5 Factors Driving Rising Risk Costs for Businesses. How Technology and a Strong Carrier Partner Can Help
From an economy straining under the pressure of inflation and prolonged supply chain pressures to increased natural catastrophes over the past few years, cyberattacks and rising jury verdicts, businesses are dealing with more exposures than ever.
The cost of managing and transferring risk is rising, and risk managers and their brokers are working to reduce these costs in whatever ways they can.
Thankfully, carriers are engaging risk consultants and new technologies to help tackle risk in today’s ever-evolving world. They’re partnering with insureds to help predict, prevent and reduce the impact of losses.
“We want to partner with our insureds as much as possible in terms of helping them manage their risk,” said Matt O’Malley, U.S. country leader, AXA XL. “We need to help our insureds be successful in the business they’ve chosen to be in.”
Here are five areas where risk costs are increasing, and how carriers can help mitigate these exposures.
1) Inflation and Valuation Gaps
It’s no secret that the U.S. is straining under the pressure of inflation. Costs on a variety of products and services have increased due to shortages, supply chain issues and other factors.
Beyond consumer goods and services, O’Malley says he’s seen today’s inflationary economic conditions affect property and equipment values, leading to valuation gaps between an insured’s policy and the actual cost of restoring the building or equipment. With increasingly frequent natural catastrophes resulting in increasingly frequent property damage, rising repair costs are a major concern for insureds.
“We were seeing losses that exceeded what insureds had thought the value of their properties were,” he said.
It’s not just buildings that are affected, either. Merchant marine fleets have increased 26% over the past year, according to O’Malley. When gaps exist between the policy coverage and the value of an item, businesses have to shoulder the difference. Carriers can work with brokers and risk managers to ensure that their valuation data is up to date. If need be, they might be able to make adjustments in the middle of the policy period.
“We’ve made sure that we’re aligning with our brokers, in terms of how current the data is, to make sure that, if there are gaps in the data, we’re communicating that to them so that they’re engaging the insured at the appropriate time,” O’Malley said.
2) Nuclear Verdicts
Nuclear verdicts — those over $10 million — continue to plague businesses. As jurors seem to levy higher and higher awards for plaintiffs, businesses may be wondering how they can keep costs in check.
Though nuclear verdicts can affect businesses in every sector, commercial auto is one line where O’Malley has seen particularly high jury verdicts. He’s worked with his clients to implement telematic solutions to help improve driver safety and prevent collisions.
In addition to preventing accidents, telematics collect data that can help companies detect and prevent common claims. AXA XL’s partnership with the technology company Xtract can process these data points and help insureds determine what actions they can take to improve driver safety programs and prevent losses.
“We’re supporting clients that are using a number of different telematics solutions,” O’Malley said. “Not only do the telematics help to monitor what’s happening, they also provide real-time data when there is an accident or incident. We’ve really been successful in using the data to help our insureds in the support of their claims.”
Ever since a spate of ransomware attacks began driving up insurance rates a few years ago, cyber has been a top-of-mind exposure for risk managers. Technology underpins nearly every part of modern business operations.
If an attack occurs, it’s important for companies to restore operations in a timely manner to limit the cost of a claim.
Unlike in auto or workers’ compensation claims, many risk managers don’t have extensive experience responding to cyber events. Leaning on carrier resources in the event of an attack can help them respond quickly and limit the business interruption costs incurred by the event. AXA XL operates a 24/7 incident response team that can walk clients through any cyber crisis.
“One thing about cyber is that many times an organization has not experienced, say, a ransomware attack,” O’Malley said. “Having a team of dedicated experts who deal with this on a day-in and day-out basis can make sure that our insureds have the right response out of the gate.”
4) Workplace Injuries
Workers’ comp injuries have long been considered a cost of doing business. A certain number of injuries per year are unavoidable, or so the thinking goes.
But with costs of other claims rising, risk managers might take a harder look at workers’ compensation to see if they can reduce the financial strain on their retained layers. This is especially true of industries like warehousing, where injuries have increased due to the demands of online shopping. Construction, too, has struggled with worker injuries in recent years.
