The insurer’s perspective

HDI Global is once again sponsor of our annual European Risk Frontiers survey of Europe’s leading risk managers. Alongside each national discussion with risk managers, we are also interviewing a senior executive from HDI to hear the insurer’s view on this year’s questions. Dirk Schilling, head of casualty guidance and captive services at HDI, gave Commercial Risk Europe editor Adrian Ladbury his views on this year’s big topics.

Adrian Ladbury [AL]: Who within the organisation should be the risk manager’s best friend?

Dirk Schilling [DS]: Risk managers should have many friends within the organisation because they should be fully embedded and aware of all aspects of the business and operations. They are the individuals who link all the dots together. If you had to pick one individual who should be the risk manager’s friend then it should be the CFO because risk and insurance management goes hand in hand with financial risk. In both areas the key is to avoid and manage volatility. The risk manager also needs to understand the product side of the business so that they can make a meaningful assessment of the potential impact of catastrophes such as earthquakes. Then there is the legal side, which remains very important. Contract risk must be understood and managed and this must be done in cooperation with legal.

AL: How would you describe the state of the commercial and corporate insurance market in Germany currently? Can risk managers expect a tougher time during coming renewals because of the big catastrophe losses last year?

DS: We already see evidence of the first cases of shortage in capacity here and there, primarily in the property insurance segment. This applies, for example, to accounts with a negative loss ratio over the past years, as well as for highly exposed risks such as the petrochemical industry, power generation, pharmaceuticals, the wood-working industry and recycling to name a few. From my point of view, this does not come as a big surprise. Frankly speaking, after 16 years of a worldwide softening market and with regard to our book of business, I do not think there is any room for a further decrease of rates in general. The contrary is true: in property insurance premiums have to rise; in the liability line of business, free extension of coverage without adequate premium is not possible anymore.

AL: What about capacity? We hear regularly that insurers have expansion plans in this market but it does not seem to make sense because there is already overcapacity. Why is this happening and what is the response of a leading insurer such as HDI?

DS: There may be high capacity available in traditional lines but this is not necessarily the case in more specialty lines. In these areas, such as high excess layers, these market players feel they can move in and out quickly and easily. For certain specialty lines such as cyber there is still a need for additional capacity because insurers need to be cautious in this area, for which there is little experience and the market as a whole really cannot offer more than €100m to €150m in limits for a programme. It also depends upon the sector.

AL: Supply chain has become an increasingly important risk area. Is this really an insurable risk and how can it be more effectively managed and insured in your view? What can insurers do to help customers?

DS: This is an insurable risk area and should be a priority for any ambitious risk manager. The risk manager needs to drill into various roles and functions to truly understand the supply chain and analyse it properly, find out where the major exposures and impacts lie. We can also help the customer make their supply chain more resilient, improve transparency and ensure that the company has backup suppliers. A better understanding of the risk leads naturally to better pricing. It is about transparency and alignment. You need to be really specific and dig deep into the supply chain. The key is to persuade the client and the wider company that this really adds value and is not just another insurance cost. The risk manager really has an interest here. It is the perfect opportunity for the ambitious risk managers to show they can add real value.

AL: Has the arrival of the GDPR sparked increased interest in cyber insurance and are you seeing rising demand for the cover in Germany as a result?

DS: Awareness of data protection has definitely increased this year, partly because of the GDPR. Previously this was largely the domain of data and IT specialists, but now the discussion is much wider. Now every organisation knows they have an exposure and they have had to rethink their data protection policies and strategy.

There has been an increase in demand for cyber cover and we are very satisfied with our growth level in Germany. Demand really picked up late last year among larger companies and is now spreading down into the middle market. We are very satisfied with this as it demonstrates the rising awareness among our clients concerning the great dangers of cyberattacks. There are still only a handful of companies that can offer meaningful cover to larger corporations in this area. There is plenty of competition in the middle market as you would expect. Is there adequate capacity for larger clients? Towers of coverage can be built up to €100m to €150m and more can be found in non-traditional markets.

AL: What one big change would you bring to the commercial and corporate insurance market to make it more efficient and reduce cost?

DS: The introduction of common standards and claims data on a single platform for the whole market would be perfect. The banking sector has the SWIFT system, which is a messaging network that financial institutions use to securely transmit information and instructions through a standardised system of codes. Why does the insurance sector not have such a tool? It would make transactions between customers, brokers, insurers and reinsurers so much easier and efficient, and would help build essential data, at least for the 20 major data points.

AL: Do global programmes still make economic sense for risk managers, given the recent rise in protectionism, trade wars and increasingly complex and challenging fiscal rules such as the US tax on export of reinsurance premiums?

DS: Global programmes are still the way to go. They give the company a centralised programme that enables them to steer the insurance from headquarters and ensure that coverage is comparable and fit for purpose. It is of course the most cost-efficient approach. But it is not getting any easier because of the political tide, which appears to be going in the way of trade barriers and protectionism. There has also been a shift in tax policy again in the US. It has recently introduced the tax on export of reinsurance premiums by international insurers. Some insurers without US subsidiaries have to deal with 5% tax this year, rising to 10% and 15% in future, and need a solution.

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