🔎 🔴 Tell me why ? | The single risk

Reinsurance Tutorials #14 - Season 2

Hi everybody 👋

Today we start another type of course.

After looking at treaties that cover a large quantity of policies, we’ll now walk through the maze of contracts that are built on a case-by-case basis to meet special needs.

As you are now used to our format, I’ll try to sum it up in a simple phrase: The single risk: tell me why ? 

Then:

• Clémence will take up the topic with different types of reinsurance solutions
• Laurent will continue our research with “Special acceptances” and
• Sylvie will present a focus on Life reinsurance and medical underwriting

Let’s start! ⏬

Introduction

Jokingly, the obvious answer is: because it’s single!

When I started reinsurance, I learnt the word “singleton” ie “one ship only”

I was told that underwriters prefer to avoid that. They like to insure a whole fleet to:

• Create better balance between older and more recent ships,
• Have more premiums to offset one loss,
• Avoid leaving out and not protected a low valued old vessel uninsurable on its own or a very sophisticated new one with high value and no historic knowledge of the engine, the sail or the other parts of the ship

Definition

We differentiate between:

• a risk: a person or a piece of property that is at risk,
• a peril for instance a fire, an explosion, a terrorist attack…
• a policy which is an insurance policy covering a risk against perils

In practice, we mix the words “risks” with “perils”, and speak, for instance, of “emerging risks”. We may have:

• A single risk (house) insured against a single peril (fire) via a single policy
• A single risk ( house) insured against several ( fire and allied perils) or even “all risks “ but for a few named perils that are excluded (war, nuclear risks…) via a single policy
• A single policy may cover several risks (a fleet with a number of vessels with a top risk) against several perils
  

We consider as a high risk needing a specific treatment

• an individual person, a star of any kind and with perils linked to his or her activity or life covered via one or several policies protecting against different perils each and every time with high sums insured involved
  
• a group policy, involving a number of persons, such as a basketball team whose members are protected against accidents when playing as on a team
  

A single risk may also have different policies to cover the same perils

• a local mandatory policy where the risk is located (an industrial plant set up through a subsidiary of an international group) and
  
• a DIC ( difference in conditions broader insurance coverage, sums insured and/or risks covered) purchased by the insured on the international market on top of this basic local insurance
  

What type of individual risk requires specific treatment ? 

• Specific risk by nature: a chemical plant producing a specific product, using new technology that is not yet known, no stats, no experience
  
• Specific individual case: high sum insured : legs of a football player, voice of a singer, concert tour (Event Cancellations losses due to Covid…)
  
• Dangerous risk : Seveso-type site, excluded from the treaties as they bring too much volatility and potential cost.
  
• Risks requiring higher capacity than the one offered by treaties
  
• Risks where a reinsurer may have large accumulations through many treaties. For instance the top 500 S&P index risks, excluded from liability treaties, treated separately and thus potential accumulations controlled
  

Challenging specific risks require : 

• detailed studies with specialized underwriters to assess the risk, the prevention measures needed and fix a proper price
  
• specialized highly-paid underwriters

Only few (re)insurance companies will have the funds, the expertise and the capacity to play that game :

• A limited market with few players should be profitable
• Corporate business has proved highly negative for years, the big players in that field Allianz (AGCS), Axa Corporate, Swiss Re Corporate… have recorded bad results.
• Buyers had a more negotiation power than the (re)insurance industry.
• Badly needed changes take place : increased prices and reduced covers
  

Conclusion

Our world is changing rapidly with emerging risks, new single-risk accumulation and complex risk scenarios.

The role of our (re)insurance industry is to face these challenges, offer covers needed by the economic actors according to our funds and provided an adequate risk premium price.

Thanks for your attention!

Bye for now 👋

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