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Towers Watson: Corporate Risk Managers Concerned, Taking Steps to Address Hardening P/C Market

Posted on 16 Apr 2012

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Amid growing concern, a vast majority of corporate risk managers at U.S. companies are taking steps to prepare for a hardening property & casualty (P&C) insurance market, according to an annual survey by global professional services company Towers Watson. The survey also found that while enterprise risk management (ERM) programs are in place for a majority of respondents, progress in maturing them beyond qualitative efforts have stalled. Additionally, the survey found a lack of movement in the purchase of network security/privacy liability coverage despite compelling reasons to do so.

The 2012 Risk and Finance Manager Survey found that nearly two-thirds (63%) of survey participants are either seriously or moderately concerned over a hardening P&C insurance market. Another one-third (32%) expressed slight concern. In response to this concern, companies are taking many steps to prepare. Among property respondents, nearly seven in 10 (69%) are now marketing their programs, while slightly fewer casualty respondents (63%) are doing so. Additionally, a third of property respondents are using broker-provided catastrophe modeling, while 44% of casualty respondents are using actuary-provided retained loss analytics, and 30% are using predictive modeling.

"With all signs pointing to a hardening market, actively engaging in the use of analytics is a great way for companies to prepare themselves for change," said Steve Levene, Risk Advisory and Brokerage practice leader. "This also provides brokers with an opportunity to help their clients better see the linkage between effective analytics and preparation for a hardening market. It is a connection that was not as essential in a soft market, where coverage was more accessible and relatively inexpensive."

The survey of 153 risk and finance managers also found only slight improvement among respondents in the implementation of ERM programs, despite pressing reasons to do so. This year, 57% of respondents indicated they have ERM programs in place, just slightly more than last year (54%).

"Despite ERM receiving more attention worldwide from regulators, policyholders and stockholders, the fact that we only witnessed a slight increase in ERM implementation clearly demonstrates that there is a disconnect between many existing ERM efforts and the value that can ultimately be derived.

A lot more needs to be done to encourage companies to mature these programs beyond a qualitative or compliance focus. It is evident from our survey that more formal, thorough education about what ERM is and what it can do for companies may be needed," said Corey Gooch, senior corporate ERM consultant.

Indeed, 40% of respondents said that nobody has been able to articulate the value of implementing ERM, and another 25% cited ERM as too resource-intensive and expensive to pursue, regardless of the value.

Respondents also continued to show possible gaps in managing their cyber-security threats. In a year with some of the highest-profile cyber-breaches to date, nearly three in four respondents (72%) are not purchasing a network security/privacy liability policy, virtually unchanged from last year. And those that did purchase policies (28%) opted for limits that were on the low end of the spectrum. In fact, 43% said their policies had a $1 million to $5 million limit. When asked why they had not purchased a policy, 41% believe their own internal IT department and controls are adequate, while 25% indicated they do not believe they have a significant data exposure.

"This lack of movement in purchasing network security/privacy liability coverage is cause for concern and shows there is work to be done in companies' risk-control efforts. Cyber-attacks and data thefts will continue to be a major threat for companies. That said, we believe the time is now for risk managers to reexamine how they treat certain kinds of risk, such as cyber-threats," said Larry Racioppo, Executive Liability practice leader.

About the Survey

A total of 153 risk managers participated in the web-based survey, which was conducted between February 16 and March 12, 2012. The participating companies represent a variety of industries, with 64% of them having revenues of at least $1 billion.