Insurers, brokers and risk managers must rise to the challenges presented by the global economy, fast-evolving supply chain and vulnerability of emerging nations to natural catastrophes in order to properly identify, measure, manage and price the risk, said Mr Van Santen.

“The existing business model of large corporate risk insurance is an old model which is not designed for the economy today pricing for large corporates based upon the old traditional insurance model of fire and the like. Fire is not 100% under control but it is close and in the DNA of the insurance market. Look at what happened in the last decade when roughly 40-50% of overall [property insurance] costs were accounted for by natural catastrophes whereas in the past it was negligible, perhaps 5-10%,” said Mr Van Santen.

“This change has not been caused by global warming but by the changing economy. International programmes in the 1990s were mainly for Europe with one or two countries outside of Europe, probably the US and perhaps one in Asia. Thus perhaps 80% of the business was based in countries where the knowledge of natural catastrophes was very good. But since 2000 the economy is now global and now up to 80% of revenue comes from new territories where knowledge is very limited and insurers have limited understanding of accumulation risk,” continued Mr Van Santen.

This problem has been clearly exposed by the recent events in Japan and Thailand where contingent business interruption coverage has triggered big losses and revealed the lack of understanding of the exposures, said the insurer.

“The market needs to rearrange the model of large risks. People need a much better understanding of the true exposures. Today’s pricing models, which are roughly the same for all companies, don’t really consider whether factories have been adequately built in a high risk earthquake zone for example or where the risk of earthquake is low but the impact of first shock would destroy factories,” he added.

Mr Van Santen said that the industry needs new dedicated capacity and expertise to deal with such risks. New tools and models will clearly help, but it is the dedicated knowledge and capacity provided by the insurers and, of course, more information and better understanding of the risks among the risk managers, that will make a difference, he continued.

Mr Van Santen said that AGCS has begun the investment in such a process but believes that this has only really just started for the industry as a whole. “There is a long way to go, there is a lot of room for progress. I think that 99% of the industry has not really taken this decision yet. It needs commitment from insurers, brokers and risk managers,” he said.

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