Risk managers demand innovation from insurers

There is a great desire among risk managers for insurers to innovate, according to AIRMIC chairman Chris McGloin, speaking at the opening of this year’s AIRMIC risk management conference.

“During recent financial crisis the insurance industry has shown its resilience in the face of turmoil and uncertainty and I think the industry can be really proud of its strong financial record during this period,” he said. “However, customers continue to ask for more. AIRMIC’s pre-conference survey showed that innovation figures very highly as one of the concerns of members.”

He said that while insurers have expressed a willingness to innovate, the capital adequacy models released under Solvency II pose a challenge to innovation.

“Solvency II was intended to support and drive innovation, but is it really having that effect?” he said. “People tell me that the absence of hard exposure and loss data plus uncertainty over recognised litigation standards is certainly an issue for insurers seeking to develop new products.”

He added that properly effective integrated enterprise risk management is the best way to enable risk managers to take control of their own destiny and put themselves in a position to address the new risks, and also to develop new risk transfer solutions.

He said it is important is to have a clear understanding of the risks, and to have clarity as to the responsibility for these risks - particularly understanding which ones risk manager can control within their organizations, which ones involve proper engagement with customers, partners and supply chain and lastly which risks are beyond any individual organization and require proper engagement with government.

“The development of clearly understood approaches to mapping and sharing risk information will become vital if we are to address these exposures effectively,” he said. “ERM within corporations needs to expand, perhaps to embrace a more systemic resilience management recognising interconnectivity between companies and countries.”

He said that as risk managers adopt an ERM approach enhanced insurance solutions will be necessary and that certain existing models can be learned from.

“Alliancing contracts, for example, have proved successful in the construction industry,” he said. “Could the principles be applied in other situations? Certainly captives and captive strategies are likely to be at the heart of these new solutions to help risk managers incubate new solutions and to provide the focus for the ERM program.

“Most of the tools are not in themselves new but there is no doubt that the application of these will require really joined up thinking and true innovation on the part of all parties.”