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Published on: Allgemein

Risk-conscious insurance

The Insurance subject, especially in industrial facilities, is becoming more and more acute for many industrial companies due to the conservative underwriting policy of primary insurers and reinsurers.

An increase in premiums is only the economically unpleasant part, but the scope of coverage is also being reduced significantly. At the end, this means for the risk- owner: Industry - do it yourself!

Especially in these times, it is getting more and more important to deal with the risk management topic. Because for the company itself remains significantly more risk potential that is no longer or is not sufficiently covered. Internal risk control is therefore the motto. However, this requires a huge preparation work in order not to make expensive or wrong investments for control measures.

Black sheep endanger readiness for underwriting - wrong consulting endangers insurability
But what is the background to this fact and why did it come to this? Insurance companies insure innumerable businesses in their portfolios and thus apply a bird‘s eye view. Individual needs or even wishes can only be considered to a very limited extent, the law of large numbers applies. If black sheep cause a high overall loss in an industry, the entire industry is confronted with hardening, reduced readiness to underwrite the risk and increased premiums.

The situation is different from the point of view of a single industrial company. They can only perceive their own risk and have no way of looking at the big picture. To the best of its knowledge and belief, every company will take the necessary measures to protect its property, often with the help of external consulting. Choosing the right expert with vision is particularly important. Inadequate consulting, without considering all stakeholders, can cause long-term damage and high investments in risk adjustment. As a result, insurance capacities are missing or are simply far too expensive.

From the insurer‘s point of view, this means: companies with high claims frequency are not welcome, and companies with high individual claims are not welcome either. This disrupts the overall structure and leads to volatile damage figures that cannot be estimated in advance. Let‘s compare industrial and commercial enterprises:

Every industry has different risks
Austria has around 5,500 industrial companies and around 10 relevant insurers, there are 350,000 commercial companies and around 50 relevant insurers. Damage in industry can easily reach the millions, in commercial business, however, damage amounts over one million euros are the exception. If one assumes that all insurers share the portfolio equally, then there are 550 companies for one insurer in the industrial sector and 7,000 in the commercial sector. The risk diversification is therefore significantly greater in the commercial sector and it is easier to estimate the expected damage for the upcoming year.

Grafik Feuer Gewerbe vs. Industrie Schadenschwankung aus den vergangenen 10 Jahren (Quelle OÖBV)

Graphic ratio of commercial operations to industry for insurers.

The consequence: Due to the high tendency to volatility of industrial loss events, insurers are trying, with all available instruments, to improve the predictability for the upcoming years, to the chagrin of the companies.

Combine controlled own risk-appetite with targeted insurance policy
The initial situation will not change because it is hardly possible that a few thousand new industrial companies quickly appear on the map to compensate this imbalance. So, there were only a few options left. Here are two examples: The alternative risk transfer (captive) or dividing your own risk portfolio into quantifiable quantities. All measures have one thing in common: assuming your own risk! However, from the company‘s point of view, this assumption of own risk must be designed to an acceptable extent. A company must ask itself how much risk it can afford. For that, wide risk analysis tailored to the respective company is needed, from which the own risk potential can be read in a measurable quantity. This is the only way to control risks in a targeted manner and to decide which risk potential can or should be taken over, transferred, minimized or eliminated. Experts should have a long-term overview of the stakeholder’s insurance, authorities, risk management and customers.

Profitable risk control through precise individual risk analysis
In-house risks can only be managed on a profitable level if there is an exact map of risk potential, which clearly shows what is how dangerous and what specific financial consequences any possible loss could have. Compared to an order catalog from which you can choose - individually, according to your own wishes and personal taste. This catalog must show the probabilities, the scope and the costs of the different mitigation measures as well as the needs of internal and external stakeholders, then a targeted control can be applied on an economically effective level, which ensures long-term satisfaction.

Am I safe then?
Well, answering that is certainly not easy - but: yes, you are safer in any case because you know what can happen and what it can and will cost. So, it can be calculated exactly, according to the taste of your own „risk appetite“ and the individual risk tolerance. However, if these measures are not taken, it will hardly be possible to orientate oneself on the present insurance market. And in case of loss, it is too late to reach for the saving straw, which in case of doubt will not be there.

One thing is certain: preparation is half the battle, risk-based preparation is 70 percent! Use the current situation to your advantage and catch up for any omissions. You appear strengthened and optimized, significantly better and more attractive in an insurance market that is currently very picky in choosing the partner!