On 11th and 12th October in Brussels, the European Talk Show for risk and insurance took place. The event, organized by the Federation of European Risk Management Associations (FERMA), consisted of live studio panel discussions and face to face interviews on the topic “From risk to resilience. Learning to deal with disruption”. Various trending risks and their role in building resilience were discussed by risk and insurance professionals who are experts in their fields. We are presenting those which have the biggest impact on resilience.
Insurance is and will be one of the most important aspects of building resilience and is therefore important to be understandable by everyone. Insurance contracts are not clear, as many clients have remained confused regarding their coverage. Covid put the spotlight on the need of a simpler wording in insurance policies.
The pandemic accelerated the push for resilience and embed risk culture into the organizations. Before the pandemics only 5% had Business Interruption coverage for such an event. Now, 25% of the companies already incorporated new risk management strategies. The situation made it clear that resilience should be part of the companies’ strategic process.
Another thing that risk managers learned is the need to simplify their supply chain. Companies could not get the necessary components during lockdowns so their production processes stopped. Being less dependent on others will bring benefits in similar future events.
The definition of sustainability is clear: living today without endangering tomorrow. However, there is no commonly accepted standard yet. Corporate Social Responsibility and Environmental Social Governance have so many aspects and definitions that need to be unified. In order for more companies to approach ESG there has to be a homogeneous picture set.
Furthermore, Risk Managers state that the benefits that the insurance market offers for being sustainable are not visible and that companies do not enjoy a reduction of premium for having a sustainable business model. For example, there are companies which have invested significant amounts in sustainability but do not see any action by the insurance market which will recognize them as sustainable companies. Insurers need to provide benefits for sustainable companies, just like financial institutions did.
Companies are asking for more data in order to get clearer idea of new risks (like cyber) they are facing with. Internet of Things, which is becoming more and more present in everyday activities, represents a mix of data and cyber risk. This change in technology has to be supported.
The participating risk managers of international corporations stated that national supervisor should push insurers and brokers to share more detailed data regarding risks. However, this should be managed with attention in order not to breach confidentiality agreements with the clients. A solution for this might be mandating that data should be anonymized.
As it is a continuing trend that is worrying, we have been hearing for some time now that there is a hard market. This is a new situation in the insurance market for many Risk Managers because the last 15-20 years the insurance market was a particularly soft market.
What “hard market” actually means is that there is less insurance capacity available, deductibles, as well as the rates are increased, and there is a complete retrieval of insurance companies on certain markets. All lines are hit, but some, like D&O and Cyber, more than others. There are cases where the D&O premium for the same risk has tripled at the renewal!
In order to achieve reduction from the market and to send a message that they are sharing the risk with the insurer, big companies are trying to go to renewals with the goal of increasing deductibles. However, whilst corporations can deal with this situation, SME’s cannot afford this increase.
Finally, numerous strategies have been suggested for building financial resilience. The elements that they all have in common are simpler and clearer wording, ensuring better coverage, improving partnership with local government, learning to use predictive analysis and using geographical diversification.
The most interesting proposals brough forwards were mutualization of risk and socialization of risk. Mutualization proposes that clients would pay premium in installments over 15 years, but with a guarantee for the insurance company provided by the government.
If there is one thing from take from these talks, is that solutions should be non-political and mathematical.
