Time to ‘end the deadlock’ on CBI says DVS commitee

“We have to stop this ping-pong game,” said Jurand Honisch, Risk Manager of publishing group Bertelsmann and Deputy Chairman of DVS. Mr Honisch referred to the accusations made by many industrial insurance buyers in recent times that insurers are hostile to innovation, and the latter’s response that they are keen to introduce new products—but that no one is buying them. Thailand, and before that the earthquake in Japan, came as true shocks for insurers and industrial customers alike. Suddenly, motor manufacturers were left with no spare paint in certain colours—as the maker of these specialised pigments is based in Japan. Makers of IT equipment ran out of hard disks. Insurers had to pay a number of claims for indirect business interruption, although the large wave initially feared did not materialise. However, insurers grasped the opportunity to come up with stringent demands.hideManufacturers must reveal their supply chains, demanded Munich Re reinsurance boss Torsten Jeworrek. Otherwise his company would withdraw from providing this type of cover. Axel Theis, head of Allianz Global Corporate & Specialty (AGCS), also demanded more transparency. Other insurers followed suit. Manufacturers agree that something has to be done but are trying to defend themselves against exaggerated demands. “We cannot just produce the information at the push of a button,” said Bertelsmann’s Mr Honisch during the annual general meeting of the German insurance buyers’ association—the DVS—in Bonn at the end of April. “Production processes are very dynamic. If I register a supplier in January, the details can have changed by July 1,” he added. That is the crux of the problem. Industry is trying to find cover against unpredictable events, Mr Honisch said. “If we could deliver all this data simply by pressing a button, then AGCS’ growth prospects would be fairly bad because then the industry could bear these risks itself and would not have to buy insurance.” “We want to end the deadlock,” said DVS’ managing committee member Dr Philipp Andreae, who recently welcomed Rüdiger Auras as second general manager to the Bonn headquarters. “We not only pointed out the problems to insurers, we also started a dialogue with the insurers which we are seeking to continue and expand,” said Dr Andreae. Clearly, manufacturers were prepared to give information that was needed for contingent BI risks, “but they have to be collectable without undue effort,” he added. There is still plenty of confrontation between risk managers and their insurers on this topic. But there are signs that tension is easing in another area of conflict. For years now, industrial customers have accused the insurance industry of not being innovative enough. In particular, the insurability of non-damage business interruption (NDBI) is in dispute. If a flood in Thailand paralyses production there, then the indirect loss caused by the business interruption in Europe is insured. If, however, a volcanic eruption or political developments interrupt aviation and no more parts can be delivered, then there is no insurance cover because the supplier has not suffered any physical loss. “The discussion about the lack of innovation is mainly about non-physical business interruption,” said DVS’ Dr Andreae. But now at least, the offers are improving and some insurers are beginning to offer such cover. “We did it, and no one wanted to buy it,” said Torsten Jeworrek at Munich Re’s annual general meeting. “Far too expensive,” DVS risk managers answer. “Insurers have no data on these risks and are trying to cover themselves against the worst case,” said DVS Chairman and E.on Head of Insurance, Klaus Greimel. However, both sides are seeking to find peace formulas. “We already have the impression that insurers are becoming more aware of the need for change,” said Mr Greimel. “Individual solutions are far easier to implement than two or three years ago.” However, Mr Greimel also notices a lack of early contact to customers in relation to new products. “Products are being hatched in private chambers and pushed onto the market,” he said. And then the insurers are wondering why no one buys them. It is generally better to develop new ideas on the basis of existing offers, the DVS leadership believes. But the problem is not limited to NDBI, according to the German risk managers. In industrial liability, too, there is a demand for a fresh approach to cover, said Dr Andreae, who gave third party pure financial losses because of interrupted production as an example. Sometimes one hears the argument about the ‘entrepreneurial risk’ that could not be insured, said the DVS man. “But this stop sign is no longer compatible with today’s environment, where many limitations of the old school are no longer valid,” he added. Now, however, some insurers are looking towards providing cover for pure financial losses, Dr Andreae told DVS delegates. “Industrial companies have to follow demands by their customers when it comes to distributing liability,” he said. “The legally binding limits are no longer the main standard.” Thus, industrial companies need support from insurers for such risks beyond the liabilities prescribed by law. Dr Andreae mentioned producers’ liability in the alternative energy market as an example. These liabilities often have to give performance guarantees way beyond the periods that are enshrined in German consumer protection laws. The meeting also discussed the negative trend of late that saw some motor fleet insurers cancel contracts for individual vehicles within large fleets after a loss while the fleet contract was still running. Risk managers were not angered by the fact that insurers wanted more money for the risks because they know that they have enjoyed very good prices for many years. “It is the way this was done by some companies that led to anger,” said Dr Andreae. DVS conceded that there had been price rises in certain lines. “But we do not believe that there will be a true change of the price trend across the board in the coming renewal,” said Dr Andreae in his annual AGM speech. “Especially in the middle segment of industrial liability, competition is strong both with regard to prices and conditions,” he added. This is also true for D&O. “In property, too, we don’t see major changes,” said Dr Andreae, but he agreed that some lines with heavy risks could fare differently. “This is also true for nat cat business.” Looking at the results of industrial insurers, the situation is not desperate, Bertelsmann’s Mr Honisch said. DVS is unhappy with so-called sanction clauses often included in wordings in recent times by insurers that nullify coverage related to Iran. The German insurance federation—GDV—and some companies had developed clauses “that materially go way beyond the sanctions put into place by the EU Commission,” said Dr Andreae. “This is not acceptable to customers and is also highly questionable,” he added. DVS found such sanction clauses in policies with no relation to Iran whatsoever, pointed out Dr Andreae. Risk managers are particularly angry about what large brokers are doing. “Some brokers, especially the large international companies, in a kind of proactive submissiveness, have told customers that they had introduced their own sanction clauses in all policies, which go beyond what the market had seen and independently of how individual insurers reacted,” he said. Dr Andreae concluded with an icy comment that the brokers should note as he said: “The question must be asked how this tallies with the role of brokers as advocates for their customers.”

Time to ‘end the deadlock’ on CBI says DVS commitee

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