ferma seminar Hard Market – Is Insurance now on the Risk Register?The plenary session of the first day of the FERMA European Risk Management Seminar 2020 revealed that a close relationship – that between buyers of commercial insurance and the insurance industry – is currently under pressure.

The title of the session: “Is insurance now on the risk register?” explained the frustrations of risk and insurance managers.

The insurance industry perspective came from two insurers:  Mukkader Erdönmez, a board member of HDI, and Henning Haagen, member of the board of management of Allianz Global Corporate and Speciality (AGCS). Jochen Körner, managing director of Germany’s Ecclesia Group, and Nick Holmes, head of global placement Continental Europe, Middle East & Africa, Marsh, were the brokers.

FERMA board member Laurent Nihoul, general manager corporate risk and insurance for ArcelorMittal, voiced the concerns of corporate insurance buyers. He was clear. Companies were facing a triple crunch in buying insurance protection; there was less capacity, prices were higher and the economic environment was tougher.  The partnership paradigm that insurers talk about was being eroded, he said.

The insurers explained the financial pressures were driving a harder market even before COVID-19. They faced a comparatively low return on equity, natural catastrophe losses and a need to strengthen reserves for liability claims. The pandemic had added a blow to insurers’ investments and generated further claims, the bulk of which had yet to materialise in insurers’ income statements.

There was an acknowledgement from the insurers that commercial insurance buyers were unhappy. There was a reference to solidarity: “We are in the same boat.” But they could not offer an immediate alternative, except to state that insurers needed to make sure that their value proposition was solid enough to ensure a continuing demand. They also needed to be allowed to make a return.

The brokers struck a more positive note. This was a time when risk managers and brokers could demonstrate the value that the bring to the process. Insurance was the most efficient way to transfer risk, and if the industry provided good value, its products would sell. Carriers were not victims, but part of a process of supply and demand. The market would adapt. Smaller, domestic insurers had new opportunities to compete and new capital was coming into the market.

Insurance buyers, however, currently have two options: buy less insurance or pay more.

Whatever they did, the total cost of risk would rise, and this is not a good message for the CFO. Risk managers also think the insurers’ focus on their returns is affecting the way the business is done. Instead of a discussion ‘over a beer’ with the chief underwriting officer, the risk manager got inflexible answers down the phone or over a video call from a subordinate. Insurers were also less helpful in dealing with the day to day issues that always arise with large global programmes.

Insurance buyers understand the issues that the insurers face; they need the insurers to work with them in a much more positive way. Otherwise, was the clear implication, the current deterioration in the partnership could turn to the disadvantage of the market.

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