Rob Schimek, President and CEO of the Americas for AIG Property Casualty, speaks with NU's Shawn Moynihan about the carrier's expansion into Bermuda's captive insurance market; the severity of Cyber risk; and AIG's consistently high rating among producers, among other subjects.
Q. Cyber risk continues to be one of the greatest exposures for businesses great and small, but even with major retailers like Target, Michaels and Hasbro suffering high-profile attacks it would seem it's still the cover that everyone needs but still not everyone buys. They're either still in denial over that risk or willing to take the chance by not being adequately covered. Is there a solution here? Do you see a tipping point at which business owners at both the international and local level finally are forced to share in the realization that we no longer live in a world where these exposures aren't a deadly threat to business?
A:More and more, businesses realize the potential severity of cyber risk, especially as the threats extend beyond data and reputation to possible effects on critical infrastructure in key industry segments such as oil and gas, energy, transportation and telematics. This is why we just launched our CyberEdge PC product, which covers property damage and bodily injury exposures resulting from a cyber attack and security failure. This is the first of its kind coverage in the market. It moves cyber coverage beyond data breach, which is the prevalent type of coverage in the market, to help companies manage physical risks from cyber threats.
As it stands, the volume and financial impact of cyber breaches continue to rise at alarming rates, with the average number of detected incidents increasing by 25% in 2013 over the prior year, while incidents resulting in reported losses of $10 million or more have risen by 51% since 2011, according to a recent Pricewaterhouse Coopers LLP study.
There is rapidly growing awareness in the C-suite and at the board level that adequately addressing the latest cyber threats is critical, and no longer the responsibility of IT alone: Protection against cyber risk requires an enterprise-wide risk management program.
Boards of Directors, Risk Managers, Chief Information Security Officers, Chief Financial Officers, and Human Resources all play a role. And choosing a cyber insurance partner with global capabilities, expertise, market experience and capacity for innovation is a must to stay ahead of the cyber risk curve.
Q. In February, AIG launched Global Casualty Single Solution, designed to address cross-border casualty risks for U.S.-based multinational companies. What was the impetus for developing this product, and what are the advantages for producers using it? Which expanding international markets interest you most at the moment, and which do you think will be the ones to watch as insurers seek more share overseas?
A: AIG launched Global Casualty Single Solution to meet the needs of US-based middle-market companies, and the brokers that serve them. One underwriting contact coordinates three coverages–domestic, excess, and foreign casualty. Synchronized terms and conditions offer consistency across policy forms and help mitigate the risk of gaps between lines of coverage. And, one claims contact serves the account in the event of a loss, wherever it occurs around the globe.
In a recent survey we conducted of 750 insurance decision-makers–CFOs, treasurers, and risk managers at US-based multinational companies–94% indicated that they plan to do more business internationally in the next three years.
Of the 750 US-based companies the participants represent, more than 50% are focused on growing in Western Europe and Asia in the next three years; 49% in Latin America. Canada, Eastern Europe, Middle East, and Africa are also priorities but less so relative to the other geographies.
Customer feedback confirmed what we found in our survey. So it only follows that AIG and our solutions will go where our customers go.
AIG's aim with Global Casualty Single Solution is to eliminate redundancies, reduce premium costs, and leave managing risk to the multinational insurance experts at AIG, so that middle market businesses can focus on exporting or expanding their businesses abroad.
Q: In March, AIG expanded its participation in Bermuda's captive insurance market by launching Grand Isle SAC Limited (Grand Isle), a Bermuda-domiciled subsidiary, allowing clients the option of establishing segregated accounts in an AIG-sponsored captive, to retain and manage their risk without the costs of starting and operating their own standalone captives. What do you see as the advantages of moving further into the captives market? What potential exists there now that may not have previously?
A: As companies become more proactive in managing their insurance risk, they are implementing sophisticated strategies, including those that enable them to retain certain risks. Captives are an important aspect of this trend. They enable companies to more efficiently manage their own risk and establish global fronting programs while remaining compliant with the diverse insurance regulations in the multinational markets where they operate.
As a market leader in captive solutions we wanted to expand our offering to include the SAC in Bermuda, which affords companies many of the benefits of a captive without the costs of starting and operating one.
Companies may benefit from the cost savings and flexibility that come with sharing risk, the opportunity to insure a risk not covered by the traditional insurance market, and the ability to leverage the insurance licenses of AIG to satisfy compliance requirements of regulators or other counter-parties.
Q: With so much capacity in so many different markets these days, insurers have to work harder than ever to differentiate their products from the competition. Yet repeatedly in producer polls, AIG comes out on top among agents & brokers. From your own point of view, how would you explain that?
A: Our goal is to be the world's most valued insurer. We believe the way to achieve that is not simply to adapt to change, but to challenge ourselves each and every day to be on the forefront of leading change. In 2013 alone, we introduced over 200 new products and services. Over the past five years, AIG has generated over $1.5 billion in gross written premium from new products and innovation.
We recently announced our alliance with IBM to provide comprehensive, end-to-end services in the area of Cyber Liability. Our Aerospace team has introduced a number of new products to the market, ranging from insurance for Unmanned Aerial Systems to Crisis Response Services, while our Consumer Group has recently announced new offerings covering the cost of government mandated evacuations.
Our Science Team of more than 100 individuals works closely with each of our business units to develop strategies that allow them to harness the power of information technology. We are integrating these professionals into our business lines to work with our underwriters to continue to develop the innovative approaches and solutions that our customers need.
Investment in operations and systems has allowed our organization to develop improved and more efficient back-room processing of work through shared services strategies and new technology platforms. All of these investments have been undertaken with Customer Experience at the forefront. The improvements that we have made in recent years and those that we continue to initiate are simplifying distribution and optimizing efficiency in all facets of our business.
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