The findings of the Torus survey, that was exclusively shared with Commercial Risk Europe, dovetailed neatly with CRE’s own annual Risk Frontiers survey of Europe’s leading risk managers published at the forum, particularly on the demand for more innovative products from insurers and CBI following the Japanese earthquake and tsunami and more recently flooding in Thailand.

Torus said that over 80% of its respondents believe there is growing demand for CBI policies with companies increasingly focused on business continuity planning. Some 31% think there will be a significant increase in demand.

Dermot O’Donohoe, Chief Executive Officer of Torus International, commented: “Contingent business interruption cover is a growing concern for risk managers following the impact of natural disasters in the first half of 2011. The challenge for the market is not just to deploy capacity but to provide the relevant expertise and work with clients to understand the nature of these exposures.”

It is clear that many risk managers in Europe were surprised by the scale and wide impact of the catastrophes in Japan and Thailand on supply chains and therefore it is not surprising that demand for the cover is rising fast.

But it is equally clear that insurers and reinsurers in particular are taking a much closer look at their exposure to this risk which has not been as closely identified, measured, monitored and managed as with other risk categories such as standard property and liability lines.

The Thai floods for example are now thought to be likely to incur an overall insured loss of well over $10bn, double what was estimated during the Baden-Baden meeting of the reinsurance market in late October.

Only this week Swiss Re said that it now estimates its claims costs, net of retrocession and before tax, to be about $600m adding that water levels remain high in some areas, making it difficult to assess losses accurately and thus likely to rise further.

Munich Re said that its loss estimate is now set at €500m. Board member for reinsurance Torsten Jeworrek said that the losses serve as a ‘wake up call’ and that the reinsurer would sharpen its focus on corporate business interruption arrangements at the coming and future renewals (see related story on Thai losses and impact on BI coverage and pricing in this week’s newsletter).

Mr O’Donohoe at Torus said that one problem is that in many cases coverage has been given to companies in such growth markets without those involved really understanding the original exposures. “This tends to happen in a soft market,” he said.

“But this is a very difficult coverage to underwrite, understand the exposures and rate accordingly. Some people are suggesting that you should not be there at all but it can be covered so long as it is rated correctly. The only way to do it is to analyse it and properly understand the counterparties and the major dependencies. You have to understand what they are and where they are located. If an insurer is giving blanket exposure it is going to be caught because they are not rating the risk,” said Mr O’Donohoe.

“The reinsurers are one step beyond and this was discussed at Monte Carlo and Baden-Baden. They need to understand the risk too. Perhaps the named perils route is the way to go. We will have to see what the reinsurers do at the 1/1 renewals, this will be the key indicator. If there is reduced or no reinsurance capacity for broad-based BI coverage of this type then this will drive the primary market response and this would not necessarily be a bad thing if that were to happen,” he continued.

Beyond the thorny topic of supply chain and CBI, the Torus survey also found that insureds are now more open to sharing risk across multiple insurers.

Over three quarters (76%) of respondents told the insurer that they are more likely to share risk across multiple carriers and that this trend will accelerate over the next couple of years.

More than 60% indicated that they would choose a combination of general and specialist risk carriers across different risk exposures, with one in five stating that they would prefer to select a combination of specialist risk carriers to provide cover for all their risk exposures.

“The current competitive market has created a dynamic environment with clients re-evaluating their entire panel of insurers in order to strengthen stability and ensure risk programmes meet their specific needs. For carriers with the expertise and drive to respond, there is a real opportunity to develop profitable business in Europe,” said Mr O’Donohoe.

The survey also found a real desire among risk managers at Ferma for product innovation as well as increased competition among insurance carriers.

Nearly half of respondents (48%) expressed dissatisfaction with services and products currently available in the European market and called for increased competition among insurers.

About a quarter of those surveyed (23%) believe that the market is too dominated by local carriers. Some 22% of respondents concluded that the spectrum of products offered in the European market meet their needs but agreed there are too few carriers.

Mr O’Donohoe commented: “Established carriers may argue that new entrants dilute quality and price but the real long-term story is a need from both buyers and brokers for innovation and new products; and smaller, more flexible carriers are often better placed to respond.”

This section of the survey surely supported the finding that Solvency II is the number one overall concern. This is because most European risk managers have told CRE in 2011 that their number one worry about the new capital adequacy and reporting rulebook is that it will force further consolidation in the market as smaller and niche insurers struggle to meet the tougher new requirements.

“This is another way in which Solvency II and the sovereign debt crisis now is influencing the market because people are more cautious and rather than buy coverage from just one insurer people want more spread. A balanced exposure with a well-spread panel is important to buyers. One major catalyst of that in recent times was the problems at AIG. The London market is well positioned for that renewed focus on diversity,” added Mr O’Donohoe.

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