The long-term player

Adrian Ladbury talks to Juan Aznar Gáldiz, director general of HDI Global Spain, and Nuno Antunes, country manager for Portugal/Iberia and head of client strategy, about the big risks faced by customers and the evolving role of the insurance sector, as part of this year’s Risk Frontiers Europe survey.

Adrian Ladbury (AL): What do you see as the big risks faced by your corporate customers in Spain and Portugal currently?

Juan Aznar Gáldiz (JG): Climate change is obviously a really big focus for everyone. Most companies are involved in ESG issues, which are all related to climate change, really. We are asked by risk managers and brokers how we are dealing with it from an insurers perspective and how to control the risks. The challenge is that historic data is not so relevant nowadays, and return periods are difficult to calculate compared with ten to 15 years ago. This is a significant change.

In terms of specific risks, cyber is still a big problem. It is difficult to meet someone who has not suffered an attack. Then there is much concern about inflation and the cost of claims. Business interruption (BI) is another worrying area for customers as the cost of BI cover has doubled over the last ten years. Political risk is another big concern, especially for Spanish companies that are active in Latin America. This is also a concern for companies active in the Middle East. And the loss of talent remains a problem, finding the right professionals. This was an issue before the pandemic but now it has become a real problem for everyone, and the cost of staff retention is rising too.

AL: What are your clients’ views on ESG? Are you all pulling in the same direction?

Nuno Antunes (NA): ESG is undoubtedly a hot topic nowadays but its significance really depends on the customer and the sector they operate in. Specifically on the E, some of our clients are very involved in the green transition, and they are struggling to find adequate capacity for the new technologies involved. As an industry we need to find solutions for these innovative technologies and quickly as part of a global effort.

This is an area where, for instance, the partnership between clients – via their captives or other risk retention mechanisms – the brokers, and the insurers is not only desirable but necessary so that we can find the right balance that enables the execution of these new projects.

JG: Yes, this is an important area. AGERS, the Spanish association of risk managers, was asking us the other day whether we, as insurers, are prepared to support green hydrogen, for example. Do we have capacity for the new technologies? The answer must be yes, or there will be no green transition. We at HDI are investing in this area and working hard to find solutions. But it has to be recognised that it is a challenge for the insurance market to cover completely new technology such as this.

AL: Are captives part of the answer to these new challenges? Are you working more and more with captives and do you see this as a growing market in Spain and Portugal?

NA: Captives are playing more of a role than in the past as the market has dealt with relatively new and emerging risks such as pandemics, cyber, reputation, ESG or supply chain disruption. CEOs and CFOs are really starting to understand that the captive is an important part of the risk management tool kit. We are asked increasingly whether a captive would make sense. Additionally, compared to three or four years ago, we now have a much different situation in terms of insurance market cycle and far higher interest rates. That has certainly brought back the captive topic to the boardrooms as a way to reduce volatility in costs and increase financial income. However, as we all know, this is not a quick fix. But this is certainly a trend across Europe as customers look to incubate their risks and increase retentions, as is alternative risk transfer (ART).

JG: Spain is not a big market for captives historically. The long soft market meant that it made sense to just buy insurance rather than use a captive. The arrival of the hard market, however, has changed that attitude. A lot of companies are looking at captives and medium-sized companies too. Others are now actively looking at ART solutions. One reason is, of course, the lack of capacity and rising prices, but we are also seeing a higher level of professionalism in the risk management sector now, and the profile of the profession has improved within companies, with risk managers closer to the board at the heart of the company. This is partly because boards now appreciate that a more professional approach to risk management and transfer can save a lot of money. Risk engineering is important in this regard too. We have a very experienced team of risk engineers, and it is an important value added for customers in such a market. And this expertise can be exported too if a customer has operations in Mexico, as a recent example. This is valued.

AL: Why do you think you have seen an evolution in the role of the risk manager in Spain and Portugal?

JG: The associations – IGREA and AGERS – are doing a very good job in terms of risk literacy and now we have the university programme at Barcelona. Nowadays individuals are carrying out proper studies and not just moving from a broker or insurer to become a risk manager. Also, we have seen many Spanish and Portuguese companies becoming multinationals over the last few years and this means that a much more sophisticated risk analysis is needed. There is also a growing realisation that risk management is not just about buying insurance and saving money; much more can be achieved through adopting enterprise-wide risk management.

NA: Certainly, the most recent challenges for the war economy have raised the profile and value of the profession. More international companies are increasing investment in their risk management teams, both in terms of size and their training. We have seen an acceleration of this trend with the 2008 financial crisis, and further momentum was added with the pandemic, the supply chain woes and now the war in Ukraine. In parallel, the volume, transparency and quality of data has also helped improve the analysis of risk for us all, and I would like to think has helped measure the value of good risk management. This puts greater pressure on us insurers to be on top of our game as the insurance buyer and risk manager becomes more central to a company’s strategy and much more of a business enabler.

AL: This is where true partnership becomes more important than ever. Do you think the market has delivered on this for customers in recent times and what do you need to do to improve service?

JG: We are a very long-term player. It is true that partnership in general has been tested during the recent hardening. But I would stress that we have been in Spain for 30 years and even during this hard market we have provided capacity. I have two clients who could find no quotes other than with us over the last two years. Yes, we may require more information but we have been here and will continue.

Customers are starting to understand why we had to increase the prices. We are not making super profits on the back of this but acceptable combined ratios now. Some may say that insurers are taking advantage of the rate of inflation to further raise prices. But I would say this is not the case in general. I have been telling clients for some time that this had to change because we are not in the business of losing money, as we were. This can be a challenging situation when you experience crises such as the pandemic, which raises big questions about the role of insurance in society and insurance gaps. We must think about this seriously as an industry.

NA: It is important to stress that during the long soft market, insurers were burning capital for many years in a row and people tend to forget that. We tried to be very transparent and clear with customers when the market turned and I think that, on the whole, this was appreciated. Also, let me point out that even though we have turned a corner and have managed to stop the losses, the levels of performance of insurers, whether you look at combined ratios or return on equity, are still relatively modest.

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