VIEW: Intangible risks: A new frontier for underwriters?
Written by Julia Graham, deputy chief executive and technical director, Airmic
What is the point of corporate insurance? Until recently that would have seemed a strange question. However, against a backdrop of disruption to business models, a shift from tangible to intangible assets and associated changes to risk profiles, businesses are seeking new insurance solutions and services appropriate to the digital age.
Today’s business is typically brand-led, highly leveraged and gives great ROI. But it is vulnerable to catastrophic loss of reputation or to disruptions in the supply or value chain. In this scenario traditional insurance can be too slow to respond and will likely offer poor protection to the balance sheet. The new business world is looking for transparency of cover and speed of claims settlement. Boards are demanding that risk and insurance professionals find solutions for risks previously incompatible with the traditional insurance market.
The challenge now for insurers is to remain relevant at a time when its traditional strength – covering physical assets – is becoming less important to corporate UK. It is equally a challenge for Airmic members, who are keen to acquire meaningful cover for intangible risks. Airmic is well aware of the difficulties that insurers face. Intangible events can be very difficult to define or quantify, the data demands daunting and the aggregate exposures unknown, especially at the reinsurance level. Buyers, meanwhile, sometimes lack the knowledge to understand or the willingness to pay the kind of premiums that underwriters consider to be an adequate reflection of the risk.
Nonetheless, this is something we must crack together as capital providers, brokers and buyers. Part of the solution is for underwriters to become embedded in their clients’ businesses as strategic partners as opposed to just insurance providers. That would give them the knowledge to provide meaningful cover for classes of insurance that would otherwise be in the ‘too difficult’ category. Emerging solutions such as parametrics have great potential.
Now that insurance rates for physical assets have remained depressed for so long that there is little point in referring to a ‘soft’ market, intangible risks represent a great opportunity and a new frontier for underwriters.
See Airmic's recent whitepaper for more on parametrics: