Three subjects dominated discussions among executives and risk managers in Philadelphia at this year's Risk and Insurance Management Society convention: pricing, Business Interruption and Cyber risk.

Regarding pricing, Mario Vitale, CEO of Aspen Insurance, says there is clear evidence the market is firming, but he notes that no one is using the term “hard market” in their conversations about rate.

Last year's catastrophe losses and low-investment yields have taken their toll, he says. However, the market is in a position now where a major event could shift it from firming to hardening. But putting an exact number on what size that loss event would have to be to move the market is difficult, he adds.

Capacity remains strong, Vitale says, but reserves are seriously depleted, adding to the pressure to raise rates.

One sign the marketplace is changing is that more business is flowing back into the excess and surplus-lines market, says Vitale, with submissions in that marketplace up by 25 percent in some markets.

“I'd say we're transitioning to a more equitable market, if you will—though how long that will last is anyone's guess,” says Hank Watkins, president of Lloyd's America, when asked whether a hard market is on the horizon.

Jonathan W. Hall, executive vice president for FM Global, says there is a “sense the market is changing” and is firming. The question right now, Hall says, echoing Watkins, is how long that firming will last, given the recent history in the marketplace of pricing reaching a peak before sliding back down again, he adds.

Hall notes that on some wind-property exposures, especially along the Texas coast, there are some capacity issues developing.

“Insurers would like to see more rate increases,” observes Marc Kunney, president of Integro USA, a unit of the insurance-brokerage firm Integro in New York. However, clients are still under pressure from the economic downturn, and there are limits to how much they are willing to spend on insurance.

“If you can bring different solutions to the table and blend the needs of the client and the underwriter with a creative approach to the product, you have met the market challenge,” says Kunney. “That creates an opportunity for us.”

Another issue of major concern is Contingent Business Interruption coverage. Executives say that the series of natural-catastrophe events overseas—flooding in Thailand, the earthquake and tsunami in Japan—has exposed the risk to companies' supply chains and the need to address that exposure.

Hall says risk managers have done a good job of understanding their Contingent Business Interruption risk (a shutdown of a supplier that can affect operations), but now they have to better know the threats to their total supply chain. That means quantifying that risk and defining what the impact on operations would be if a particular facility in the supply chain was lost.

Kunney says that risk managers need to look beyond their primary vendors and look at how the loss of “suppliers to the suppliers” can affect operations.

Risk managers, he says, need to probe deeper into their supply chains “than anyone ever anticipated.”

Turning to Cyber risk, Christopher Keegan, Willis senior vice president of executive risks, E&O and eRisk, says insurers are seeing more claims from the broad coverage they issued in the past and are tweaking terms and conditions.

Here, too, because of losses, there is a push for rate on some coverage, he says, but excess continues to be soft.

Where once the concern was over credit-card theft, risk managers are finding other areas—such as a computer bug or programming error—that could shut down an operation and set in motion supply-chain disruption.

Other corners of concern are arising from exposure to social media, including such issues as defamation, copyright infringement and disclosure of private data.

Hall says FM Global has always provided coverage for these Cyber exposures in its policies, but with growing concerns over exposure, the company is paying closer attention to underwriting the risk. He says the company does not plan to remove the coverage from its policies, but it will be asking for a lot more information than in the past.

Special Reports /

At RIMS, Industry Execs Talk Pricing, Business Interruption & Cyber Risk

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