Report shows increasing adoption of captives in risk management strategies, with vehicles to be used to cover property, cyber, liability and supply chain risks over next two years.
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Brussels, 21 October 2024 – Risk managers are continuing to adapt their insurance strategies in response to challenging market conditions, as concerns increase regarding the potential for key exposures to become uninsurable in the future, according to the Global Risk Managers Survey 2024 produced by FERMA in partnership with PwC.
According to the survey, the most impactful insurance market trends for risk managers continue to be increasing premiums, reductions in capacity, and exclusions of specific risks, while wording changes now rank fourth, up two places since the Global Risk Managers Survey in 2022.
The global edition of the survey, based on responses from over 1,000 practitioners in 77 countries, was extended beyond Europe for the first time in 2024 and included members of risk management associations in the US (RIMS), Asia (PARIMA), Australasia (RMIA), Latin America (ALARYS), South Africa (IRMSA) and French-speaking risk managers via Club Francorisk.
Changing insurance strategies
Challenging market conditions saw risk managers adapting insurance strategies and programmes accordingly. 54% of survey respondents have changed their buying patterns following a review of areas such as coverage requirements, limits and sub-limits. 44% indicated efforts to strengthen loss prevention activities, while 30% looked to negotiate long-term agreements or policy roll-overs.
“Risk managers recognise the increasing influence of economic shifts, geopolitical uncertainty, regulatory developments, and the changing risk environment on insurance market dynamics,” said Charlotte Hedemark, President, FERMA. “In response, they are advising organisations appropriately and taking considered and necessary actions to adapt their buying strategies and prevention activities, particularly given expectations of further market hardening.”
Concerns growing over insurability
The survey findings show increasing concerns by risk managers regarding a potential increase in potentially uninsurable risks in the future. 53% of respondents believe that key business activities and locations will become uninsurable, up from 41% in 2022.
Drilling down into the risks cited as most likely to become uninsurable, respondents cited climate change physical risks and natural disasters (73%), cyber-attacks (55%) and supply chain disruption (including raw materials) (34%).
“The fact that over half of respondents believe that critical business risks and regions may become uninsurable is of significant importance,” said Typhaine Beaupérin, CEO, FERMA. “It is imperative that in an expanding and more volatile risk context, insurance remains a core component of organisations’ risk management strategies. Our results, however, demonstrate that risk manager concerns are focused on many exposures that companies have traditionally relied upon insurance markets to cover.”
Shifts in insurance coverage
The survey highlighted some notable changes in coverage over the past 12 months. A quarter of respondents noted an increase in cyber risk coverage, up from 14% in 2022. The study also showed evidence of stabilisation in the sector, with only 8% of respondents seeing a large reduction in cyber coverage over the period, compared to 33% in 2022.
Other developments highlighted included the ongoing challenging situation for natural catastrophe coverage, with 42% of respondents stating that they had experienced a reduction in cover in 2024. Further, more than one third of risk managers reported a decline in property damage and/or business interruption coverage.
Increasing focus on captives
The growing importance of effective risk transfer strategies was highlighted in the survey, with 62% of respondents viewing risk retention as the preferred risk financing strategy, down from 73% in 2022. However, while the figure of 35% for those looking to use an existing captive remained stable, there was an increase from 12% to 17% for respondents looking to create a captive insurance or reinsurance company.
The survey also found that captive coverage is set to evolve over the next two years, with the use of the vehicles expected to increase across four key business lines during the period:
- Property and business interruption – 52%
- Cyber – 45%
- General and products liability – 35%
- Supply chain / non-damage business interruption – 31%
“Captive insurance approaches are clearly evolving in response to the changing insurance market environment, as vehicles become a more stable and long-term component of risk transfer strategies,” said Xavier Mutzig, Vice President, Board Member, and Global Risk Manager Survey lead, FERMA. “The survey findings showing growing interest in the creation of captives, while owners continue to evolve their coverage objectives in response to changing market conditions.
“The recent critical amendment to Solvency II introducing the ‘Small and Non-Complex’ undertaking providing greater proportionality for captives will also undoubtedly have a positive impact on the appeal of these vehicle and the continued growth of the European captive market.”
About the Global Risk Managers Survey 2024
The data in this report was collected between January and April 2024 through FERMA’s 23 member associations and via international risk associations including RIMS (the Risk & Insurance Management Society), Alarys (Fundación Latinoamericana de Administracion de Riesgos), PARIMA (Pan-Asia Risk and Insurance Management Association), RMIA (Risk Management Institute of Australasia), IRMSA (the Institute of Risk Management South Africa) and Club Francorisk (the French-speaking risk network). In addition, the survey was shared with PwC’s global network.
Until now a European survey, this year the study was extended globally, and responses were gathered from 1041 respondents in 77 countries.