Carrier partners can help risk managers lead efforts to prevent injuries and thereby reduce costs. Tools like wearable technologies can help alert workers to when they’re moving or lifting incorrectly, averting common musculoskeletal injuries that could occur if the behavior continued. For the construction industry, AXA XL’s Ecosystem program has pulled together a number of pre-vetted, available technologies to help contractors manage worker safety, productivity, and talent shortage risks.
“We’re looking to help them reduce injuries to zero,” O’Malley said. “Our primary casualty team is working with a number of wearables companies to give insureds insights into their workforce so that they can better craft the workplace to reduce injuries.”
Wearables have a proven track record of reducing costs, too: “Wearables have been able to help decrease the frequency of loss over 75% on claims over $100,000,” O’Malley said. “There’s a measurable opportunity to help our insureds manage that retained layer of risk, which, again, is their largest cost.
5) Looming ESG Risks
Companies have been increasing their focus on environmental, social and governance (ESG) factor risks for the past few years. Individual elements of ESG often equate to strong practices and protocols in place that in themselves aim to minimize risks. For instance, employee safety and wellbeing is an aspect of the “social” part of the ESG equation that contributes to workplace injury prevention. Good environmental practices help business operations avoid a potential pollution incident or other environmental impact. Evaluating other ESG issues, like the environment and social justice, within your business operations equates to good business practices that can help a company build a strong reputation and may help avoid situations that can result in claims or lawsuits.
With more and more businesses making various ESG commitments, the SEC has begun outlining rules for disclosures.
“As the SEC starts to think about how to incorporate ESG reporting metrics, a lot of our risk managers are trying to figure out the best way to help inform their CFO of some of the challenges,” O’Malley said.
He added that the company is poised to help clients navigate the new terrain brought on by mandated ESG disclosures. The AXA Group has outlined its own ESG goals and the metrics it’s using to evaluate them in its “Climate and Biodiversity Report.”
“Any time you set up a plan, that’s your target goal. And you have the opportunity to explain why you exceeded or fell short of it,” O’Malley said.
How Carriers Are Using Technology to Help Reduce Risk Costs
With the costs of exposures rising in a number of key areas and in multiple types of businesses, partnering with a carrier committed to helping insureds reduce their risks is key to cutting costs and managing a company’s retained risk.
AXA XL offers a robust collection of tools, technology partnerships, tailored insurance solutions and other resources to give clients a holistic view of their exposures and what they can be doing to predict and prevent losses. They have over 400 risk consultants who help businesses reduce cyber, construction, casualty and environmental liability and other risks.
Their underwriting, risk consulting and claims teams work with particular regions so that they can provide expertise in a client’s business and the particular exposures they face.
“By having that regional focus, we have underwriters that build expertise, because they see a particular client base on a repeated basis,” O’Malley said.
The company is committed to helping clients, not just as an insurer but as a risk mitigation partner as well. The technology partnerships they’ve forged, like those mentioned above, have helped predict and prevent losses and reduce the impact when an event occurs. Consider water damage, which is the leading cause of property damage claims. O’Malley pointed to sensors installed in buildings that detect shifting humidity and water levels as yet another tech tool they’re using to predict and prevent losses.
“About 40% of claims come from water,” O’Malley said. “Technology now provides the ability to have an early warning system for humidity, pressure [and] temperature so that when we look at an overall property, there’s the ability to put flow controls on a building.”
AXA XL strives to work with clients on multiple lines of business. That way, it can provide risk managers with a holistic view of their company’s risks.
“We’re looking to grow our relationship with our clients,” O’Malley said. “There are advantages from a claims perspective in terms of having multiple lines of business together. Plus, working across all lines of business, underwriters get to build closer relationships with the risk managers we serve.”
To learn more, visit: https://axaxl.com/.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with AXA XL. The editorial staff of Risk & Insurance had no role in its preparation.