The insurance industry may have given the world a new word – “trialogue,” meaning a three way conversation. Oddly enough the first person to use it at the Federation of European Risk Management Associations’ (FERMA) recently concluded forum in the Dutch City of Maastricht wasn’t a risk manager, re/insurer or broker, but a regulator – Karle Van Hulle in his keynote speech. So far, however, we don’t have a quadrialogue.
As big conferences go – over 1500 people attended this one – FERMA is relatively unique in that it gives the clients of the insurance industry a forum for telling the brokers and re/insurers what they think of their products, or in some cases the lack of them. For the first time FERMA hosted three panel discussions, which gave all three parties a chance to air their views.
The first one – for risk managers – was held on Monday morning, aptly subtitled “Living and working in a riskier world.” Cathy Smith, a Co-Director of Speak-Easy, and a former presenter on the BBC, handled all three panel discussions with professional aplomb.
“We’re worried about supply chain risks, financial risks, and the impact of risks that keep changing,” said Annemarie Schouw, Risk and Insurance Manager for Tata Steel, and the head of Narim, the Dutch risk management association. She explained that while straight property coverage was relatively easy – you rebuild after a fire, such as the one Tata had at one of its plants. The consequences of that fire, however, are more difficult to deal with. Orders have to be filled by other facilities and customers complain of delays in delivery.
Chris McGloin, VP Risk Management and Insurance at Invensys, and the Chairman of the UK’s Airmic, noted that while the industry performs well on handling products it’s familiar with, its reaction to change in this fast moving increasingly technically oriented world is too slow and that it needs to innovate to meet “changing demands.”
Andrew-Richard Bradley, head of Group Risk Services at Nestlé, agreed, but added that sometimes it’s also the clients, who are slow to recognize emerging risks; citing reputational and supply chain risks as examples. He called for solutions from the re/insurance industry; adding, however, that the “client should set the rules.”
Offering those solutions isn’t the only sector where the risk managers expressed concern. As most people in the industry recognize, claims handling has long been a problem area, and, despite progress, it remains so. Most of the panel gave the industry high marks for handling large and complicated claims; however, it doesn’t do as well on the sort of everyday claims, which are the majority of the claims the companies make.
Tjerk van Dijk, the director of insurance for Stork and Fokker, which has to cover risks in aviation and offshore energy, said that while the industry did do a good job on large claims, “Insurers need more knowledge on claims, but they are often understaffed and frequently use loss adjusters. They need to be able to deal with smaller claims too,” and they need to “think for themselves,” rather than letting others do it for them.
During the session each of the panels were asked to rate the other two sectors on their performance on a scale of 1 to 10. Overall re/insurers were accorded between 6 and 8. But when the focus was on claims, they scored high marks as far as their ability to pay claims – between 8 and 9, but only between 4 and 5 on their willingness to do so.
If real innovation is to take place, it will require that new policy wording be created to cover the new situations. This isn’t an easy process the process. “We don’t want to be ‘guinea pigs,’” Van Djerk said.
Paul Newman’s famous line in “Hud,” about having “a failure to communicate,” is also part of the problem in re/insurer client relationships. “There has to be communication and perception between underwriters and buyers,” McGloin said. They basically agreed that the role of coordination between the two parties played by global brokers would be essential in attaining the goal of creating clear and concise policies. Equally essential is drafting contracts that are clear and certain.
While it’s easy to see this type of cooperation as a solution, it’s complicated by the fact that more and more data is becoming available. It has to be collected, correlated and added to the deliberations before any new policies can be created and accepted. “Good quality data is absolutely essential,” McGloin said. “It focuses on providing risk information right down to the specific risk.”
In order to adequately assess modern risks, “we have to learn to communicate, and to get actively involved,” Schouw said. Even if that happens, there are some types of risk – reputational being a good example – that just can’t be covered. “Money [as in a claims payment] can’t change the way people think,” she said.
What people think of any given company, however, is extremely important. We’re in the cyber world now. Information that might have taken at least a day or two to make the local paper, now gets broadcast around the world literally minutes after the event has taken place. “News gets there before any official report,” Schouw said.
This means that even if money can’t compensate a company for loss of reputation, planning ahead to meet that eventuality would at least lessen the damage, and in some cases even boost a company’s reputation. “You can use the coverage to meet the problem early and change the priorities,” McGloin said.
In conclusion, each panelist was asked what one thing they wanted to see. “Improve transparency,” said Van Djerk. The industry should do better at selling itself,” said Bradley. “More direct client, broker, insurer interaction,” said McGloin. “More information,” Schouw added.