Commercial Risk Europe — June 2013 by Calixa Creative

www.commercialriskeurope.com VOLUME 4/ ISSUE 5/ JUNE 2013

Commercial Risk Europe EUROPEAN INSURANCE & RISK MANAGEMENT NEWS

AIRMIC 2013: CRE caught up with the Airmic’s leading lights, past and present, ahead of its annual conference in Brighton where it is celebrating its 50th year ............................................... p3-4

RISK FRONTIERS 2013: In this issue of CRE we kick off our annual Risk Frontiers survey having begun our discussions with leading risk managers from Belgium, Sweden, Spain and Portugal ................... p10-22

GLOBAL RISK FRONTIERS Q&As: Global Risk Frontiers ’13 drew to a close last month at its one-day London conference. CRE starts a series of interviews with individual risk managers who took part in the GRF survey ................. p24-26

Ferma urges EC to leave subscription market alone Ben Norris bnorris@commercialriskeurope.com

[BRUSSELS]—FERMA HAS WARNED the European Commission that any restrictions to the subscription insurance market will work to the disadvantage of business and insurance buyers. The European federation told the EC that an attack on the subscription systems would reduce market capacity or make it more difficult to access. As was made clear during Commercial Risk Europe’s Global Risk Frontiers conference in London last month, Europe’s risk managers seek ways to increase capacity for large and

GRF 2013—1.

complex risk, not limit it. Any move by the EC against the subscription market would therefore be viewed as a serious backwards step. Ferma’s concerns were raised on 3 June in a position paper commenting on the findings of a study by Ernst & Young on co(re)insurance practices. ‘AHEAD OF REVIEW’ The study was commissioned by the EC ahead of its next review of the Insurance Block Exemption Regulation (BER). The BER grants an exemption to co(re)insurance pools from EU anti-competition rules and will expire in its current form on 31 March, 2017. The EC is concerned about the com-

petitive nature of the subscription market and pooling arrangements. In the conclusions of the 2007 business insurance sector inquiry (BISI), the Commission expressed concerns over ad hoc agreements in the subscription market regarding the practice of premium alignment, stating that ‘the mechanisms behind this general market practice are not clear’. In 2011 it therefore sanctioned the Ernst & Young study to provide a European-wide overview of the practices of pools and adhoc agreements in the subscription market. Its objective is to gain a better understanding of the rationale and the functioning of existing pools and subscription

UK.

markets throughout the EU. In its latest position paper Ferma said that the subscription market ‘plays a critical role in covering industrial risks’. Changes to its operation would be to the disadvantage of commercial insurance buyers, it added, explaining that the in-

surance market shares its concerns. “Co(re)insurance practices are part of the basic functioning of the insurance market in Europe (both the London and the continental European markets). They are the only way to find the huge financial capacities needed in the business insurance sector and no individual market players could meet these needs on their own. As it has been working properly so far and proved its benefits, it should not be hindered. Rather, it should be permitted and allowed to continue,” said Ferma. The federation points out that the first phase in the subscription process, EC SUBS: Turn to P31

GRF 2013—2.

Insurers concede UK placement changes on horizon Certification schemes controversial with claims certainty in spotlight but implementation moves closer they must up Stuart Collins game to maintain Stuart Collins their relevance Ben Norris bnorris@commercialriskeurope.com

[LONDON]—LEADING INSURERS admit that they need to up their game in order to avoid losing relevance to insurance buyers and their companies. The insurers who took part in a panel debate at the close of Commercial Risk Europe’s Global Risk Frontiers debate in London late last month conceded that the level of insurable risk is falling. In response to questions about how this trend could be halted or even reversed, the insurers called for increased discussions and cooperation between risk transfer partners. AGREEMENT Risk managers on the panel agreed with the insurer representatives that the market also needs to exploit the use of bigger and better data, particularly in order to service complex and emerging risks. Nigel Bamber One leading insurance executive boldly urged insurers to increase collaboration via consortiums and risk pools to help maintain relevance and tackle emerging and difficult risks more effectively. RELEVANCE: Turn to P31

