Time for the insurance market to rebuild trust after difficult period

It’s been a tough time for risk managers across Europe during recent renewals, as they had to cope with a rapidly hardening market at the same time as Covid-19. Narim members experienced the same challenges as peers across Europe in trying to secure adequate coverage at fair prices, while carrying out negotiations online with underwriters deprived of flexibility by head office.

The sometimes brutal renewals in 2019 and 2020 may not have been repeated to the same extent in 2021, but it remains a tough market in key lines such as professional indemnity and cyber for Narim members. 

Leaders of the Dutch risk and insurance management community are hoping that the return of face-to-face meetings will help deliver more constructive discussions based on risk profile, risk management investments and claims experience, which start a process of rebuilding trust and partnership in the market.

But Dutch risk and insurance managers are advised to start discussions early, do their homework and prepare for more tough talks. They are also advised to assume the worst, have alternative options ready and be prepared to seek new carriers if things do not work out as hoped.

Little improvement

Adri van Der Waart, former Narim president and director of global insurance at engineering firm Arcadis, saw little improvement during his latest renewal. “This was the worst year yet for me, not so much in terms of price but more conditions. It has taken so much time, detailed information requirements, more conditions as well as prices going up. This is not impossible to solve but it has become very difficult, especially in professional indemnity,” he said.

“Also cyber has become a crazy area. We have seen premium levels rise two to three times as the sum insured fell by two to three times. There is less capacity from insurers, so it was hard to finalise the cover. The company naturally asks: why are we suddenly paying so much? But it is difficult to justify not buying the cover from a D&O perspective,” he added.

Albert van Haastrecht, head of the corporate insurance department at Ballast Nedam and president of Narim, found the last renewal better than the last couple of years but was still not happy.

“I actually found that the last renewal was not as bad as previous renewals over the last three to four years. But I was still disappointed. There was not much room to discuss alternatives and explain the risk in detail. It was really just a market discussion, not about the details and underlying exposures. Underwriters just do not seem to have the time to analyse and price the risk properly, or have local decision-making authority. This is a combination of lack of staff and being directed by instructions from headquarters far away, often in the US. One insurer told me he had to charge 15% more and could not be flexible on that via higher deductibles!” he said.

Van der Waart added: “Even if you have a great claims experience you find this, and then even excess layers at $40m are demanding increases even though we should be receiving credits for the last ten years.” 

Cyber

Cyber insurance has been a real problem area for Europe’s risk managers during the last few renewals and this trend continues, according to the Narim leaders.

“All the insurers created specialist operations for cyber in the soft market but the appetite is just no longer there. It takes more time to invest in this area. They naturally want to be there because it is a rapidly emerging market with large fresh premiums but it is not that easy. Even for simple insurance such as property it takes time,” said Van der Waart.

Van Haastrecht said, however, that the return of face-to-face discussions has helped. “I found the final outcome better than in recent renewals and faced less restrictions. I could actually sit down face to face with the underwriter, which really helps. During Covid, it was all done by mail, videoconferencing and so on, which was not the best environment for such discussions,” he said.

Strategy

Younger Narim members will never have experienced such a tough market, so the obvious question for two such experienced risk and insurance managers is: what is the best strategy in such an environment? 

Van Haastrecht stressed the need to start early and make regular contact with your carrier. “As ever, start early. The reaction from insurers has been delayed in recent renewals so you need to give yourself plenty of time. You have to prepare well, start early and stay in contact with the insurer on a regular basis, not just once a year,” he said.

“Meet them during the year, perhaps in June, to explain what is happening with the company and tell them what you expect in the next renewal. Certain topics like cyber need to be discussed. To be fair, I think that many risk managers became lazy during the long soft market and things have changed dramatically. It takes a big effort now,” he added.

Van der Waart agreed that early movement is key and advised Narim members to prepare for different scenarios. “You have to be early, be prepared, do your homework and have your arguments ready to bounce back. You have to consider everything, all scenarios. You have to be ready to walk away from your regular insurers if things do not go well. Insurers can walk away at the last minute in such a market and leave you with a big headache. Be ready to change underwriter. This may not be viewed as fair. Nobody wants to break a ten-year relationship. But you need to be prepared and have a strategy,” he said.

Van Haastrecht and Van der Waart advised Narim members to seek out alternative markets such as London to help complete their programmes.

“We strongly believe in long-term relationships but it has to come from both sides. One leading Dutch insurer, for example, recently just pulled its property capacity from our programme. So, you have to meet new carriers, such as in the London market, and introduce yourselves,” said Van Haastrecht.

Van der Waart said this is the reason Narim chose the theme of trust for its annual congress. “Trust is the basis of our business. We have to go back to basics and rebuild that trust after a difficult period. You cannot do business together if there is no trust. This went missing during Covid. Video meetings for 30 minutes are no replacement for proper face-to-face meetings, during which the message can be properly delivered. Face to face engenders trust,” he said.

Alternatives

One obvious option for risk and insurance managers during a tough market is to seek alternative markets and options such as captives to manage the insurance cost. The risk managers agreed that this is a sound strategy for Narim members. They also pointed out that market intelligence, gathered by talking to peers within the association, can be important.

“Narim has three member groups really. These are large multinationals that will usually already be using the London market, medium-sized companies that rely on their broker and can go to the London market if needed, and local SMEs that do not go to the higher-level market because they can find what they need in the local Netherlands market,” explained Van der Waart. 

“Mid-sized companies have to be prepared to go out to new markets, because in certain markets there is simply not enough appetite any more. Being an active Narim member helps because you can talk to your peers and find out some critical intelligence. Strangely enough, not all the information in the market naturally makes its way to you. It really benefits Narim members to engage in this dialogue with fellow members and hear things that your broker may not be aware of,” said Van Haastrecht.

There has been interest in captives since the onslaught of the hard market and Narim has seen enquiries rise from members. But as Van der Waart and Van Haastrecht pointed out, it is not a simple decision.

“There is great interest, yes. We have a captive and I have advised fellow members on this, but only three of them – small numbers. I know there is a broader interest in captives worldwide, driven by the hard market. But this is not a simple step to take. You have to be very clear on what you are doing, why you are doing it, appreciate the costs and reporting requirements involved and, above all, ensure that your risk management is in order,” said Van der Waart.

“The key point is that if your risk management is not good don’t do it! We have been looking at captive options – full captive, virtual captive, protected cell company, or other forms of retention financing, but so far we have stayed with the traditional insurance market. First of all, you have to have a very clear picture of your claims and costs to ensure the risk can be profitable. If so, it is clearly an option in this market,” concluded Van Haastrecht.