Finding a partner during a polycrisis

Polycrisis The simultaneous occurrence of several catastrophic events

The three major risks facing UK corporations are similar to those in other European jurisdictions. Despite Brexit, the polycrisis means that an increasing number of companies are exposed to the same macro-issues, says Oliver Davies, director of distribution and marketing for HDI Global’s UK and Ireland operations.

“Cyber is coming up constantly in client conversations,” says Davies. “They want to know how they can manage it internally. We have invested a lot in risk engineering for cyber and to understand the maturity levels of our clients. They want to know how they get the best coverage. The coverage is also maturing and we want to get an idea of risk accumulation and risk controls.”

“This requires more information from risk managers and insurance buyers, which should result in better coverage for those that can demonstrate good cyber risk management. Currently there is a bifurcation. There is a lot more capital going into the market, but it is very much a two-horse race in terms of those that can demonstrate good cyber risk management and those that cannot,” adds Davies. “If you’re putting in positive risk prevention, it will be reflected in your risk profile. No risk is the same but when it is articulated well, we get clarity on where to deploy our capital efficiently.”

Climate risk reporting

Nat cat is also a significant risk thanks to record losses in 2023 and forecasts that suggest the climate is only going to become more extreme.

Consequently, HDI Global has done a lot of work to support its UK clients in terms of climate risk reporting, says Davies. This is especially useful when clients are selecting a new site and need to know its exposure to nat cat, and how this might develop in future years because of climate change. This is also where greater use of captives and alternative risk transfer can help, says Davies. The third big risk facing UK corporates is supply chain disruption and business interruption, says Davies. The building geopolitical tension over recent years has created a host of macro risks.

“All of these things need to be mapped out and considered. How you can have more suppliers, or tweak your supply chain to reduce BI impact,” says Davies.

“We have a risk consulting team. We talk to clients and run scenarios that will play a role in helping clients reduce or manage their exposure more effectively.”

There are also some UK-specific political risks that UK companies need to consider, adds Davies. “There is a general election in the UK this year and the expectation is that there will be some policy changes after 14 years of Conservative rule. For insurers, it is important that they are able to continue to interact with the EU, so third country agreements will have to be embedded to ensure that there is no disruption to service,” he says.

Embracing ESG

Another inescapable trend of the last 12 months is the growing impact of sustainability and ESG. “ESG is hugely important,” says Davies. “It is a good mechanism for corporate citizenship and responsibility, and we take this seriously in terms of helping our clients develop their business model to align with sustainability. It sits well with our culture and heritage as a mutual.”

“The expectation is there will be policy changes after 14 years of Conservative rule. It is important for insurers to be able to continue to interact with the EU, so third country agreements will have to be embedded to ensure there is no disruption to service”

HDI Global has its Accumulation Risk Geospatial Online System (Argos), which is used to accurately determine the risk of flooding at any given location based on expected rainfall. This and other hazard warning systems help to make sites more resilient to environmental changes.

HDI Global is also using telematics to reduce risk within corporate fleets. “It is about changing driver behaviour. This in turn helps reduce the total cost of fleet ownership, especially diesel and petrol consumption. Companies will then be able to use the savings to invest in a greener fleet,” says Davies.

HDI Global has conducted research into low carbon cement, which could have as much impact on construction as aerated concrete and timber frames. And in 2022, the insurer partnered with ACCURE Battery Intelligence to provide a service that monitors the condition of batteries in order to increase the insurability of battery storage. “It allows companies to have more risk control by stopping potential hazards at source. It is also a good example of our approach to ESG, which is to provide practical solutions,” says Davies.

Of course, sustainability works both ways and Davies says there has been a real switch in the last few years in terms of companies’ view of their insurer’s ESG profile. “Now the majority are asking us about our ESG grading and more social aspects, rather than purely environmental. For example, we have a programme for school leavers in deprived areas and a mentoring programme. It is not just about the industry divesting from oil and gas projects.”

Davies sees a huge opportunity for insurers in AI. “We’ve brought Chat GPT in-house so we’re building up our internal capability and using that to improve our service proposition, getting back to people quicker in terms of updates to their international programmes or on the progress of their claims,” he says.

“It is about developing lots of use cases to improve the customer experience. For example, we can use AI to analyse a loss adjuster’s report. If there was a flood in a warehouse and a forklift truck, the tech could calculate the height of the flood. This helps speed up the process and how quickly a claim can be made.”

“To put it short,” Davies adds, “we are pushing innovations as hard as we possibly can. Always with the aim of making life as easy as possible for our customers”.

The insurance market

Insurance markets are, of course, cyclical, and some analysts already expect a general flattening of rates. There is also additional capacity coming into the market in certain lines, which should be welcomed by risk managers, although Davies issues a word of caution. “More insurers are moving into cyber, but I am not entirely convinced that all of the new entrants fully understand the risk involved. We have seen the market develop in recent months and attacks are becoming more sophisticated.”

HDI Global is also very invested in captives. It is in the process of adding a captive specialist to its UK team after the UK governments announced in late 2023 that it would look at changing regulations to promote the growth of an onshore captives market in the UK.

“We work with more than 160 captives globally and it is a big part of what we do in terms of working with clients to find alternative mechanisms for risk transfer. Insurers need to change their model to be able to support clients in their ART and desire to take on more risks themselves. It will be very interesting to see how the captives market develops in the UK and we will watch this area with anticipation,” says Davies.

“HDI have invested a lot in developing propositions that support clients with the numerous and varied risks that impact their businesses. At HDI, we want to partner with our risk managers as their businesses grow and transform,” he concludes.

Authored by Airmic – HDI Global (Airmic sponsor)