BERLIN – European risk managers are facing increased rates and changes in insurance capacity as they head into year-end renewals, experts say.
Years of declining rates are reversing in most markets and some significant increases are being pushed through, they said during interviews at the Federation of European Risk Management Associations biennial forum in Berlin earlier this month.
In response, European risk managers are opting for increased deductibles, using captives more aggressively and accessing additional capacity attracted to the market by the higher rates, they say.
Amid the hardening market, European insurers report a greater demand for cyber liability coverage as significant breaches become more frequent.
While insurance buyers in the United States and the United Kingdom have seen hardening rates in various lines for several months, in continental Europe a significant number of accounts renew on Jan. 1, so the current renewal is the first for several years where risk managers are seeing significant rate increases, said James A. Shea, CEO commercial insurance of Zurich Insurance Ltd. in Zurich.
But rate increases vary according to the size of the account – with large commercial buyers seeing the biggest increases – line of business and geographic market, he said.
Buyers in France, Germany, Belgium, the Netherlands and Luxembourg are seeing the most significant hardening so far, Mr. Shea said. For smaller accounts in single markets, rates are not always increasing but they have stopped falling, he said.
Directors and officers liability coverage for large corporations is seeing the biggest increases, said Bruno Laval, regional head Europe for Axa XL, a unit of Axa SA, in Madrid.
The D&O increases started in the U.S., then spread to multinational accounts with U.S. exposures, “but the trend today is for all large corporate D&O accounts,” he said.
In some cases, D&O rates are more than doubling, Mr. Laval said, adding that property accounts are seeing double-digit increases on average and liability accounts are seeing single digit increases.
“The market is changing. Not everybody has the same sense of urgency, but everybody is coming to the same conclusions,” he said.
While the London market has seen some hardening in certain lines, such as catastrophe-exposed property accounts, for the past two years, the hardening has spread across various other lines as some insurers struggle to remain profitable, said Nicolas Aubert, head of Great Britain at Willis Towers Watson PLC in London.
In addition, while the overall capital levels in the insurance market remain high, capacity is tightening for some lines as insurers seek to control their exposures, experts say.
“For the first time in a long time, conversations are about the client lacking and looking for capacity,” said Mr. Shea.
Insurers are looking to spread their capacity through the various layers of a program rather than offer it all on the primary layer.
“Our limit appetite remains unchanged; how we deploy it on a program may change,” Mr. Shea said. “We are trying to ventilate it throughout the programs in a different way.”
Capacity has reduced in some areas, but buyers can access additional capacity from large insurers who have been profitable over the past several years and are seeking to write more business or from smaller specialty insurers who are looking to broaden their books of business, said Mr. Aubert.
In addition, some insurers can maintain their capacity offerings via facultative placements with other insurers, he said.
As a result, “placement is going to be more and more of a global matter compared to being managed just by domestic market by domestic market in the past,” said Mr. Aubert.
Insurance buyers also are looking to offset higher rates with increased deductibles and greater use of captives.
“There are different types of buyers: those that want to keep coverage, those that want to keep the price and most often a combination of the two,” said Mr. Shea.
Insurers are also seeking to tighten coverage through changes to terms and conditions, said Mr. Aubert. “We need to be careful that exclusions are not too broad so the true extent of the cover can be maintained,” he said.
One area that is seeing increase demand for coverage despite the overall hardening is cyber liability coverage, which has generally been more widely purchased by U.S. buyers than European buyers.
While the largest market for cyber liability insurance remains the U.S., “the awareness is growing everywhere,” said Mr. Shea.
“Cyber is becoming a global market, we are seeing many more companies buying it in the U.K. and the continent,” said Mr. Aubert. “It’s coming from the realization that there will never be a perfect cyber product because it is an area that is of permanent evolution.”
Policyholders are getting more comfortable with buying a cyber product that does not cover their entire exposure but contributes to an improved risk management strategy, he said.
Buyers in some countries, such as France, are more active in buying cyber, said Mr. Laval. “And we have claims already. It did not take too long to have large claims,” he said.
Cyber risk can be partially covered by insurance, “but first of all you have to reduce the risk,” said Cyril Cuvillier, deputy head of France’s national cyber security agency Agence Nationale de la Sécurité des Systèmes d’Information, in Paris. ANSSI launched a cyber risk management guide together with French risk management association Association pour le Management des Risques et des Assurances de l’Entreprise at the conference.
Risk managers can play a central role in their organizations’ approach to cyber risk, said Brigitte Bouquot, director of insurance and risk management at Thales SA in Paris and president of AMRAE.
Many organizations operate in silos, but risk managers have the mix of risk mapping and modeling skills and financial expertise to bridge the gap between informational security departments and finance departments to build a security platform for their organizations, she said.
“We are moving from a technical approach to a strategic approach,” Ms. Bouquot said.
Policyholders are facing significant increases in their directors and officers liability insurance for the first time in several years, and some experts expect the trend to continue over the next 18 to 24 months.