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news@commercialriskeurope.com

[ LONDON ]—DEMAND FROM UK corporate insurance buyers for more relevant and effective insurance products could soon result in fundamental changes to the way programmes are placed, with revisions to tackle the growing threat to claims certainty heading the lists of likely developments. Many insurance buyers in the UK openly bemoan uncertainty surrounding the settlement of large claims and criticise the insurance industry’s response to emergent risks—such as cyber and supply chain disruption. There is also growing frustration over insurer and broker intransigence and their apparent inability to re-engineer business models.

[LONDON]—MOVES TO CERTIFY risk managers could prove more controversial than first thought, as some fear the discipline would not be well served by the constraints of professional status. However, supporters of certification believe professional risk managers are needed to give credibility to the discipline and help promote and drive risk management within organisations.

CLAIMS ISSUE The issue attracting the most momentum for change is the settlement of large claims. According to Mactavish, a specialist insurance consultant, insurers are taking a tougher stance on claims, using onerous clauses to void or negotiate large claims, which can take many years to settle with little confidence in the eventual claim value. The efficacy of insurance is increasingly coming into question among large buyers because claims are being denied on an even greater scale, said Bruce Hepburn, Mactavish’s Chief Executive. “There is a very real problem of claims being denied or disputed—and the more buyers hear about it the more concerned they become,” he said. Insurers have huge scope to void contracts through non-disclosure clauses and warranties included in UK insurance contracts. And although they rarely do invoke such clauses, they can

John Hurrell use them as a tool to settle disputes, explained Mr Hepburn. Mactavish has spent the past 18 months analysing the insurance arrangements of several hundred companies to gather evidence of the extent of the problem. “The evidence we have gathered over the past 18 months is mind blowing, showing systemic problems in how this industry sets out contracts with clients,” he said. The evidence gathered by Mactavish will be used to support the changes to insurance contract law proposed by UK’s The Law Commission, which could be enacted within the next 18 months (see panel p29). PROPOSALS The proposed changes, which aim to address issues with non-disclosure and warranties, will not favour one party over the other, explained Law Commissioner David Hertzell. “They are neutral and fair—but the law is currently weighted too much in favour of insurers, and the outcome is all or nothing,” he said. The legislative changes, if accompaUK: Turn to P29

WILL IT WORK? Both the Federation of European Risk Management Associations (Ferma) and a group of UK risk management bodies have been looking into the viability of certifying risk managers. Speaking at our inaugural Global Risk Frontiers Debate in London, Ferma president Jorge Luzzi said that such a move was proving ‘no easy task’. But initial discussions with other associations under the umbrella of the International Federation of Risk and Insurance Management Associations (Ifrima) had shown that the development of a global certification framework was the best way to go, he said. Likewise, the certification initiative pursued by Airmic and the Chartered Insurance Institute (CII) is progressing and will draw on existing certification schemes, standards and the work of other bodies. The Institute of Risk Management (IRM) embarked last year on a global comprehensive

review of existing competency frameworks from across all branches of risk management. The Institute believes that a clear view of personal competencies gained through both experience and qualifications is the key to a successful and respected certification scheme. IRM has spent nine months working on the project, having looked at some 70 existing risk competency frameworks from many different risk management bodies Steve Fowler around the world. Having analysed the common features, the organisation is now in a position to start developing a certification framework for risk management, said Steve Fowler, IRM’s Chief Executive. Certification would have a global enterprise risk management focus, and link directly to ISO 31000. It will be based on the four common elements found in schemes used in other professions, namely experience, qualifications, continuing professional development and a code of ethics, he said. ‘GRANDFATHERING’ Certification might ‘possibly need a grandfathering system for the grey hairs and no-hairs’ which would enable some existing risk professionals to become certified without needing to obtain further qualifications, said Mr Fowler, admitting that ‘this aspect though would need further consideration, as grandfathering was rare amongst CERTIFICATION: Turn to P29

