Up for the challenge–Germany

Adrian Ladbury: what are the big three risks that currently concern your corporate customers and their main boards and why do they top the agenda? Stefan Sigulla: We cover a very wide range of industrial insurance solutions required by our industrial and group customers in Germany and abroad. The spectrum of risks and hazards that confront our customers and our company is equally large. If you want to extrapolate three risks from this, we should undoubtedly take the topics of supply chain risks, cyber risks and geopolitical risks. The extent to which risks such as cyber risks have increased in Germany in recent years can be deduced from the analysis and reports from the Federal Criminal Police Office and the Federal Association for Information Technology, Telecommunications and New Media (BIT-KOM). At the same time, the digitisation of production processes is increasing in business. The key phrase is the ‘Internet of Things’. This reveals a hazard to companies. Our customers have a very keen sense of this. The issue of supply chain risks has been at the top of the agenda for a number of years now. However, its importance has been increasing as supply chains and flows of goods become ever more internationally networked each year. And the effects of geopolitical risks are currently extremely apparent, the example of Russia is obvious.hideWe are able to see here the speed at which political framework conditions can change and the significant effects this can exert on the economy. The fourth very critical risk we ought to mention is the reputational risk facing companies. As soon as a company has a product in the market place that is susceptible to damage—as in the case of cyber risks—there is always the danger of a powerful public reaction. If the damage is taken up by the press or in social media, the confidence of customers in a brand can evaporate very quickly. Ladbury: What tools, skills and resources do you think risk managers need to help them do a better job? Sigulla: Before I answer this question, I would like to state the following: our experiences indicate that risk and insurance managers are generally seasoned professionals in their field. They are very familiar with their company and its balance sheets and know all about the risks their company is ready to enter into and those that it will steer clear of. Our analysis indicates that a key factor for the success of the risk and insurance manager is the issue of the officer’s position in the company. The positioning of the manager within the company determines the self-perception of the individual: is he or she an insurance purchaser or truly a risk manager in line with best practice? This assumes that he or she is well networked within the group. Only then can the manager identify and evaluate the risks at an early stage so that appropriate measures can be implemented and decisions can be taken on how risks should be dealt with. Do you purchase insurance products, do you identify different solutions or do you bear the risk yourself on the balance sheet? There is a complex mix of risks. It is also important to be aware of the transfer opportunities available into the insurance market and to know how these are assessed against the background of an actuarial analysis. This raises the issue of mathematical models. Furthermore, networking in the company also plays an important role if a risk has materialised and a claim is made. The risk or insurance manager in the group then needs to play a ‘firefighting’ role and guarantee internal and external communication. This is an additional challenge that should not be forgotten. Ladbury: And how can you, as an insurer, help risk managers in this regard? Sigulla: At HDI-Gerling, we have traditionally invested a great deal in risk management expertise. Investment includes fire protection, IT security, cyber risks and other areas. The most important issues here relate to the arrangement and continuous expansion of our own expertise. Insurance experts are not the only professionals on our staff. We also have a large number of engineers, scientists and other specialists for analysing risks. The risk dialogue we have with customers on the issue of IT security generates value added from our perspective in this company. We are familiar with the companies of individual customers and we also know a lot of other companies from the customer’s sector. This allows us to channel all the experiences we have gained in one company into risk provision for all our other customers. Ladbury: How would you describe the state of the overall corporate german insurance market currently—are terms and conditions fair? Sigulla: We have had a soft market for a number of years. There are a large number of capacity providers. There’s no doubt that the supply is out there. This has an impact on prices. But at HDI-Gerling we should not shun competition and we are well able to master this challenging market. When assessing the question as to whether prices and conditions are fair, the issue from our perspective is always about arriving at an individual price for each case that is appropriate to the risk of the customer. Ladbury: What is the outlook for 2015 and what is HDI’s strategy? Sigulla: We believe that this year will involve competition that is just as intensive as in previous years. However, we are confident that we have a good position in this competitive market. We are helped by the qualities that we have at HDI-Gerling in risk management, in claims settlement, in our HDI-Gerling Global Network and in other areas. However, we will need to improve the ratio of premium to risk in certain segments and in customer relationships that are particularly susceptible to claims, where prices are inadequate. Ladbury: Do you plan to grow or maintain the book? Sigulla: We want to grow where we believe that we are able to achieve a price that is appropriate to cover the risk. However, adequate prices are the basic prerequisite. Against this background we are always ready to relinquish business where we believe that the relation between risk and premium is inappropriate. Ladbury: Ss you noted above, cyber risk is the hot topic currently and was discussed at length at this year’s dvs agm. How can products and services be improved for cyber risks? Sigulla: The rapid development in the area of cyber risks may lead to the need for a certain adjustment requirement in a first-generation product. Communication between customers and insurers is therefore particularly important in this phase of a product’s market launch in order to optimise a new product. Even though we believe that our Cyber+ policy already represents a very good group-wide solution in our offering, we are always willing to optimise our product range in this way. Furthermore, we are currently assuming that the value added of cyber policies in the area of crisis and business continuity management will be taken more seriously in the future. We should certainly give the new cyber policies some more time so that they can be established successfully in the marketplace. Ladbury: There is talk of capital markets capacity being used to transfer corporate risk directly and not through the insurance market, especially for difficult emerging risks. some argue that this is not really possible for a single company’s risk, others say that they are interested and will be looking at this potential. do you think this is a viable option and would HDI become involved in some way? If so how? Sigulla: Our analysis indicates that the majority of the new capital you refer to is ploughed into reinsurance capacities. However, a prerequisite for this is the existence of modelled risks that can be transferred to the companies that are making these new capacities available. This prerequisite of modelled risks can be a major hurdle for some groups. As an insurer and risk bearer, we are able to offer precisely what we are already doing today for these cases. We deploy the new capacities to optimise the entire capacity requirement in the market. We also structure the risk portfolio of companies in such a way that parts of the risk also attract the new capacity providers that are penetrating the market. Dr Sigulla is Main Board Member at HDI-Gerling responsible for Industrial Liability and Legal Protection Insurance Line (operations, claims, safety engineering systems) and the Corporate Division.

Up for the challenge–Germany

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