Simple and complex risks split insurance pricing - Zurich

Generalisations about a stabilisation of insurance pricing at recent renewals for commercial buyers are hiding an increasing divide between simpler risks and those that are more complex.

That is the message from Florence Tondu-Mélique, CEO of Zurich France, speaking after the annual AMRAE event for French risk managers held earlier in February.

“We’ve seen an overall stabilisation of rates across our portfolio and across the whole market,” she told StrategicRISK.

“Looking beyond, what we are seeing is an inflection point in the market, with a polarisation of expectations from a client perspective, underpinned by a shift in the nature of risks,” Tondu-Mélique said.

Clients’ ability to manage complex risks is behind the dynamic behind the overall stabilisation, she suggested.

“There is a premium for more complex risks,” she said.

“Analysing closely pricing development by type of risk, on the one hand there is a continuing softening of market pricing for simple risks, and on the other hand a hardening for more complex risks, said Tondu-Mélique.

She cited the complexity of risks highlighted by this year’s risk report from the World Economic Forum (WEF).

“The market has become remarkably adept at understanding how to mitigate conventional risks,” Tondu-Mélique said.

“Complexity at the heart of the WEF Global Risks report, as the market is less experienced in dealing with the more complex risks emerging from the interconnected systems underpinning today’s world.”

The insurance industry is responding to challenge, she stressed. 

“Risks are increasingly much more global and much more systemic,” said Tondu-Mélique.

Cyber risk exemplifies the more complex systemic risks, she suggested, with clients’ businesses becoming more global, and their systems more and more interconnected.

“The challenge with the internationalisation of risks is that it is no longer possible to draw borders or contain hazard in the same way, any more. It is difficult to quantify the limits of damage with existing risk management tools,” she said.

Geopolitical risk needs close monitoring, she highlighted.

“Countries are closing in on themselves politically, but from an economic perspective, borders have never been more open,” she said. 

“When it comes to new emerging risks, risk management is on the front line.”

She noted that Zurich has taken a lead in offering international insurance programmes since 1978. “Back then, nobody dared to offer such covers,” said Tondu-Mélique.

For general insurance pricing, she suggested commercial buyers had seen prices flatten after years of cheapening rates.

“At first sight, we don’t see a market turnaround, but the polarisation starting to emerge is going to fundamentally restructure the market,” Zurich’s CEO for France said.

For French buyers, commercial property prices had seen a slight drop in January, she explained, while rates on engineering lines were flat.

Financial lines saw a slight decrease due to high competition among insurers, Tondu-Mélique suggested. 

“High capacity is available for cyber risk,” she added.

Commercial motor insurance had selectively seen a rise in prices, according to Tondu-Mélique, likewise for casualty/liability lines.

“Liability increases are due to clients valuing our ability to support them on very complex particular risks,” Tondu-Mélique said.

She was broadly positive about Zurich’s experience, after a renewals season she described as crucial for insurers to protect their own sustainability and place within the market.

New business increased by 15% in 2017 for the insurer, she noted, with 93% of its large accounts business retained against rivals.

“The market is fundamentally moving,” she said. “Risks are changing, clients’ expectations are changing, forcing through fundamental changes for the insurance industry.”