Higher demand for p&c coverage a possible silver lining of depressed oil prices: AGCS

That Canada is facing challenges in the wake of depressed oil prices is hardly news, but there are some positives for the property and casualty industry that go along with the negatives, suggests Ulrich Kadow, chief agent, Canada for Allianz Global Corporate & Specialty (AGCS) Americas.

“While the energy sector is going through difficult times, there are also some positive effects from lower oil prices and the correlated strong U.S. dollar in other sectors,” Kadow told Canadian Underwriter. One example, he points out, is that “manufacturing companies with strong U.S. exports could benefit from falling production costs and rising exports – and so, this could have a positive effect on demand for property and casualty coverage.”

“Carriers who understand that down cycles will always be a part of a commodities-based economy like Canada’s will weather the economic storm in collaboration with their clients,” says Kadow, who, along with Chris Fischer Hirs, CEO of Allianz Global Corporate & Specialty SE, spoke during a company event in Quebec City during the RIMS Canada Conference 2015.

While Kadow reports AGCS’s “point of view about Canada and support for the energy market is unchanged,” he predicts “markets with a strong reputation could potentially outlast newer entrants into the energy market as demand softens.”

While he expects no such moves for energy, changes in the form of new products may be more likely in other areas, such as cyber.

Related: Canada second largest energy and power insurance market globally, with US$1.77 billion in premiums in 2014: Finaccord

Kadow (pictured below right) sees “perhaps an evolution of existing products to respond to the identified risk exposures,” he notes. “We’ve heard from many clients about first-party damage – in particular business interruption risks, resulting from a cyber loss as a primary concern – beyond privacy issues and data loss. There’s a desire to see more products and capacity suited to this risk,” he reports.

“From a global perspective cyber is rising on everyone’s agenda and I’ve no doubt this applies equally for Canadian risk managers,” Fischer Hirs said in an email response to Canadian Underwriter.

Estimated to result in losses of approximately US$575 billion globally every year, says Fischer Hirs, cyber crime is “a truly international risk that doesn’t respect national boundaries.”

Again, though, there are positives to this negative. One such plus is that the risk “is increasingly getting the necessary attention,” he suggests.

How are clients reacting? Fischer Hirs says he sees more and more clients extending their renewal shopping lists to include cyber cover. “Market forecasting is always an inexact science at best, but we believe the global cyber insurance market will grow from US$2.5 billion today to US$20 billion by 2025.”

Related: Oil-dependent economies, including Canada, among countries placed on negative watch list: Coface

Beyond energy and cyber, though, Fischer Hirs suggests that geopolitical risk is another threat that is becoming more critical for multinational companies globally. “With many Canadian companies operating internationally in countries with less than stable political situations, this should definitely be in their focus,” he advises.

Geopolitical risk is having an impact right now. “We see growing demand for crisis management covers globally,” Fischer Hirs reports. One such example would be “specialist crisis support when you have to manage an emergency evacuation from a country or other incidents in hostile environments,” he says.

Fischer Hirs (pictured left) points out that in the last six months alone, there have been more terrorist attacks globally than during all of last year. “Political violence, terrorism and war are threatening not only businesses’ assets, but even their people.”

Fischer Hirs suggests the p&c industry would do well to accept that capacity is “just a fact of life: in a low interest environment, capital is chasing returns and comes into our market, and we’ve got to get past the fact that there’s plenty of capacity in this market.”

Related: Lower oil prices may have positive effect on demand for p&c insurance products: IBC

It must also be recognized that not all capacity is equal. “At the end of the day, complex risks need both expert understanding of the clients’ issues, and expert claims handling,” Fischer Hirs contends. “You don’t deliver that with just capacity,” he says.

His recommendation? Current conditions should be viewed as an opportunity to “raise our game by offering a value added-service,” Fischer Hirs recommends.

“We need to recognize that the old insurance business model needs to change, that there are news rules of the game, and we have to evolve to embrace these,” he emphasized to those assembled for the AGCS event.

Here at home, Kadow told attendees, the goal “is to effectively deliver products and services across 10 lines of business, claims and risk control services to our existing customers and offer compelling alternatives to potential customers.”

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