded they can’t quote,” he said. “On top of that, the Covid-related questions are all negatively drafted: How many employees did you fire? What revenue impact did you have? How do you manage the wellbeing of your employees? Just to name a few questions. I wonder how they treat companies that really did a good job during this crisis. The underwriters actually know their clients’ business, but they have no decision-making authority whatsoever any more. I fear that the key underwriter will just say goodbye because they are so frustrated. Insurance leaders should look after the wellbeing of their underwriters,” added Mr Den Dekker. This frustration among underwriters and apparent inability, or unwillingness, of brokers to stand up for their customers is causing a big problem for this market, argued the risk manager. “The leaders of the brokers and insurers are letting their experts down big time and they really have to do something about it, because it will lead to real trust issues in the longer term without doubt,” he warned.

Risk managers won’t forget brutal renewals as pandemic response threatens coinsurance, warns Den Dekker

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