Most traditional insurance products provide cover for tangible assets. But increasingly an organisation’s value is based around intangible assets, so how can insurance keep up?
In many industry sectors business models are making the shift from tangible to intangible. Whereas once their value was in property and products, increasingly it is in brand, intellectual property and services. 84 percent of the S&P 500’s market value is held in intangible assets according to a study by Ocean Tomo, up from just 17 percent four decades ago.
While it is relatively cost-effective and easy to transfer traditional tangible risks by taking out commercial property and casualty insurance products, the solutions for intangible risks are not as easy to find, according to Philippe Cotelle, FERMA board member and head of insurance risk management, Airbus Defence & Space.
“For some companies, 80 percent of the value of the company is intangible and currently the insurance market is only covering tangible property values - so they are only covering 20% of the value of the company,” he explains. “This is the new frontier, for the insurance market to expand to cover things like reputation that constitute the real value of the company, for which currently the market has no solution.”
According to research by the Association of Risk and Insurance Managers (Airmic), risk managers are opting to manage strategic and intangible risks in-house due to the perception that conventional insurance models do not cater to such risks. Cyber, reputation and IT-related risk were ranked as the top three concerns by risk respondents, also areas where risk managers most want to see the insurance industry extend its offering.
“Intangible risks dominate the concerns of our members, and are much less well accommodated by the insurance industry than tangible risks,” said Airmic technical director Julia Graham. “This is something that underwriters and insureds need to develop further as a matter of urgency.”
Christian Wertli, head of Innovative Risk Solutions at Swiss Re Corporate Solutions, thinks the solution lies in a partnership approach to fostering innovation. By working more closely with brokers and corporate clients it will be possible to come up with creative solutions to capture the risks that are currently not being catered to.
“We still mostly provide traditional insurance – there’s no doubt about that – but there is a massive opportunity to look at other ways of providing insurance,” he says. “To invest in those solutions you have to have a system that actually allows full innovation and to team up with credible partners. And luckily, we are in a very good position.”
He uses the partnership between Swiss Re and BMW Group as an example of one that utilises smart technology and customer data in order to build a bespoke solution. The two companies recently announced a new assessment method for driver assistance systems in the automotive sector.
“Whenever we create something new we need to be able to quantify the risk, and that requires data,” explains Wertli. “The data normally sits with the customer, so together with the customer we need to figure out what it actually means and how we can come up with tangible and creative solutions for the risks that can’t be mitigated.”
The two growth areas for him are non-physical damage business interruption and data-driven solutions, which are designed in close partnership with the client. “For the latter it’s about capturing client data and making sense of it - the volatility in earnings for instance, and the underlying reasons for this. Here, we can really prove that we are drivers in the digital era and trusted partners at the same time.”
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