Competition is good for policyholders
New National Assurance Company writes specialised engineering and construction risks through its exclusive engineering agency, AC&E Underwriting Managers, headed up by Anne-Marie Fourie, Managing Director. She comments: “We have the backing of Munich Re in this venture – it provides additional capacity and a ‘second pair of eyes’ for the underwriting of the larger infrastructure risks such as roads, dams, energy and renewable energy (hydro power, wind generators and photo-volcaic or solar generating plants) and conventional mining and shaft-sinking.”
In terms of companies underwriting larger risks together, she says: “Competition in our market stimulates innovation, promotes best practice, keeps insurers accountable and is ultimately good for policyholders. In the current competitive engineering and infrastructure development market, it is difficult to envisage major market co-operation. Certainly for large contracts which have been around for many years, formal collaboration is not the norm. At the same time, though, in cases of mega or capacity risks, that is, where the risk value is of such a magnitude or complexity that the combined local market capacity is necessary to be brought to bear, sharing a risk is preferable to the risk being placed with foreign insurers. (In such circumstances, we believe corporate brokers have an important facilitating role to play in looking at the wider market and helping putting collaborative local deals together).
An added consideration is that, as risks become more complex, the sharing of expertise between underwriters is becoming more prevalent. New National and AC&E, for example, have found that our expertise is being sought more and more on different types of engineering risks.”
The changes to the regulation of capital have more to do with ensuring that for different types of risks, asset-liability management is monitored at a line of business level rather than at a global level as previously. As such, given the greater complexity of engineering and construction risks, and level of specialist skills required to underwrite these risks, the appropriate level of capital and reserving for this line of business will tend to be greater than for other risks (though not as onerous as for longer tail business such as liability or guarantees). While historical statistics are required, in our view 20 years is only really applicable to engineering liabilities and non-phased engineering projects, as the material damage exposures in the main are limited to a maximum of 48 months. Thus we don’t feel the regulator will be requiring statistics going back this far for most engineering exposures.
Keeping a balance
It is always difficult to balance a portfolio when you operate in a single market. The art of balancing a portfolio is done, in our experience, in three principle ways: firstly, to spread your business over a number of markets which you know well, and which will enable you to obtain a better balance. (Our strategy is to offer our target market of South African companies cover for their engineering risks throughout sub Saharan Africa and the Indian Ocean Islands.) Secondly, offer a large variation of different types of engineering risks. Thirdly, have the correct treaty arrangements in place and the underwriting experience to be able to place the re-insurance on large risks correctly.We are fortunate in having excellent partnerships that have the reinsurance relationships and knowledge to negotiate the best treaties on our behalf.
Risk management and maintenance
Ideally, the use of experienced and reputable contractors goes a long way to ensuring good risk management; but, in a recession when finance is not readily available, the temptation is to cut costs and use lesser known contractors with poorer construction techniques and materials increases, which, in turn, leads to poor construction.
A few small measures can improve risk conditions; for example, if ongoing site visits are conducted during the construction period and if necessary specialist engineers are appointed from time to time to evaluate certain aspects of the work and ensure continued risk monitoring, then risk management does improve tremendously. In our experience, engineering specialists have to be used and all major risks discussed. An engineering underwriter should also have access to the top specialists Loss Adjustors to ensure excellent claims service at all times.
New risk policies power the economy
Russell Myers, Managing Director of Mirabilis Engineering Underwriting Managers, a subsidiary of Santam, envisages change with regards to blackouts and loadshedding in South Africa. “A comprehensive green engineering insurance policy is encouraging new renewable energy companies to enter the marketplace,” he says.
The innovative one-stop-policy acts from cradle through to, and including, the day-to-day running operations of renewable energy companies. Traditionally, policies would need to be sourced for each part of the process, for example, the marine and road transport of required supplies, engineering, building, and finally operations; but now, all risks are underwritten by this single innovative policy.
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