2015.10.06 value of insurance
TRANSCRIPT
Value of Insurance
Dirk Wegener2015-10-06Page 2
Value of InsuranceKey Cornerstones
• Insurance = Corporate Function and/or Corporate Services
• Insurance = Capital Surrogate
• Insurance Strategy• “Risk Bearing Capacity” (for insurable and non-insurable risks)• Financing of Risks (two options: “make” or “buy”)• Aligns perspectives of different organisational levels (group, local
entity, etc.)• Catastrophe Protection may be key, no “dollar trading concepts”• Question: is a loss free insurance policy a good deal?
• Risk Intelligence and Risk Management via Insurance
Dirk Wegener2015-10-06Page 3
Main Pitfalls
• Internal Marketing is key• “Insurance lingo” in the Board Room has to match Board
Members lingo• Avoid redundant details, make it “short and easy”• Focus on main messages• Regular interaction with Board Members, other Corporate
Functions and other main Stakeholders (importance of
internal network) • “Don’t focus on loss ratios only” – an insurance contract has
more to offer!
Dirk Wegener2015-10-06Page 4
How can the Value of Insurance be successfully transported internally? (1/2)
3 assumptions:• Corporate Insurance has to be a Global Function • Active internal commercialization of crucial Insurance
coverages as a financing solution• Reduction of volatility
• Smoothing of financial losses due to tail events
• Company-specified Insurance Strategy with the following
pillars:• Optimization of Risk Retention through group / entity / local
deductibles, potentially by use of a Captive
• Risk transfer for catastrophe risks
Dirk Wegener2015-10-06Page 5
How can the Value of Insurance successfully transported internally ? (ii)
Major success factors :• Importance of internal discussions about “value of
insurance” and relevance of the insurance function – “not
only in case of a large claim”!• Financial effects / Accounting
• Data / Transparency
• Cost efficiency
• Clear verbalization and communication of the company-
specific Insurance Strategy – top priority for the Head of
Corporate Insurance!
Value of Insurance
Marisa Prater and Roy Baumann | 2015* T. Buckle, Head SRCS EMEA at airmic 2015
Value of Insuranceembrace the world as it is, not the world we would like to see*Marisa Prater and Roy Baumann
Marisa Prater and Roy Baumann | 2015
“Maybe you know what you're talking about, but I don't”
Tony Soprano – The Sopranos by HBO
Marisa Prater and Roy Baumann | 2015
“Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.”“The Battle Is For The Customer Interface”, by Tom Goodwin of Havas Media on Tech Crunch Network.
Marisa Prater and Roy Baumann | 2015 •11
Challenge long-held working assumptionsRethink insurance from the ground up"Product innovation based on greater client centricity, risk-based pricing and further integration with capital markets can play an important role.“*
Embrace the world as it is, not the world we would like to see
* Swiss Re sigma No4/2011 (product innovation in non-life insurance markets)
Marisa Prater and Roy Baumann | 2015 •12
Non-Damage BILoss of income
Contract Present ValueCapitalised future income
Energy ProductionOil price and fiscal risk
Parametric NatCatWind or earthquake
Price ProtectionKnock-in put option
Insurers are taking on the challenge
Revenue GrowthCustomer base, acquisition
Marisa Prater and Roy Baumann | 2015 •14
It’s not that we haven’t tried
“scientific approach”the 10’s
“practitioner concept”the 00’s “corporate
finance textbook”the 90’s
“certification”
the future?
Marisa Prater and Roy Baumann | 2015 •15
What characterises insurance?• Promise to pay – risk bearing• Payment in the event of a claim –
indemnity• Value-adding services – claims,
certificates and administration, advisory, risk management
Swiss Federal Court Decision (BGE) 140 III 150
Jack-of-all trades, master of none
Marisa Prater and Roy Baumann | 2015 •16
Attempts to explain the value of insurance are futile. We may win the intellectual argument but not the audience. We need to think out-of-the box and find a different way.Let markets agree on value of insurance and communicate it to stakeholders.The risk placement approach is reaching its limits. The market continues to look for speed and price. The promise to pay will have to become an exchange traded product.* 2009, Paul Volcker, the former Chairman of the Federal Reserve says the conference proposals don't go nearly far enough to accomplish what needs to be accomplished. http://www.wsj.com/articles/SB10001424052748704825504574586330960597134
"Think more boldly“*
Marisa Prater and Roy Baumann | 2015•17
J. Wallen
“How did you go bankrupt? Two ways. Gradually, then suddenly.“ Ernest Hemingway, The Sun Also Rises
Marisa Prater and Roy Baumann | 2015
RELEVANCE &
RECOGNITION
• Something interesting is happening.
• We need to rethink insurance from the ground up.
• Can’t be a jack-of- all trades.
• Let traded markets agree on value and communicate it to stakeholders.
Marisa Prater and Roy Baumann | 2015 •19
"Reports of our industry's demise have been greatly exaggerated."Paraphrased from Mark Twain
INTERNAL USE ONLY
‘Value of Insurance’ – Have you internally been challenged on the question of Insurance?October 2015Dominik Bark
Global Corporate in Europe, Middle East and Africa
INTERNAL USE ONLY
‘Mezzanine Capital is debt capital that gives the lender rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies.’
Investopedia
‘To us, Mezzanine Capital means we have a clear interest in the insured. We have a stake in their business and we will work together to understand their business and become a true partner.’
Different views of Mezzanine capital
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INTERNAL USE ONLY
Creating a deal – necessary insurer requirements
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Capacity to price the risk or in other, the necessity of historic loss data.1Little or no risk of moral hazard (fines & penalties for insurance are uninsurable).2Insurance has to make sense commercially for the Insurer. Value must be returned to shareholders.3
For an insurer to underwrite a risk, the following minimum criteria must be met:
INTERNAL USE ONLY
The clear value of Cyber Insurance…
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Traditional Risk
Transfer Solution
1st PartyCover
3rd PartyCover
Risk Service Aspects
Single point
of contact
Combining traditional risk transfer solutions with specific risk services provides a unique cyber/security and privacy solution for our partners.The Present: We offer a combined Captive solution with
traditional cyber coverage. We front in multiple jurisdictions on behalf of the captive and provide 3rd party services.The Future: We’re looking at using insurance linked securities (ILS) to be able to collect additional capacity.
INTERNAL USE ONLY
Operational risk insurance for banksInnovation based on regulatory development
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Banks must hold capital against…
Market Risks
CreditRisks
Operational
Risks
Banks can purchase
insurance to mitigate
operational risk exposure.
BPL/PI + D&O + EPL + BBB/FI Crime + Cyber + Property (PD/BI) + General Liability (EL)
Traditional Insurance Policies
INTERNAL USE ONLY
Protecting your key asset – Human Capital
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New International Program Proposition – a global employee benefit solution…
Locally issued policies
Domestic risk cover and cross-border policy covering cross-border
risk
Centrally facilitated
BRUSSELS, 20-21 October www.ferma.eu
FORUM 2015Venice, Italy 4-7 October
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