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The challenges facing customers in today’s business environment








 By Michael Edward Stoker

 Insurance Gateway® a division of Stoker Risk and ICT (Pty) Ltd





The challenges faced by the insurance industry in the regulatory and risk environments are well known and frequently addressed in the media, but what of the challenges facing our clients in today’s business environment? What are the things that business is concerned about in the risk and insurance landscape and what are their perceptions of us as an industry?


Adrian Ladbury, editor of Commercial Risk Europe, whose presentation was sponsored by the Cruywagen-IRMSA Risk Foundation, looked at these and other issues in his talk titled Risk strategies for a brave new world, at the IRMSA Annual Conference late last year, when he revealed the findings of their 2011 Risk Frontiers Survey.


Adrian has been a journalist and publisher for over 20 years, has covered the international risk management, insurance and reinsurance markets for most of this period, and has worked for most of the leading titles in the sector. Every year they conduct 10 round table gatherings with 8 to 10 Risk Managers per group in the key countries across Europe and 30 to 40 individual interviews, and this research forms the basis of the Risk Frontiers Surveys.


And so, against the backdrop of the pace of recent economic, political and social change driven by financial upheaval, and the search for new markets and means of production at ever-lower costs which has delivered a wholly new risk land-scape for companies the world over, particularly those with international operations, risk and insurance managers find that they are at the centre of efforts to try and manage this change and the complex interdependencies that the new global economy creates, and the research report reveals some interesting findings in this regard.


Is the world a riskier place in which to do business?

The survey starts with the question, “Is the world a riskier place in which to do business?” Unsurprisingly the answer to this question was yes, but not because of the rise of a host of new risks but rather the intensification and acceleration of existing risks partly for reasons of the global interconnectedness of the economy and processes. One of the respondents states “The danger is that as the perception of risk changes along with the news, one can maybe lose touch with the real problems”.


What are the biggest risks that your corporation currently faces?

On the question, “What are the biggest risks that your corporation currently faces?” reputation and supply chain risks occupied joint top spots followed by political risks, cyber risks and credit risks. Now ask yourself to what extent the insurance industry has come to the party in providing cover for these risks? Little or no capacity exists and I have said in the past the market is ripe for a product which would respond to a reputation crisis. And, here’s a quote from Adrian arising from the annual Re-insurance Rendezvous in Monte Carlo in September last year, “Insurers and buyers must meet halfway to spark the unfit contingent business interruption market”.


Is the level of insurable risk falling?

This is an interesting question. One quote from the survey reads, “We are trying to analyse what risks we can transfer, which are not too many, no more than 20% probably. This is more or less the same level as five years ago. The insurance industry itself is not very innovative. Brokers and insurers are focused on their day-to-day problems…” Certainly in South Africa, intermediaries and insurers have been pre-occupied with an extra-ordinary volume of regulatory change over the last few years and there could be a danger that the insurance industry has become too inward looking and less client-centric in their businesses.


Is the industry doing enough to rise to the big challenges faced by their customers?

Here is the painful one, “Is the industry doing enough to rise to the big challenges faced by their customers? If not where does it need to focus its investment and effort?”


One could argue the outcome on this one until blue if the face, but perhaps it is time to sit back and listen to what customers are saying. The answer was a derisive, “No it’s too slow, driven by traditional lines of business and needs to think outside of the box”.


Given the gravity of this outcome for brokers and insurers, it would only be right to elucidate and here are some extracts, quoted from the Survey…


Package risk in a different way, take a punt…


“Risk needs to be packaged in a different way. Consider cyber-attacks through the internet, there are few insurance products for this. In the same way there is little on offer to tackle the new reality of supply chain. The problem is not just the way the risk distribution system is organised but also the fact that the insurers try to create new products based upon an actuarial approach which is complex and takes a long time,”


Try triggers….


“I think if you do have a good relationship with the carriers a traditional insurance contract is not an issue at all. But if you take out a multi-billion policy in future there should be a different approach. We need triggers like in ILS contracts so that an event pulls the trigger automatically and you know that this will release X billion of coverage. Of course you have to prove the loss but if the trigger has been pulled. Let’s not talk about whether we actually have cover or not,”


It may be tempting to think this only applies to mega risks however in the context of contract certainty, the same could be said of large to medium size corporate business.


And, invest now or risk becoming irrelevant…


“When asked whether a risk is insurable and you respond ‘well, it depends’, one is not necessarily perceived as a credible business partner. If we cannot come up with more positive answers then we risk being marginalised. If up to 95% of events are uninsurable then you have to ask the industry whether it can do better and bring more to the table that adds value. Non-physical damage business interruption is a good example. There is much higher risk awareness now. Insurers need to invest in this to keep pace with developments. I say to the insurance industry come up with something new otherwise large companies will work out their own solution and you are no longer a credible option.”


(Attribution of these quotes is set out in full in the survey.)


While at the end of his talk Adrian reached several conclusions for Risk Managers, there are pertinent issues for insurers and intermediaries alike. Primary among these could be the need to regain a client-centric focus and to be more innovative. Always remember our business clients are entrepreneurs and if the industry doesn’t provide them with the solutions they need, clients will create their own solutions, which often results in the permanent loss of such opportunities to the industry.


I am mindful that this was not a South African survey however we would do well to critically evaluate the outcomes and ask ourselves what we can learn from it.


These of course were not all of the questions covered by the survey. I have simply selected some of which appeared to have particular relevance for intermediaries and insurers and a full copy of Adrian’s talk, as well as others from the IRMSA 2011 Annual Conference can be downloaded from IRMSA’s website at 


The Risk Frontiers Survey also includes an analysis of the “state of the Insurance Nation”, with a not so “done-and-dusted” prognosis on the implementation of Solvency II, and is well worth a read.



This article was first published in the 1st Quarter 2012 Edition of the FIA INSIGHT magazine.

Source: Insurance Gateway®
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