Risk transfer industry concedes work to be done on innovation

Roger Bickmore, Group Business Development Director at Kiln Group, told delegates that enterprise risks facing organisations today are much greater, more difficult to predict and continually evolving. This is dramatically altering insurance buying needs and habits, he said. The response from the insurance industry is ‘at best a mixed picture’, he conceded. “On the one hand insurers have been more innovative than perhaps they have been given the credit for. But on the other I guess we haven’t been sufficiently radical to truly tackle this emerging new risk landscape. From a client’s perspective most disappointing of all, I think, is that the shortcomings in our existing products are becoming increasingly obvious,” he said. He added: “Traditional products that we sell are not really doing the job I would say and if anything insurers seem to be retreating from what is really required.”hideInsurers’ reaction to the Thai floods of 2011, whereby they restricted and removed contingent business interruption coverage, was exactly not what clients wanted, he said by way of an example. He also pointed to the UK horsemeat scandal where as far as he is aware not a single claim was paid because the issue related to mislabeling of products, rather than a health scare, and thus was not covered by insurance policies. “It is a personal belief but I think the risk of losing or impairing real assets is probably declining in importance for our clients and instead intangible assets like brand and reputation are today seen as equal, if not more, value than real assets. We have seen at Kiln that firms seem to want to protect revenue flows and profits as much as they do items on the balance sheet,” said Mr Bickmore. “All this has big implications for the insurance industry because it could suggest we are actually focusing on the wrong things,” he said. Fellow speaker, Torsten Jeworrek, Member, Board of Management, Munich Re, said: “The products of tomorrow have to look different than the products we have offered over the last 100 to 150 years.” Long-term global trends, such as changes in technology and demographics, will influence the risk landscape and change the demands of customers, he added. Many large companies, such as Google and Apple, have intangible assets that are not currently covered by traditional insurance, he said. “The insurance industry must respond to remain relevant.” Mr Bickmore said issues such as insufficient data, risk accumulation and Solvency II make innovation difficult for insurers. But he urged his industry to become more client-centric, increase investment in expertise, and develop, along with vendors, better modelling capabilities. Crucially the industry also needs to offer more capacity for these emerging risks, he said. “We need to offer a lot bigger dollar capacity. Clients that are interested in buying these (new) products are very large and need to see some bigger commitment from our industry in terms of the amounts we are prepared to put up.” Alastair Speare-Cole, CEO, JLT Re, was in agreement. Customers want relevant capacity to cover their intangible assets, he said. But, said Mr Speare-Cole, because of fundamentals in the way the reinsurance market operates this represents a ‘big challenge’. “This is a structural problem. For the reinsurance industry to commit big aggregate capacity without any guarantee that over a period of time they will get income to serve that capital has been a chicken and egg problem for this type of insurance,” he said. This relates to a lack of willingness amongst primary buyers and their insurers to embrace new covers when reinsurers produce new solutions. As Munich Re’s Mr Jeworrek said: “Very often there is an announced demand but when it comes to negotiations to structure insurance products very often there is no willingness to pay.” Risk managers often tell Commercial Risk Europe that this is because the new coverages are prohibitively expensive. Mr Speare-Cole pointed out to his gathered profession that risk managers want to see a competitive market before they devote budget to a new class of insurance. On this issue, fellow speaker, Emmanuel Clarke, CEO, Partner Re Global, said you can lead a horse to water but may not be able to make it drink. “The question here is the perception (of risk) versus the price to pay for it,” he said, using the burgeoning cyber risk market as an example of a new and innovative class of business. Christian Mumenthaler, Global Reinsurance CEO, Swiss Re, said that the reinsurance industry has always responded well to new risks but that products need time to take off. As such, several new classes of business, such as cyber, are in a natural state of transition but will soon start to see more transactions and then capacity will follow, he said.

Risk transfer industry concedes work to be done on innovation

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