State of insurance market still determines retention or transfer, captives under pressure–Belgium

Chris Staes, Managing Director for HDI-Gerling in Belgium, this year’s project sponsor, said that it still really does depend on whether the market is hard or soft. “We know our clients are under pressure and so have to seek the best terms. On the question of what to retain and what to transfer it really depends on whether it is a soft or hard market,” he said. Johan Willaert, Vice President of Ferma and Risk Manager at Agfa-Gevaert, said that the focus should be on balance sheet protection. “In broad terms you should seek to only insure risks that endanger the balance sheet. All the rest you should manage. If it is a soft market and you can find cover for a lower cost than the cost of claims then you should insure it. But it really is a question of if it hurts the balance sheet then you should insure it,” he said.hideCaptive insurance companies are traditionally a good way of helping to manage the insurance cycle and keep a lid on costs by more efficiently retaining risk. They can also help provide a useful focal point for the management of a global programme. But, according to the Belgian risk managers, the still difficult economic conditions faced by the majority of European companies means that pressure is on captives. Malou Gossez, Corporate Risk Manager at AGC Glass Europe, said that the poor economic environment has led many companies to think about the consolidation of their captives into the group accounts. “They wonder whether they need to have a captive and pay fronting fees to insurers or whether they should just keep the risks themselves. You see this kind of thinking at the corporate level and it is a difficult internal discussion. If the risks are in the figures anyway, why have a separate captive company is the question? This is a difficult question,” said Ms Gossez. Carl Leeman of Katoen Natie said that he has witnessed such a trend in recent times. “I have read that the profile of companies that are setting up captives is changing. Over 50% now are owned by smaller and privately run companies compared with only 10% to 20% ten years ago. Very big companies are apparently stepping out of this market. You see companies such as Exxon and BP stepping out of the market altogether because their balance sheets are so much bigger than the insurers. They only buy insurance where they have to, to be compliant because it is compulsory. “Also bigger companies are often only buying the cover to secure the service of claims. This means that they no longer have to manage claims in-house and can use the knowledge of third parties. This is common in the healthcare market in the US for example,” said Mr Leeman. Mr Willaert agreed with his colleagues. “I think it is more difficult to justify a captive in a larger company for sure,” he said. Sabine Desantoine, Insurable Risks Manager at ING Belgium, also said that she believes bigger companies are increasingly questioning the value of insurance. “When directors of big companies and financial institutions read about a big fire in the press the question comes back, more often than not at board level, whether we actually need insurance on the basis that even if a big claim occurred the company would still survive. These kinds of questions are increasingly asked by big companies,” she said. These kinds of questions are often sparked when a claim is not settled quickly and efficiently. The Belgian risk managers were asked if this had become a more difficult area in the current economic climate and whether insurers had become more likely to resist claims in recent times. Mr Willaert said he has not seen a more resistant attitude from the insurers. He said that the problem is often caused by the ignorance of the customer who may not fully understand the coverage they bought in the first place. This again raised the topic of professionalism. “The question is whether the claim is paid quickly enough. Most insurers pay claims on time. The problem is that a lot of insureds are not professional enough to know what terms and conditions they have actually signed,” said Mr Willaert. “For larger companies such as mine we know what is covered because we have a professional in-house insurance management team. But to be honest I am not sure a lot of brokers, who the smaller companies rely upon, could really explain what is covered if pushed,” he added. Mr Leeman agreed with Mr Willaert that the insurance market has not become more difficult on claims. But he did warn fellow risk and insurance managers to be wary of very different attitudes to how claims should be managed in different markets, pointing specifically to the aggressive way in which claims are often dealt with in the London market. “I agree that most claims are paid in good time. The London market is a different story,” said Mr Leeman. “Claims can be much harder to deal with in London as you come up against 20 lawyers! I still think the attitude pervades in London that the insurance world revolves around them. The London market has to realise that this is not the case and wake up. The system is not working and a lot of European companies will not go to London anymore because if there is a claim then you are in deep trouble,” he said. Mr Willaert agreed with his fellow Belrim board member, adding that the US market is similar to London in this regard. “Yes, I think it is fair to say that in continental Europe the insurer takes a more partnership-based approach and likes to seek solutions rather than conflict. In continental Europe the mentality is that if you go to court then the relationship is over. In the US and London the relationship continues. Here we like to sit around a table and seek a solution that is best for the long-term partnership,” he said. Chris Staes of HDI-Gerling in Belgium agreed that customers do need to be aware of the cultural differences between the continental European and London markets. He also said he believes the continental European market is now better equipped to deal with customers’ global needs. “Yes, I see business coming back from the London market because here in continental Europe you know your partner well and can discuss a claim properly in a discussion that is not held between lawyers. I also think that there is enough capacity in a group such as ours to deliver the coverage on a global basis nowadays. The market has evolved and so London is not so vital for international programmes nowadays,” he said. And Mr Leeman added that, in his experience, there has been a change in the way the co-insurance market is used for more complex, cross-border coverages. “I would also say that there is less co-insurance than in the past even for big programmes. In the past there may have been 10 insurers on a co-insurance basis but now there may be only three or four used on a layered basis,” he explained.

State of insurance market still determines retention or transfer, captives under pressure–Belgium

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