PARIMA president Franck Baron has spoken exclusively with StrategicRISK, calling on the insurance industry to cut management overheads in the new tough market conditions.
PARIMA president Franck Baron has called on brokers and insurers to step up their internal efficiencies to help risk managers in this challenging new rating environment.
Speaking exclusively to StrategicRISK this week, Baron said: “I think that there is still large room for insurers to improve their in-house efficiencies. I think that today, the cost of administration, the cost of management at the insurance company level, is way too high.”
Baron agreed that on the whole, rates need to be increased to reflect current risks. “But I do challenge big-time insurers and the way they are organised. Look at the cost of administration and management, which is billed to clients on top of the net premium expected to cover the risks.”
“Yes, rates needed some increase because I don’t think that the current rates are reflecting the quality of risk management, the quality of risks or the true exposure of companies, or the accumulation of risks. On one side, I think it’s good news because it’s going to give us a true reflection of the risks.
Baron said that the rate rises may not be as obvious in Asia as they have been in Australia and New Zealand, and much further abroad in the UK and US, but he stresses this is no reason for risk managers to let their guard down.
Instead seeing this as a negative, Baron suggests risk managers look at the positives. “I’m seeing this as a great opportunity and challenge for our risk managers in the region. For most of them, they have been in a very soft market for more than 15 years and they may not have experienced a hard market. That’s, I think, a challenge because for all of the risk managers, they are then, they have promoted the fact that they are good risk managers because ‘we know how to secure better rates, almost each and every year’. Obviously with some exceptions, depending on your specific accident or loss history in your company, but as a general rule, it has been easy for risk managers.”
“Potentially, this led to a lot of corporations looking at insurance as being a cheap option and something that you can afford. There was nothing much to be done, in terms of managing and or securing it,” he added.
Baron said insurance has been used a way to assess a company’s integrated risks which may have produced a false sense of security for some firms. “It’s not an exact measurement, but that’s a fair one to consider. So for a lot of risk managers, it’s going to be challenging now because they are going to have to reset the way they are a picturing risk, particularly how they are picturing risks internally, the insurance buy-in and how to secure good rates.”
“It’s certainly a challenge for some of our members and so, at PARIMA, we are obviously trying to help (as much as we can) our members, to get new tips, training and guidance on how to access the market, and how to escalate it internally,” Baron said.
PARIMA will be holding their next conference in Kuala Lumpur on 4 & 5 November. Registration details can be found here.