Germany’s entrepreneurs are currently not very happy when they have to think about insurance. The costs of securing factories, covering against cyber attacks or protecting managers have been increasing for years. In the contracts for 2022, the insurers have upped the ante again, and there is no sign of a reversal of the trend.
Of particular concern to the industry is that prices are rising across the board for virtually all companies, not just those that caused damage. In view of the current risk of recession and the cost pressure on many companies, this is not well received.
Hans-Jörg Mauthe defends the procedure. He is Head of Central and Eastern Europe at the Allianz subsidiary Allianz Global Corporate & Specialty (AGCS), one of the leading providers of industrial covers with a turnover of five billion euros. “When assessing industrial risks, the loss ratio plays an important role,” he says.
But there are other criteria such as the general price level, the quality of the risks taken or the industry in which the company operates. Across all contracts, AGCS has increased prices by a whopping 20 percent in recent contract renewals. Nevertheless, AGCS took individual differences into account, claims Mauthe.
For years, the situation for the risk managers responsible for purchasing insurance in the industry was very different. The competition between the providers ensured that the premiums fell from year to year. In most cases, even more advantageous conditions could be negotiated. This caused the situation for insurers to deteriorate more and more. AGCS also slid into the crisis. At the end of 2019, Allianz boss Oliver Bäte had had enough of the poor results, fired the boss at the time and brought in Joachim Müller as a reorganizer.
The AGCS restructuring is now considered to be complete within the group. “As far as our restructuring is concerned, we’re certainly 95 percent through,” says Mauthe.
Under normal circumstances, customers in the industry could soon be prepared for the balance of power to tip again and the phase of price increases to end. Because it usually works like this: If the prices are so high that the insurers are making good money again, this attracts other providers to the market, the competition increases and the prices fall again. This can already be seen in other regions, but not in Central Europe, says Mauthe.
Instead, high inflation and a worsening economic outlook should keep prices high. “Inflation will certainly be an issue in the renewal discussions that we have with our clients,” says Mauthe. “We’re seeing a price development that we haven’t seen for 30 or 40 years,” he says, referring to construction companies and machine manufacturers.
For insurers, inflation makes claims payments more expensive: the values of the insured items increase, the cost of materials for rebuilding the production hall or replacing a destroyed machine increases.
Damage to buildings is particularly badly affected, since repairs or reconstruction have become much more expensive. The cost of cement, wood and steel have increased dramatically. “Steel is almost 50 percent more expensive than it was a year ago,” says Mauthe. So far, however, he has not been afraid that inflation and the prospect of a recession in Europe could spoil the results of the insurer AGCS. “We remain confident about our goals.”
The situation for customers was particularly difficult recently in managerial liability insurance and cyber coverage, which protects against the consequences of hacker attacks and data loss. This is also where the prices at AGCS rose the most in the last renewal.
In cyber insurance, insurers are struggling with high losses. That is why AGCS has also become more cautious in assuming risks here. “In the past four years we have seen a quadrupling of claims reports, in the market and with us,” says Mauthe.
However, fears that hacker attacks on Western companies could become more frequent as a result of the Russian war against Ukraine have so far not come true. “We have not yet been able to identify this in the claims reports,” he said. However, he does not want to make a forecast as to whether this will remain the case.
The war itself has so far hardly been reflected in damage reports to AGCS. War risks are excluded in many contracts. However, they can be covered by special war cover, which is common for ships and aircraft. However, AGCS is hardly active in this business.
A major issue for the company, which has its headquarters in Unterföhring near Munich, is the return of employees to the office. The legal requirements for working from home have now expired. AGCS has introduced a hybrid working model that provides a mix of home office and office work. “We have agreed with our employee representatives that the majority of the work should take place in the office or outside with the customer,” says Mauthe. He is not afraid of conflict. “This is completely accepted by the majority of employees and is perceived as a generous arrangement.”