And the trend will gather momentum unless insurers can be more creative and interpret better the balance sheets and risk landscapes of 'commtech' companies with their increasing and dominating concentration on intangible assets, warns Peter Hacker, partner and head of Jardine Lloyd Thompson's global communications and technology group.
Addressing an audience of insurance risk managers at JLT's global communications and technology forum held in Lugano, Switzerland, Hacker explained: "(Re)insurers too often think in a linear way, but technology-related risks are circular and involve a material degree of volatility. Volatility is not just risk for the insurance carrier, but equally a chance to differentiate and set a new standard. Too often we hear from (re)insurers, 'If we can't model it we can't write it', but these are the new risks that customers face. In the past risks were tangible; now they are increasingly intangible."
The most important intangible risks to corporates, he said, are intellectual property, regulation and competition, but none of these are insurable.
"While we fully understand the restrictions on the last two risk classes which are non-transferable business risks, technical underwriters should focus once more on intellectual property. We can recognise that a growing number of communications and technology companies are now considering or using alternative risk financing arrangements, such as credit default swaps or securitisations, with banks or finance houses related to credit, catastrophe risks and intangible assets. Others are applying risk financing 'protected cell' structures that address the various accounting regulatory standards such as US GAAP (Fin46, FAS 113, EITF 93-6/14, EITF 03-8)) and/or IAS (IAS 27) or IFRS 4 implications.
He concluded: "Insurers and risk advisers such as insurance brokers must keep up with change. if (re)insurance does not keep pace then it is a matter of time until it will be surpassed by the capital markets."
