An interview with Thomas Abel ‘There will be new types of risk’
24.08.2018 - The world of business will find itself facing new risks. Thomas Abel, a Managing Partner at Funk, talks in the interview about where he sees the greatest challenges.
Question: Digitisation is disrupting the markets at the moment. What does this mean for the insurance sector and its clients?
Thomas Abel: What’s important about this is that there will be totally new types of risk. We’re not able to know what some of them will be yet, but many can already be clearly identified.
Right at the top of the list, of course, is the cyber field. These risks manifest themselves in criminal acts, such as blackmail and extortion, data misuse or production downtime caused by hackers.
Criminals are becoming more organised and professional in the meantime. Another new area of risk is social engineering: the ‘fake president’ case is an example. Most companies have come to recognise this scam. Criminals spy on a company’s external processes, then send out emails pretending to be the Managing Director – and sometimes they succeed in getting a payment transferred to their own account. This is a question of breach of fidelity, and from our day-to-day consulting I know that our clients are generally well prepared for this. But the methods are becoming more sophisticated: the criminals know everything because they are able to spy on the system undetected for a long time. They learn, for example, that a corporate sale is coming up. And then it’s relatively easy for them to send fake emails from the Management Board, initiating an incorrect payment through the Accounting department.
How can companies protect themselves from this?
Companies should examine their lines of defence and strengthen them so they can withstand criminal attacks. The key to this is professional risk management, accompanied with preventative measures and the right risk transfer concept. And they should cultivate a healthy degree of common sense and above all encourage their employees to think critically.
Changing the subject from criminals, what new risks are arising from increasing automation, which is becoming a reality thanks to digitisation?
Take self-driving cars. In the case of personal vehicles, I think it will still be quite a while before they are ready for the market in Germany. But with commercial vehicles, it’s rather a different matter: even in a few years we may see a convoy of 30 lorries on the autobahn. The leading vehicle will probably still be controlled by a human being, but the rest of the lorries will be driverless. They accelerate and brake when the first lorry does. And naturally this poses new and different questions of liability. Who is responsible if no one is driving the lorry and it crashes? It’s a similar situation for buses in public transport: in a few years driverless buses will be traversing Hamburg’s HafenCity. Where’s the liability there? These are new matters that need to be clarified.
What is Funk’s answer to cyber risks?
We offer the Funk CyberSecure policy. We developed the wording for this policy ourselves. The policy goes far beyond the market standard, because it covers significantly more risks than most of the cyber policies on the market. Funk CyberSecure also shifts the burden of proof from the policyholder to the insurer, so that in the event of a claim, the client is spared the hassle of trying to prove that a cyber attack occurred.
How are clients responding to this policy?
Demand has risen sharply in the past twelve months, which shows that the topic of cyber risks has come up on the agenda of the management boards of most companies in the meantime. And it belongs there, because these risks can have seriously long-term impact on a company. In the course of digitisation, many working steps have become automated in the insurance industry. Will customer advisers in the insurance sector be completely replaced by digital assistants in the medium term? You could say that, but I think it’s highly unlikely. At Funk, at least, we have invested heavily in a completely new, state-of-the-art IT system in recent years – the biggest investment ever in our company history! And yet we are still hiring people – more than 100 in the past year alone. And anyway, history shows that technical progress does not automatically eliminate jobs. Before industrialisation, for example, Germany was a predominately agricultural economy, and workers had a 100-hour week. Industrialisation did cause a lot of agricultural jobs to become obsolete, of course, but other jobs arose in their place. It’s similar with digitisation. Some jobs are disappearing, but others are cropping up, too. In my opinion, Germany has one of the best education systems in the world and we are well prepared to respond to the changing needs of companies.
What role will personal interaction play in future?
Industrial insurance is complex, and a risk analysis for a medium-sized company with a turnover of, say, 100 million euros calls for a real interaction with the company and knowledge of the industry and market in question. You have to provide intensive – and very personal! – advice accordingly. Each company has different risks and a different risk bearing ability, so each insurance model has to be highly specific and adapted to the client’s individual needs. We are committed to using state-of-the-art information technology to prepare ourselves for the changing world and maintain contact with our clients both digitally and also personally at the highest level.
While technology is progressing rapidly, the political world seems to be regressing toward an isolationist mindset. Many countries are shutting themselves off, including even the USA and United Kingdom. Is this relevant for the insurance sector?
Of course. Brexit caused a small earthquake in the insurance sector. Ultimately Europe’s largest insurance marketplace is based in London, and the planned exit from the EU puts the business of many insurers established there in question. It’s no wonder that many insurers are now moving their headquarters to places like Luxembourg.
What does Funk offer its clients in terms of these new political risks?
Many of our clients operate abroad – whether they export goods or manufacture goods there. That’s why we offer extensive advice and services for protecting companies against political risks. A special service funded by the Funk Foundation is the detailed analyses of how political risks may develop in future in the 25 most important countries for the German economy. These countries include the USA, Italy, Iran and of course the United Kingdom.In its consulting, Funk works with these reports facilitated by the Funk Foundation if it makes sense for the client.
In recent years many companies have been affected by inclement weather and tornadoes. They have faced massive damage. What role will climate change play in future? Reinsurers estimate that in 2017, storms, earthquakes and flooding caused more than 300 billion dollars of damages. And these sums are increasingly becoming the norm. The fact that last year in September the USA of all countries was massively affected – despite its government denying climate change – is a bitter irony. But even if the US President continues to deny it, climate change is an irrefutable reality, and companies and insurers are facing increasingly harsher consequences.
With so many new types of risk, do you not find it difficult to remain optimistic when you think about the more extensive insurance models that are necessary?
Definitely not – quite the opposite, in fact! The world of insurance has never been as exciting as it is today. The models on the market are not always ideal for meeting current challenges, but that’s exactly where we as brokers find the space to create individual solutions for our clients. And when I see that we are giving excellent advice to our clients in difficult times and our clients are happy – what could be more wonderful than that?