Thursday, 9 February 2012
AXA warns on likelihood of capacity shortfall to meet demand for CBI
AXA Corporate Solutions executives expect a reduction in the insurance capacity available to meet the demand for contingent business interruption (CBI) going forward and warned that supply chain risk is being poorly managed by both risk carriers and business.
Philippe Jouvelot, newly appointed Chief Operating Officer at AXA Corporate Solutions
However, speaking at an AXA press conference yesterday Philippe Jouvelot, newly appointed Chief Operating Officer at AXA Corporate Solutions, played down fears recently raised by certain sections of the reinsurance industry that capacity could be withdrawn altogether in as little as eighteen months if suitable solutions are not found.
He believes that 'mature dialogue' between the two sides of the risk transfer divide will provide suitable answers to the current problems, but demanded risk managers increase their supply options and provide insurers with better information on their supply chain risks.
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CBI coverage has become a particularly hot topic of debate as risk managers and insurers realise the extent of their vulnerability following major catastrophes in Japan and Thailand and reinsurers assess exactly how much of this coverage they can offer on the current basis.
The risk transfer industry is demanding far greater transparency on supply chains and, critically, how important suppliers would be replaced following an event. Munich Re warned in December that risk managers have eighteen months from the start of this year to provide more detailed answers. Otherwise cover could be limited or withdrawn as accumulation risk, because of CBI exposures, mount for the risk transfer industry.
"Accumulation is not really under the control of the underwriter. Its like driving in the fog at 200 miles an hour and people need to slow down and put the lights on so that they can understand the risk," said Mr Jouvelot. "Today there is too much of a naïve situation where the capacity is granted with unknown and uncontrolled accumulations within the portfolios."
"When this happened with catastrophe insurance a few years ago we saw a decrease in capacity and that is our expectation on contingent business interruption–an overall market reduction of capacity," he continued.
AXA Corporate Solutions' new COO played down fears that cover could be withdrawn altogether and called for risk managers and insurers to work together on this issue.
"We trust dialogue is always the best way. Entering into dialogue with the customer when everybody understands the situation we will be able to take the appropriate measures as one," he said.
For their part risk managers and their businesses must better manage their supply chain risk and ensure they have multiple suppliers, continued Mr Jouvelot.
"The ultimate solution is to find alternative suppliers. There is no other way than to make sure that one plant is not stopped because it has only one supplier. The diversification of suppliers is to us the key task for risk management," he said.
Mr Jouvelot suggested that particular focus must be placed upon what he called 'concentrator' markets or sub-markets such as the automotive parts supply industry where worldwide producers can be reliant upon a small number of suppliers, often in the same catastrophe prone regions.
AXA also announced a new internal reporting structure aimed at delivering a more efficient and responsive service for corporate clients by centralising responsibility for its key services through a reorganisation of its top management.
This is subject to a consultation of Union Representatives and is likely to come into effect in May of this year.
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