Reinsurance demands product improvements, enhanced contracts

Insurers must improve their products to match the changing needs of customers and make the contracts more comprehensible, reinsurers demanded at a recent industry conference organised by Mapfre Global Risks.

“Our products were good, maybe ten or twenty years ago. Now we have to go forward and match the needs of our customers,” Peter Butikofer, head property, Centre Reinsurance of Swiss Re, said.

Butikofer also called for simplified insurance policies. “Our products have become very difficult to understand.”

Butikofer also saw the need for changes in the way the insurance industry deals with contingency business interruption cover. “I am convinced that contingent business interruption is insurable but it has to be underwritten very carefully,” Transparency is a key issue for insurers regarding covers. “The greater the transparency we can achieve, the higher the limit the insurance industry can provide,” he added.

The reinsurer distinguished between three scenarios. In the first, the insurer has full information about suppliers and full transparency about the exposure. In addition, natural catastrophe perils are excluded. “In this case, I do not see a reason why a limit should be below the normal BI policy limit,” he said.

In the second scenario, the insurer knows the names of the suppliers but does not have information about their location and natural catastrophes are not excluded. In such cases, the insurer will have to reduce the CBI limits to compensate for the uncertainties, he said.

In the third instance where the insurer has no information on the suppliers or their locations, limits will have to be rather low, Butikofer said.

Insurers need as much transparency about suppliers and exposure as possible to handle the accumulation risk, he said. “If one supplier fails, this could have consequences for many insured’s,” he said. “If natural perils were also covered, this could result in much bigger losses than those we have seen from fires or explosions.”

In addition, one problem experienced by the insurance industry is that it has difficulty assessing past CBI losses, which could give an indication of the fair pricing.

“We are currently unable to really capture those CBI losses specifically. We need to improve our loss statistics,” Butikofer said.