The problem is in the question that was not asked, but would have resulted in the conclusion that “100% of respondents will not actually expand their risk transfer budgets to account for any new product regardless of availability”.
A product that truly transfers risk to an insurer of some sort which is “below a company’s cost of capital” is also very likely to be below an insurer’s cost of capital. That’s the disconnect between the buyers and the organizations willing to come up with the capacity to sell a product.
I do not believe there is any potential risk or risk transfer product that would not be offered by an insurer somewhere if there is a reasonable opportunity for a profit. The potential buyers of this type of product are simply not willing to pay for it.
I understand the point that Willis is making. However, I support Mike’s comment. Apart from the question if somebody would buy the product if it were available and offered, the cost parameters will make it unattractive for the insurance company and the entire infrastructure supporting the industry (e.g: reinsurance). Whatever the price, tendencially decision makers reluctantly allocate important sums of money for events they can hardly imagine the specific impact of for their company, even if they are conscious that there could be an important impact. One reason for this maybe the difficulty for decision makers and share holders to imagine the “the day after” an apocalyptic event, as could be an earthquake or tzunami. Allocating large sums of money or taking out an insurance contract with immediate financial consequences to cover an event of dimensions that go beyond the practical imagination, is a serious mental challenge to many. Insurance companies on the other hand, who are used to thinking in those terms, will have to take into considerations cost of capital, probability of occurance of such a disastrous event, provisioning etc, which will determine the cost to the insured. In the current global financial situation the the parameters mentioned by Willis could produce a jacket much to straight to be attractive.
I think that the gentlemen is mixing too many risks in one basket. Nationally, there are provisions of statutes that require the assessment of catastrophes, e.g. the CAA and the CWA, and requires companies to make provisions in preparations for such disasters. In the example given – the Gulf Oil Spill – it wasn’t lack of preparation or lack of knowledge, rather, it was the response to that information. Except for a large cash reserve, most insurance products or other liability transfering mechanisms are going to exclude payment for disasters where the insured acted in the manner it is alleged that the oil company acted. This suggestion, in my opinion, would be a case of bandaids on an amputation. In the end, it still bleeds.
The problem is in the question that was not asked, but would have resulted in the conclusion that “100% of respondents will not actually expand their risk transfer budgets to account for any new product regardless of availability”.
A product that truly transfers risk to an insurer of some sort which is “below a company’s cost of capital” is also very likely to be below an insurer’s cost of capital. That’s the disconnect between the buyers and the organizations willing to come up with the capacity to sell a product.
I do not believe there is any potential risk or risk transfer product that would not be offered by an insurer somewhere if there is a reasonable opportunity for a profit. The potential buyers of this type of product are simply not willing to pay for it.
I understand the point that Willis is making. However, I support Mike’s comment. Apart from the question if somebody would buy the product if it were available and offered, the cost parameters will make it unattractive for the insurance company and the entire infrastructure supporting the industry (e.g: reinsurance). Whatever the price, tendencially decision makers reluctantly allocate important sums of money for events they can hardly imagine the specific impact of for their company, even if they are conscious that there could be an important impact. One reason for this maybe the difficulty for decision makers and share holders to imagine the “the day after” an apocalyptic event, as could be an earthquake or tzunami. Allocating large sums of money or taking out an insurance contract with immediate financial consequences to cover an event of dimensions that go beyond the practical imagination, is a serious mental challenge to many. Insurance companies on the other hand, who are used to thinking in those terms, will have to take into considerations cost of capital, probability of occurance of such a disastrous event, provisioning etc, which will determine the cost to the insured. In the current global financial situation the the parameters mentioned by Willis could produce a jacket much to straight to be attractive.
I think that the gentlemen is mixing too many risks in one basket. Nationally, there are provisions of statutes that require the assessment of catastrophes, e.g. the CAA and the CWA, and requires companies to make provisions in preparations for such disasters. In the example given – the Gulf Oil Spill – it wasn’t lack of preparation or lack of knowledge, rather, it was the response to that information. Except for a large cash reserve, most insurance products or other liability transfering mechanisms are going to exclude payment for disasters where the insured acted in the manner it is alleged that the oil company acted. This suggestion, in my opinion, would be a case of bandaids on an amputation. In the end, it still bleeds.