Risk transfer value improving but problem areas persist, say UK buyers

UK risk managers appear much happier with their insurers and the value they receive from risk transfer than a couple of years ago, but difficult areas clearly remain, with buyers we spoke to citing cyber, PI for construction firms and ongoing problems with timber frame buildings needing improvement.

“I think we get pretty decent value for money from our insurance programme,” said James Straker-Nesbit, senior insurance manager at Virgin Atlantic. “There are areas of our portfolio that I think are relatively less valuable, but in general it’s good value… It is definitely better than it was,” he added. Other insurance buyers agreed that things have improved.

But cyber is one area of the market causing difficulty for aviation firms, Straker-Nesbit continued. He said that while there has been a “dumping of capacity” into cyber, few insurers are putting that against airline and aviation risk because they think the exposure is too big.

“So there’s actually not as much cyber capacity within the aviation sector as one would think. And we’ve had the same wording for a while now in cyber, so I think there’s probably some changes that can be made to this area,” he told Commercial Risk Europe. 

He also thinks insurers could have better tackled what he concedes is the “very tricky” area of cyber war exclusions. “I think all of us as risk and insurance managers understand that insurers need to protect themselves from systemic loss, and that’s not a problem to get senior business leaders to understand too. The problem for some is the way the insurance market has gone about tackling this issue,” he said.

George Ong, partner at IRIS (Innovative Risk and Insurance Solutions) Partnership, a not-for-profit organisation that supports students and professionals in the risk and insurance community, would like to see a more client-focused approach from insurers in certain areas. He gave cyber and difficulties managing risks between service providers and their customers as an example.

“The ‘tried and tested’ approach of getting the required level of cover either from one insurer or layers of insurance cover is common place. However, this may not always work for certain insurance as the complexity of risk factors makes it difficult to identify risk owners where risks are shared. For example, a shared service provider with an integrated IT system and its customer using various AI, multiple cloud technology and applications, would find it rather difficult to scope the risks for cyber insurance cover,” explained Ong.

“As an alternative to requiring the service provider to carry cyber insurance in addition to the organisation’s cyber cover, I have previously developed the concept of an ‘Owner Controlled Cyber Insurance Programme’. This approach helped to identify the specific scope of cover required to fulfil the contract requirements and potentially reduce the costs of cyber insurance by removing areas of duplication and streamlining the scope of cover. Such a client-focused approach will definitely result in a more effective scope and capacity of cover at a more affordable premium,” he added.

Kate Loades, global insurance director at Arcadis, said there remain problems in the PI construction market caused by the requirement to build layers to secure enough capacity.

“The biggest insurance I buy is professional liability, and it is a market where you need a lot of insurers and layers to build your programme and get the capacity that you want. That comes with its challenges. It can become an unwieldy programme to try to deal with. It causes problems with wordings in the first place and then at the other end with claims because you potentially have to deal with many different insurers,” she said.

Another problem facing construction firms and building owners is the lack of support from insurers for timber frame commercial buildings. Carriers argue the risks are too big and still relatively unknown. But the construction method forms a big part of the construction industry’s push to meet sustainability targets in the race to net zero, so insurers simply don’t have the time to build the data they have historically required to accept and price such emerging risks.

Fiona Davidge, who is corporate risk manager for the UK’s House of Commons, thinks government may have to get involved to solve this tricky conundrum and help develop markets for other risks emerging from the energy transition. “Otherwise we’re not going to get the solutions quick enough,” she said.

“So there may well have to be some sort of government backstop for some of the technology that is needed to deliver on the energy transition. You can’t meet sustainability targets if you can’t get insurance for things needed to deliver on that,” continued the Airmic board member.