The fear factor

The woolly, touchy-feely world of sociology may seem to have little in common with the grey suited practicality of insurance. But, when Professor Frank Furedi took to the stage at the recent Association of Risk Managers (Airmic) conference, he hit a nerve that has sparked off an industry debate - are insurers becoming too risk averse?

Furedi is professor of sociology at the University of Kent and spoke from his recent paper, "Refusing to be terrorised: managing risk after 11 September".

Some of his views are summarised (see Furedi's views in a nutshell), but the gist of his argument is that insurers and society at large are bottling out of dealing with risk. What is more, he accuses risk management providers of capitalising on fears.

Furedi's presentation had the conference buzzing. "It was something that needed to be said. I feel there is a complete failure of courage at the moment," he argues.

He says shying away from terrorism cover is only part of the story. "Take floods, many insurers are questioning whether they can continue in this area. We could reach the situation where insurers only want business without any risk. We are in danger of having people who are marginalised and the costs will either be extortionate or the government will have to step in."

Furedi does not mince his words when referring to the disaster recovery and risk management industries that have sought to win new business following 11 September. "Some of them are just a waste of time and space. They are like a therapist or personal trainer. Pleasant to experience but not providing anything of value."

Anyone who reads Furedi's paper will see, however, that it is not just based on having a pop at the insurance industry. He does emphasise the benefits of sound risk management where based on experience and on the logic of the Pool Re terrorism fund.

Unique position
Airmic executive director David Gamble says Furedi made many timely comments. "He wants insurers to play their part but also wants to see individuals to do more too. From my point of view I can see the sense in everyone becoming qualified in first aid through courses at work, for example."

Gamble himself is quoted by Furedi in the paper as saying that the insurance industry is in a unique position. "Insurance has two roles - as a rebuilder and as an enabler. When people consider an investment, they prefer not to take on all the risks associated with it. Our economic prosperity is due in no small part to the availability of appropriate insurance."

But, with some insurers being reluctant to take on risks such as construction, dangerous sports and now floods, as in the case of esure, there are fears risk aversion is going too far.

Speak to brokers about placing more difficult risks and many will say off the record, they are having a hard time. At the same time many are scared of rubbishing unhelpful underwriters because they don't want to lose their valuable agencies. And, off the record, it is easy to find a broker who will say 11 September is now being used as an excuse for inflated rates or refusing to quote.

There are others who are in the fortunate position of being able to place sufficient volumes of business and so have strong relationships with carriers.

Paul Dickson, managing director of Watford-based Dickson Insurance Brokers, says: "We are in a classic sellers' market right now and it's going to shake out the good brokers from the bad. I do find insurers are taking a more defensive approach, but we have still been able to find quotes for all our clients, albeit at a price."

Lack of competence
Ian Mantel, the principal of Hastings-based Manor Insurance Brokers, runs a fast growing business that is developing its commercial book of business. He says there is greater risk aversion, but is still managing to place risks, even though he may have to share commission with a wholesale broker.

"Some insurers are now saying they'll only quote through a scheme, even though I have an agency with them, as they want the volume and so I'm paid less."

Mantel adds that sometimes it is not even risk aversion, but lack of competence that makes risks hard to place. "When you are dealing with a Johnny No Brain in a call centre then it can be hard to obtain a quote at all. They have made the mistake of getting rid of experienced staff. That said, if one insurer is unhelpful, then I find there are others such as NIG are offering better service and so are taking the business."

Most insurers accept the fact they are being more selective, but say the reasons go way beyond 11 September .

Colin Short, head of commercial lines underwriting at Royal & SunAlliance says: "Furedi's report goes to the heart of a lot of things in insurance and we as an industry have to say, things have not been run that well in the past. Now, there is major reassessment going on."

He explains that terrorism does pose potentially unquantifiable risks. "We cover large parts of Canary Wharf. My team has to look at what a terrorist attack would mean, given the proximity of the buildings and the fact that you have an airport just two miles away. This is something you can't have a pricing model for."

Short does believe that better understanding is developing. "I have been involved in Pool Re talks with the government and there could be a time when insurers start to take on more risk. People in the industry are not just looking at refusing risk, but we have to run our businesses well, now a lot of carriers are going back to basics before moving forward."

Groupama group marketing manager Jamie Marchant says: "The insurance industry is open for business. But, we should not just be focusing on the implications of 11 September. At a technical level there have been substantial losses that need correcting, which have been exacerbated by falling stock markets."

He says insurers need to be selective if they are to be profitable and failing companies, such as Independent, will simply cause more problems. "We are now specialising in the SME market because we see medium and large risks as more volatile. But, within this sector we will continue to be flexible."

Wrongly blamed
Leisureinsure senior partner Paul Hudson says it is wrong to blame insurers. He recently wrote to Insurance Times on the subject of a skate park being closed because of lack of liability cover. He says the real culprits are the claims farming companies and avaricious personal injury lawyers.

"Insurers don't have a chance with these people about. Look at go-karting for example. Seat belts are not allowed under the law and then lawyers sue those running circuits when someone falls out for going too fast round a corner."

He says a further headache is the growth in after-the-event cover. "Insurers are having to pay out huge costs and even putting in higher deductibles is not making much difference."

Hudson praises his carriers, which are Lloyd's and London Market providers, saying: "I won't say a word against them. They are providing great service in a market that is blighted with ambulance chasers."

So, if insurers really are still coming up with the goods in difficult circumstances, why aren't they telling people?

It seems the age-old problem of insurers being poor communicators is at the heart of it.

Simon Hayes is a former aviation broker who runs communications consultancy Effective Image. "The insurance industry has never been good at communicating the good it does and trying to change this is a large part of what we do," he says.

Hayes challenges some of Furedi's reasoning. "In one part of the paper, he says instead of asking the question of "what do we know", we prefer to speculate and ask "what if". I think we do need to look beyond our existing knowledge and I think this shows a lack of understanding. Looking at 11 September, no industry could have responded the way in which the insurance industry did and it is continuing to work to find solutions."

To get a copy of Frank Furedi's report call 01795 537322, visit www.futureproof.org or email riskresponse@futureproof.org

Furedi's views in a nutshell

...on insurance