Thursday, 15 September 2011
How to sell a risk-Comment
The Kiwis (New Zealanders), as anyone who has had the ‘pleasure’ of playing rugby against them will attest, do not tend to mess around and overcomplicate things. If something needs fixing they just roll their sleeves up and get on with it. It should have come as no big surprise then to come across a delegation from New Zealand, including Minister Gerry Brownlee, the man in charge of the Canterbury earthquake recovery programme, in Monte Carlo at the annual reinsurance Rendez-Vous this week.
New Zealand Minister Gerry Brownlee, the man in charge of the Canterbury earthquake recovery programme
Now one may justifiably ask, at first glance, why on earth would the man responsible for sorting out Canterbury after it was so devastated by the recent earthquakes be seen swanning around the sun-drenched cafes of Europe’s leading rich man’s playground at this critical time in the country’s history.
Were he English, the so-called red top newspapers would have had a field day splashing photographs of him quaffing a glass of bubbly outside the Café Du Paris with a big grin on his face all over the front pages and accuse him of wasting tax-payers money on a shameful jolly with his team.
But this, as is so often the case with such newspapers, would have been a gross injustice to the minister and his high level delegation who travelled to Monte Carlo with a point to make and made it very well.
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What the Kiwis actually did was get of their bums and go to the biggest and most influential meeting of international risk carriers, analysts and, importantly, catastrophe modelling firms on this planet to ‘sell’ their risk.
This was very necessary for a simple reason.
The big news from Monte Carlo this year was that there was not really much news to be had at all.
Despite the slew of natural disasters that wrecked results in the first quarter in particular, very dreary investment results and the ongoing sovereign debt crisis, with all its devilishly complex implications, this market is not for turning.
The positive description of the market was that it has become ‘fragmented’—in other words patchy.
Most lines are stable or slightly hardening depending upon who you listen to. Some are still falling, for some reason, while some have risen sharply.
Overall no change really, unless of course you happen to work and live in one of those regions or lines of business that has risen sharply.
The lines that have risen the sharpest are of course those most affected by the catastrophes, not least catastrophe lines in New Zealand, Japan and Australia where reinsurers report ‘healthy’ increases.
As Hannover Re stated during its press conference: “In worldwide catastrophe business the effects of the major losses recorded at the beginning of the year, most notably the severe earthquake in Japan, can clearly be felt. Reinsurers were already able to push through appreciable price increases in the April and June/July treaty renewals. It is also to be expected that price levels for natural catastrophes will also be higher going forward.”
More specifically on Australia and New Zealand Hannover added: “As anticipated, sharp rates hikes and improved conditions were obtained here on the back of the costly natural disasters. For 2012 Hannover Re expects to see further appreciable price increases.”
Further ‘appreciable price increases’ in catastrophe reinsurance coverage is exactly what a region like Canterbury could do without right now.
Mr Brownlee and his team are doing an excellent job with their efforts to get the local economy back on its feet and prevent it from dragging the entire New Zealand economy into a downwards spiral, as he and his team explained at a presentation on Tuesday afternoon after he had introduced himself midway through the main debate of this year’s event hosted by myself earlier that day.
The availability of affordable insurance coverage for householders and businesses is clearly a critical factor in this recovery and Mr Brownlee and his team know this.
So they came to Monte Carlo, not with a begging bowl and tales of woe but with a well thought out and expertly presented message on the facts—economic and scientific—about the real and developing risk faced by the region.
“As premiums escalate across the country we need to engage with the insurance market so they have an accurate and informed view of risk. Proper insurance cover is vital for the smooth functioning of the New Zealand economy,” said Minister Brownlee.
So the New Zealand team presented the information and opened the debate that they hope will enable the modelling firms and ultimately insurers and reinsurers to take a more rational view of their risk and price it accordingly next time around.
What they do not want is, in the absence of solid evidence, the market to use the events as an excuse to generate some badly-needed extra revenue at a tricky time for its margins. So hats off to the Kiwis, even if they are about to embarrass England in the world cup.
The wider European corporate risk and insurance management community could also perhaps learn a lesson or two from this proactive approach.
During the panel debate on Tuesday morning the topic of contingent business interruption coverage, or rather lack of it, was a hot topic, as it had been since the meeting kicked off on Saturday afternoon (yes reinsurers, brokers and even journalists do work at weekends in Monte Carlo when they should be on the beach).
All insurance managers would of course love to be able to buy copious amounts of cheap CBI coverage for all those sneaky supply chain losses that bite you on the bum just when you need it least after an event.
But the coverage is not available at an affordable rate at least and, as the panel agreed, risk managers can’t really blame the insurers and reinsurers if they don’t actually really know what their own exposure is in the first place.
This, and other such emerging risks, needs to be properly analysed, codified and then aggressively sold to the market in a coherent manner if the risk carriers are going to be persuaded to take a punt.
And for any Commercial Risk Europe readers who think that this is simply the defensive PR speak of the reinsurers who could not even spell innovation if forced, look out for our annual Risk Frontiers survey to be published at the Ferma Forum in Stockholm.
This year’s survey of a group of Europe’s leading risk and insurance managers strongly suggests that you know that you need to work harder on CBI and other ‘emerging’ risks, do your homework and get out there and sell the risk just like Minister Brownlee and his team.
A fuller analysis of the New Zealand delegation’s efforts will be published in the coming October issue of CRE. All CRE readers will also receive a copy of this year’s Risk Frontiers survey, sponsored by XL Insurance, with their October issue of the newspaper. To secure extra copies please contact Hugo Foster at HFoster@commercialriskeurope.com
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