Wednesday, 25 January 2012
German insurers demand more information to achieve innovation
The German insurance industry has strengthened its call for more information about risks from corporate clients to help deliver more innovative solutions following last week’s demand for a more imaginative approach from leading German risk manager Jurand Honisch of Bertelsmann.
“The risk landscape faced by companies is changing. If the insurance industry is to accompany this development, we will need more information,” said Stefan Sigulla, board member of HDI-Gerling Industrie, at the Euroforum liability conference in Hamburg this week.
Until 2010, Mr Sigulla was Siemens’ head of insurance and chairman of the German risk managers’ association, DVS.
Mr Sigulla’s statement marks a further round in a debate that has been raging for more than two years now.
Corporate clients claim that insurers do not have adequate cover for new risks, as suggested by Mr Honisch last week. Insurers retort by claiming that, if they have such products, no corporate clients are buying them, and that in any case, they need much more information to carry out proper underwriting and avoid risk accumulation.
Financial damage that occurs without a preceding property loss is an area where more innovative insurance cover is needed, Mr Sigulla said.
Companies are increasingly digitalising processes and using cloud computing. The danger that they will be faced with liability claims because they have lost their clients’ data is increasing, he noted.
The problem is that pure financial losses have, to date, not been sufficiently covered by insurers. “We had to get away from searching a property loss or a personal claim every time a financial loss occurs,” said Mr Sigulla.
Up to now insurers have shied away from pure financial loss cover because they were not able to construct models because of a lack of proper risk data. “We need one thing, so we can act, and that is information, information and information,” said Mr Sigulla.
Talanx group member HDI-Gerling is not the first commercial insurer to call for more data from customers.
In reaction to the recent flooding in Thailand, reinsurer Munich Re announced that it would cancel its corporate clients’ business interruption contracts if they do not provide more information on their supply chain within 18 months.
This move upset a lot of companies because they are not prepared to give away such sensitive data without knowing why the insurers need it and what they are going to do with it.
A balance had to be found, said Klaus Greimel, energy giant E.ON’s head of insurance and current chairman of DVS. “Of course it is not acceptable when I have to answer 5,000 questions sent by my insurer,” he said. “We have to find a way to narrow down risks in a workable manner.”
And this has to happen much more quickly because insurers often react to calls for new products with delays. “At the moment the gap is too large,” said Mr Greimel. “The industry is being forced to increase its speed considerably, but the insurers are lagging behind.”
If insurers wait too long, the industry may no longer be interested in innovative cover because it will have become familiar with the thought of taking these risks into its own books. “The importance of insurance solutions would decline then,” said Mr Greimel.
The insurance industry has already moved on a little and managed to find individual solutions to some of the companies’ problems, said Mr Greimel. “Today there are some new approaches on the market that were not there three years ago.”
However, Mr Greimel would prefer it if some of these individual solutions could be generalised in years to come to prevent gaps in the cover.
With cover based on individual scenarios, there is the danger that things happen that risk managers have not thought of and thus are not included in the policy. “It would be good if general clauses exist, so that clients have a partner in the insurance industry if something unforeseen happens,” he said.
In the area of product recall cover for automobile suppliers, a fresh approach is emerging.
HDI-Gerling and Axa are trying out new testing clauses. This was one of the hot topics at last year’s liability conference.
Car maker Daimler demanded that the testing clause be discarded or at least filled with more concrete detail.
The clause says that a product recall insurer does not cover property or financial losses when products were not tested according to approved technical and scientific standards before being delivered to customers.
The problem is that endless discussions with insurers are often inevitable because it is not clear what this means for the individual product.
Mr Sigulla of HDI-Gerling said that the insurer is ready to agree to a modified testing clause. “When the product has been developed and manufactured according to certain industry standards like ISO/TS 16949, it is considered properly tested and there will be no discussions,” he promised.
ISO/TS 16949 is considered the ‘bible’ of the car industry. Suppliers which do not work according to this norm have no chance to stay in the market.
Axa is currently testing a similarly modified clause. “The old clause relates to the individual product being tested according to approved technical and scientific standards,” said Hans-Theo Kuhl of Axa Matrix Risk Consultants.
In contrast, the modified clause relates to the production process. “It is fine if a supplier uses an established, certified process,” added Mr Kuhl.
However, not all insurers like the new clause. “There are two camps; some insurers say they can live with the modified clause, others do not support the approach,” said Mr Kuhl. “They say that they need the old clause to protect themselves.”
The stance being taken by reinsurers in the run-up to renewals is usually a good indication of what might be in store for underlying insureds. As such the Baden-Baden reinsurance meeting, held towards the end of October, is usually considered a bellwether for European corporations thinking about how much their own big risk programmes are going to cost.