Thursday, 19 July 2012
Brokers under the microscope as competition gets tough-Risk Distribution
In light of the economic slowdown, insurance brokers are being forced to try and take customers from each other. But France's SIACI Saint-Honore seems to have few reasons to complain. According to its managing director, the fifth largest broker in France has been able to keep its clients happy whilst obtaining new contracts. The discussion forms part of our annual Risk Distribution survey, sponsored by Lloyd’s.
Mr Houdard, Managing Director at SIACI Saint-Honore
Rodrigo Amaral (RA): How did you fare in 2011 and what is your outlook for 2012? Has the industrial insurance market become tougher or easier for brokers in recent times, how and why?
Hervé Houdard (HH): We had an exceptional year in 2011, following a very good 2010, and this year will be excellent too. In the brokerage business it is very important to be able to keep one's clients, and we have done so. We have also developed our business and acquired important new contracts. If you manage to keep your customers, develop your business and acquire new contracts, things are set to go well. It may sound simplistic, but in fact the recipe is not complicated.
Demand for insurance has not increased, but a very interesting phenomenon has taken place in the past two years. More and more insurance buyers are launching tenders to select their brokers. This shows that some are not happy with their current partners. When a broker obtains a new client, it is generally taking a client from a rival, because there is no new business coming into the market.
RA: Is the market for industrial insurance hardening, softening or stable in your key territories and what is the pricing outlook?
HH: The market is not really soft anymore. But I do not think it will get harder. What is true is that insurance companies have become more selective and technical. Conditions have become more strict, the underwriting process is better organised today.
Fortunately, in 2012, we have not had any natural catastrophes as yet. Thanks to this fact, the market has stabilised. But it is somewhat of an artificial stability. Insurers are putting much emphasis on the wording of contracts, aggregates and excesses.
RA: Have you seen tighter capacity and coverage terms offered by the industrial insurers as a result of the big catastrophe losses suffered last year and/or Solvency II and if so where are the main problem areas?
HH: Insurers do not have a capacity problem. But, especially with the impact of Solvency II, they may restrict capacity on a case-by-case basis. It is also normal that companies become more cautious in a difficult economic environment. So insurers are today more selective when they evaluate risks, and they are paying more attention to their own results.
In terms of particular sectors, we do not have real concerns about capacity in the market. The only line that gives us some worries is property damage, and supply chain also needs attention. There is a real issue there related to natural catastrophes, and especially concerning coverages against earthquakes and storms. We are vigilant about this. Capacity in this line has been allocated in a more selective way by the insurance industry, and there is less capacity today than in previous years.
RA: What are the major risks faced by European corporations currently and how does this differ from five years ago?
HH: I believe there are three major risks today. One of them is reputation risk. The second includes everything related to business interruption. And then there is the matter of growing liability risks faced by companies.
It is hard for clients to find the coverage they need to protect against reputation risk. Enormous amounts of capital are required to fund the marketing efforts necessary to rehabilitate the image of a company. But there is no difficulty today in finding coverage against business interruption and liability risks.
Another important subject involves regulatory changes. Companies must take the evolution of legislation into account when they are mapping their risks.
The risk scenario has changed a lot in the past five years. For instance, there has been the emergence of cyber risks. This kind of risk has existed for some fifteen years, but it has been exacerbated in the past five with the proliferation of transactions that use the internet. Therefore cyber risks have become a true concern for companies, as happened with pollution in the past.
RA: Are brokers fairly remunerated currently for the services offered to customers and insurers? Is it fair that both customers and insurers pay brokers and how could this system be improved?
HH: This is a big subject, and one that has gone through a major evolution in recent years, as fees have replaced traditional commissions. Today all large industrial buyers are aware of how much brokers are paid.
The dominant theme of recent years has been, above all, an acknowledgment that the remuneration of brokers must be transparent. Brokers have to listen attentively to what the client wants, as well as explain how much they need to earn in order to properly provide their services. It is important to determine exactly which brokerage services buyers really need. The best way to improve the system is for buyers and brokers to maintain a very open dialogue, so that clients do not buy products that they do not really need.
RA: Have you had more problems with claims payments in the last year and what could brokers and customers do to ensure claims are dealt with more effectively and faster in future?
HH: No. But it is true that, in our company, one in every three staff members is dedicated to the settlement of claims. So I have not noted tension when it is time for an insurer to pay a loss. One thing that I cannot stress enough is that brokers must always recommend insurers of high quality. By that I mean companies that are well known and have a good rating and healthy solvency levels. The vocation of any insurance company is to pay for losses. So we must be very vigilant about the financial position of insurance companies that we recommend to our clients.