FERMA survey reveals rising concerns over uninsurable risks

Risk managers are continuing to adapt their insurance strategies in response to challenging market conditions, as concerns increase regarding the potential for key exposures to become uninsurable in the future. 

That was one of the core findings of the Global Risk Managers Survey 2024 produced by the Federation of European Risk Management Associations (FERMA) in partnership with PwC. The results were released at the FERMA Forum yesterday (Monday October 21).

According to the survey, the most impactful insurance market trends for risk managers continue to be increasing premiums, reductions in capacity, and exclusions of specific risks, while wording changes now rank fourth, up two places since the Global Risk Managers Survey in 2022.

The global edition of the survey, based on responses from over 1,000 practitioners in 77 countries, was extended beyond Europe for the first time in 2024 and included members of risk management associations in the US (RIMS), Asia (PARIMA), Australasia (RMIA), Latin America (ALARYS), South Africa (IRMSA) and French-speaking risk managers via Club Francorisk. 

The survey also revealed some of the other challenges organisations face, which include immediate threats posed by cyber attacks and geopolitical and economic uncertainty, plus the longer-term risks of technology shifts, regulatory developments and climate change. Organisations must integrate a more holistic risk management framework aligned with overall corporate strategy to address these, FERMA said based on the report (see p6 for more).

The results of the survey show that organisations are having to manage varying threats across different time horizons. The report found that over the next 12 months, the top five risks for companies include cyber attacks, geopolitical uncertainties, uncertain economic growth, talent management and data breach.

“Fifty-three percent of respondents believe that key business activities and locations will become uninsurable, up from 41% in 2022.”

Changing insurance strategies

On the insurance theme, the report revealed that challenging market conditions have forced risk managers to adapt their insurance strategies and programmes accordingly. Some 54% of survey respondents have changed their buying patterns following a review of areas such as coverage requirements, limits and sub-limits. Another 44% indicated efforts to strengthen loss prevention activities, while 30% looked to negotiate long-term agreements or policy roll-overs. 

“Risk managers recognise the increasing influence of economic shifts, geopolitical uncertainty, regulatory developments, and the changing risk environment on insurance market dynamics,” said Charlotte Hedemark, president, FERMA. “In response, they are advising organisations appropriately and taking considered and necessary actions to adapt their buying strategies and prevention activities, particularly given expectations of further market hardening.”

Concerns over insurability

The survey findings show increasing concerns of risk managers regarding a potential rise in uninsurable risks in the future. Fifty-three percent of respondents believe that key business activities and locations will become uninsurable, up from 41% in 2022.

Drilling down into the risks cited as most likely to become uninsurable, respondents cited climate change-related physical risks and natural disasters (73%), cyber attacks (55%) and supply chain disruption (including raw materials) (34%).

“The fact that over half of respondents believe that critical business risks and regions may become uninsurable is of significant importance,” said Typhaine Beaupérin, CEO, FERMA. “It is imperative that in an expanding and more volatile risk context, insurance remains a core component of organisations’ risk management strategies. Our results, however, demonstrate that risk manager concerns are focused on many exposures that companies have traditionally relied upon insurance markets to cover.”

Shifts in coverage 

The survey highlighted some notable changes in coverage over the past 12 months. A quarter of respondents noted an increase in cyber risk coverage, up from 14% in 2022. The study also showed evidence of stabilisation in the sector, with only 8% of respondents seeing a large reduction in cyber coverage over the period, compared to 33% in 2022.

Other developments highlighted included the ongoing challenging situation for natural catastrophe coverage, with 42% of respondents stating that they had experienced a reduction in cover in 2024. Further, more than one third of risk managers reported a decline in property damage and/or business interruption coverage.

“The survey findings show growing interest in the creation of captives.” Xavier Mutzig, FERMA

Increasing focus on captives

The growing importance of effective risk transfer strategies was highlighted in the survey, with 62% of respondents viewing risk retention as the preferred risk financing strategy, down from 73% in 2022. However, while the figure of 35% for those looking to use an existing captive remained stable, there was an increase from 12% to 17% for respondents looking to create a captive insurance or reinsurance company. 

The survey also found that captive coverage is set to evolve over the next two years, with the use of the vehicles expected to increase across four key business lines during the period: Property and business interruption—52%; Cyber—45%; General and products liability—35%; and Supply chain / non-damage business interruption—31%.

“Captive insurance approaches are clearly evolving in response to the changing insurance market environment, as vehicles become a more stable and long-term component of risk transfer strategies,” said Xavier Mutzig, vice president, board member, and Global Risk Manager Survey lead, FERMA. “The survey findings show growing interest in the creation of captives, while owners continue to evolve their coverage objectives in response to changing market conditions.

“The recent critical amendment to Solvency II introducing the ‘Small and Non-Complex’ undertaking providing greater proportionality for captives will also undoubtedly have a positive impact on the appeal of these vehicles and the continued growth of the European captive market.”

New technology

The survey also revealed that risk managers are increasingly leveraging new technologies and data, a development which is critical to their ability to quantify both current and emerging risks effectively—particularly in relation to ESG-related risks—which remains a challenge.

Investing in digital risk management tools is the second most important priority for risk managers within the next one to two years. As additional requirements are placed on risk managers, risk functions are employing new technologies, tools and data, particularly in areas such as risk quantification, to improve efficiency and strengthen the risk culture. The results show an increase in the use of artificial intelligence (AI) to perform ERM activities from 9% in 2022 to 13% in 2024.

“The application of practical risk-focused tools to enhance risk quantification, and the integration of AI capabilities into risk analysis processes to enhance efficiency, are becoming imperatives for risk managers as the scope of their role expands and the scale of data at their disposal increases,” said Mutzig. 

Risk identification and assessment continue to be the main technology-centred activities of risk managers, highlighted by 77% of respondents. Interactive visualisation of risk maps has more than doubled to 71% from 33% in 2022, closely followed by action plan monitoring, up from 27% to 70%.

FERMA Forum Today is in partnership with Captive Review, part of Newton Media.

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