Why it could be make or break for insurers’ relationships with risk managers

AMRAE’s 2021 State of the Market report made grim reading for insurance buyers, reporting that 95 percent of them had experienced price increases for P&C cover. It also reported increasing exclusions and increasingly generic policy wording – which suggests that underwriters are taking less notice of risk management strategies within individual companies.

In P&C, AMRAE anticipates that capacities will shrink further, by 20 to 30 percent, as a result of Covid-19, supply chain issues, political violence and rising natural catastrophes. AMRAE also anticipates rate increases in future renewals.

In cyber, AMRAE sees a very hard market, with declining capacity and considerable uncertainty about the future. In some cases, rates have increased by more than 100 percent.

“The 2021 AMRAE State of the Market report shows that the insurance market for corporates is hardening more than ever, with limits decreasing and carriers exiting from some lines, rates and deductibles increasing and coverage scope shrinking,” says François Beaume, AMRAE’s VP, digital transformation and vice president, risks and insurance at Sonepar.

“In short, it is a very complex and hard market, impacting every insurance line, rendering recent and forthcoming renewals quite complex. It calls for effective and efficient risk management in corporates and a real recognition of its value by underwriters as part of renewal processes. AMRAE’s motto, ‘When risks are managed the company is sustainable’, is more accurate than ever.”

Against this backdrop, AMRAE sees the role of risk managers becoming more important and also more pressured, as they work to find affordable and effective ways to manage the risks faced by their organisations.

In the face of an inadequate insurance offering, AMRAE has highlighted a rise in the number of French headquartered organisations seeking self-insurance solutions, notably captives. A survey carried out by AMRAE earlier this year found that 50 French companies were looking at setting up reinsurance captives. AMRAE has been pushing for new legislation which will make it easier to set up captives in France, and with this on the cards for 2022, it’s likely that the companies currently considering captives will put their plans into action. However, most are waiting for the new government legislation before they take the leap.

In Beaume’s view, the risk manager’s initial reduction activities actions must now be followed by a layer of self-insurance.

“Risk managers needs to take actions to reinforce risk management processes: risks need to be identified and evaluated, then prioritised. Preventative actions need to be implemented or reinforced to reduce the risks and mitigate their adverse consequences.

“These first actions aiming at reducing the risks will allow organisations to build up or adapt their financing. Everything starts with self-insurance, and then a transfer to an insurer can be contemplated. Self-insurance can be a mix of deductible and self-insured retention via a captive. Optimising self-insurance structuration is now becoming a prerequisite to the transfer operation.”

He adds that insurers are letting themselves and their insureds down by failing to examine the risk management efforts being made in individual companies at the underwriting stage; the current market context is surprisingly making it difficult for organisations to be rewarded for good risk management.

“Insurers should place more value on risk management efforts made by organisations in their underwriting processes,” he says. “If they don’t, insureds will take care of themselves on their own as they will be left without any suitable and affordable insurance option. Running a business of any kind implies taking on risks. Risk management is the process that allows you to select from among those risks the most rewarding ones and define how secure the risks.”

The current developments – or backward steps – in the relationship between insurers and risk managers follow a trying 18 months during the pandemic, in which risk managers found themselves thrust into the limelight as they helped their organisations through a rapidly evolving risk landscape.

“Most of AMRAE’s members, and especially risk managers, were on the forefront of crisis management,” says Beaume. “This long-lasting event, with various types of consequences, was a real-life test for organisations’ resiliency.”

He does not expect the situation to calm down any time soon.

“Moving forward, risk management all along the value chain is still going to be a challenge, and third-party risk management is more than ever a trending topic. In addition to that, risk financing, notably with regards to cyber risks, is another hot topic as the corporate insurance market is not responding to organisations’ needs.”

Against this backdrop, AMRAE is continuing its efforts to create change, notably by participating in several working groups with various key stakeholders, including the French administration, to focus on catastrophic risks insurance, captive insurance and cyber insurance. Beaume in particular is focused on moving forward with AMRAE’s digital transformation.

“The pandemic has changed the association and changed the way we interact with our  members,” he says. “We already have made some progress in that field but have still room to make further improvements.”