Corporate risk intelligence to aid reinsurers

Corporate risk intelligence to aid reinsurers

Reinsurers can learn a lot from Aon’s excellent 2013 Global Risk Management Survey. It reveals much about the important risk concerns of big businesses around the world that are their underlying insureds.

The headline Top Ten Risks facing organisations have been well covered by the specialist press and are not so surprising: economic downturn, competition, regulation, reputation, talent shortage etc. etc. But the report – which used the input of more than 1,400 respondents (434 of which have revenues of more than $1bn) – has plenty more of interest in it.

For example, for the first time, claims service and settlement is cited as the top criterion in an organisation’s choice of insurers, replacing “financial stability,” which topped the list in the past three surveys. Aon’s analysis attributes this change in emphasis to 2011 being one of the largest loss years in recent history. In addition, the insured losses in 2012, including those from Superstorm Sandy, also exceeded the global 10-year average.

Reflecting the fast pace of globalisation, companies want a carrier that can support their international operations. In the subcategory of companies with offices in more than 16 countries, an insurer’s ability to deliver a global programme ranks number one in their choice of an insurer, versus number eight for overall respondents, even before an insurer’s pricing.

When asked what changes organisations would most like to see in the insurance market, most (66%) said broader coverage plus better terms and conditions. The number asking for “More flexibility” increased 14%, from 52% in 2011 to 66%. Aon attributes this shift in attitude to companies facing broader and more complex exposures: reinsurers please note, they are looking to their insurers for more flexible solutions to meet their business objectives.

On a regional basis, corporations in Europe appear to be the most satisfied with the insurance market, while Latin American respondents feel their region has the most potential for improvement — more than 77% indicate that insurers need to improve coverage terms and conditions, and be more flexible in program design and delivery.

The 2013 survey showed that most corporations are comfortable with their limits purchased and are planning to maintain their current deductible/retention levels. The level of limits purchased is highly correlated to a company’s revenue size — that’s because a larger company with a higher profile can represent a bigger target for legal actions. The most commonly purchased excess/umbrella limit cited by respondents in the 2013 survey is $100m, whereas the average limit purchased for all surveyed companies totals $129m. Aviation-related companies have purchased the highest average limit at $368m.

As in 2011, no industry group is 100% satisfied with limits purchased. In terms of organizational size, companies falling into the largest revenue groups (with $25bn or greater) and smallest (between $0-$99m) are the least satisfied with limits purchased.

In terms of industry sectors, companies specializing in natural resources (oil, gas and mining) are the least comfortable with their limits, (70%). The aviation and non-aviation transportation manufacturing sectors are the most satisfied (92%).

From a regional “satisfaction” perspective, Latin America is the least satisfied with limits purchased (70%), and Asia Pacific is the most satisfied (81%).

The average D&O limit purchased by all respondents is $62m, whereas companies with more than $1bn in revenue have purchased an average of $100m in D&O liability, down from $114m reported in the 2011 survey.

The highest D&O limit purchased by any organization is $500m, which is reported in Asia-Pacific. In 2011, by contrast, the highest limit was in Europe, at $700m. That could be read as another sign of the shifting centre of economic gravity.

For the second straight survey the banking industry is the least comfortable (54%) with its D&O limits purchased. Answers on a postcard please, if anyone knows why that may be.

On the property side, the notable changes were around coverage. Property experienced the greatest restriction in coverages (20%), probably a result of the increasing number of expensive natural catastrophes over the past two years. Underwriters are now seeking to clarify/amend definitions surrounding flood, wind and contingent business interruption coverages, Aon reckons. That could be a sign that representations made by reinsurers to their cedants over wordings is having an effect.

Background intelligence on where corporates are feeling the pinch helps reinsurers keep tabs on their underlying insureds as well as their immediate insurer clients. But it could also help them to structure risk transfer products to pitch directly to corporations: after all, the big reinsurers have long done away with any pretence that they are not minded to compete with global insurers for big ticket business.

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