Emerging risks; emerging cover

We interviewed Julia Graham, the new CEO of Airmic, this week, and in a fairly wide-ranging discussion centered on emerging risks, one of the points she made was that the insurance market is currently on the cusp of a significant transition when it comes to the type of cover available.

What she meant by this was that for many areas of emerging risks at the moment such as cyber or reputational risks, what the policies available in the market actually offer is still restricted to offering various forms of support services rather than a fuller form of risk transfer.

I think she’s right to comment on this as it must be incredibly frustrating for as a buyer not to be able to achieve a greater degree of risk coverage for your business.

Not that I’m blaming the risk providers here. As any emerging risk market will demonstrate, there is a very clear need to progress steadily and surely until a mature understanding of the risk environment is achieved and all parties are confident that they really understand the underlying nature not only of the risk but also of the exposure.

One thinks back to the disastrous experience of part of the Lloyd’s market in relation to US-related D&O exposures back in the 1990s to appreciate just how carefully underwriters have to tread when it comes to developing products to match emerging risks. Then, quite a few underwriters made massive losses and the market was forced to retrench and recalibrate.

In 2021 it’s almost another underwriting world entirely, with the weight of actuarial analysis and compliance requirements meaning that a gung-ho approach to writing an emerging area of risk, at least in mature domiciles, is not going to happen.

But something else that is also different in 2021 is the amount of data available to underwriters and the relative ease with which that data can now be harvested and interpreted.

I think the combination of these factors is a good thing and potentially very exciting. Wild west underwriting just isn’t going to happen BUT advances in technology and data sets mean that underwriters are increasingly able to develop markets in areas of risk which are now emerging as crucial for business.

What it also suggests, and I agree with Graham here, is the market really is on the cusp of developing covers to offer more than access to services. I think we are very soon going to see a much greater element of genuine risk transfer for key areas of emerging risk, underpinned by good quality data, and that can only be a good thing for both insureds and insurers.

Enjoy the read,

Marcus Alcock,

Editor, Emerging Risks

In 2021 it’s almost another underwriting world entirely, with the weight of actuarial analysis and compliance requirements meaning that a gung-ho approach to writing an emerging area of risk, at least in mature domiciles, is not going to happen.

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