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NEWS Airmic 2013

With Airmic set for its annual conference in Brighton and celebrating its 50th year, Commercial Risk Europe caught up with the association’s leading lights, past and present, to look at issues high on its agenda and reflect on past achievements

Airmic rides high but still looks to broaden appeal the academy and the fact we are providing more educational events and technical output than ever before,” he said. The association has certainly found its stride in providing technical support to members with a number of useful reports issued every year. It also has enjoyed great success in tackling difficult issues with insurers, such as the use of onerous clauses. Last year Airmic instituted a 10year strategy with four key objectives: to support the membership in their professional development, promote recognition of the role of the membership, drive thought leadership and successfully manage Airmic as a notfor-profit organisation.

Stuart Collins news@commercialriskeurope.com

IN ITS FIFTIETH ANNIVERSARY year, the Association of Insurance and Risk Managers (Airmic) is at a high point, according to Nicholas Bailey, Chair of the Association and Group Risk Manager at BBA Aviation. And all indicators suggest that the organisation will stay on an upward trajectory, he added. “We have a good management board, excellent secretarial team, finances are sound and membership is at record levels,” said Mr Bailey. Airmic has established itself as the ‘go-to association’ for UK insurance managers, providing insurance buyers with a forum to discuss market issues, as well as supporting members with technical publications, education and the lobbying of insurers and government on behalf of buyers, explained Mr Bailey. It is now looking to replicate this success in the broader risk management sector. “There is currently no equivalent home for risk managers,” said Mr Bailey. “But we see Airmic as the natural resource for risk managers, in much the same way as we have proved with insurance managers,” he said. MULTI-DISCIPLINE Risk management falls between many disciplines and professions. It incorporates insurance managers, lawyers, treasury, auditors and company secretaries. As a result there are many other organisations that talk about risk management, such as the Chartered Institute of Management Accountants (Cima) and the Institute of Directors (IoD). However, Airmic has recently been successful in raising its profile in the wider risk management community, explained Mr Bailey. “We are getting our name around and are well represented at the table when it comes to discussions on risk. But it is a work in progress,” he said. Roads to Ruin, a report by Cass Business School on behalf of Airmic in 2011, helped bring Airmic to the attention of the wider business community. The report looked at the biggest causes of company failure. Its study caught the eye of business groups like the IoD, which joined with Airmic to publish a guide to business risk for board members. Airmic is also supporting an ini-

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[FROM LEFT] John Hurrell and Nicholas Bailey

tiative with the Chartered Insurance Institute (CII) to certify risk managers through chartered status. The CII, already a chartered body with responsibility for the chartered status of insurance professional, is in the process of applying to the Privy Council to establish a chartered status for risk managers. Mr Bailey considers himself lucky, he finds himself in the chair at a time when the association is on a sound footing. But Airmic will need to keep moving with the times if it is to last another 50 years.

While membership at 1,100 is at a record high, there is still scope to expand further, according to Mr Bailey. “There are organisations in the FTSE 100 and FTSE 200 that are not members, and we are currently making a concerted effort to reach out to those that are not members in the hope we can bring them on board.” REACHING OUT Some large companies do not have an insurance buyer or risk manager, or the responsibility for buying insurance may be covered by the company

secretary or finance officer, who may not naturally look to Airmic. “I would like to think that we have got a lot to offer them, but we need to get the time to sit with them and show the benefits of joining other buyers and their peer group.” Airmic is also targeting mid-sized companies that tend not to have dedicated insurance buyers or risk managers. While there is scope to grow the membership, it is important to get the proposition right, said Mr Bailey. “We can point to the success of

ONWARDS & UPWARDS AT AIRMIC CONFERENCE LIKE AIRMIC’S MEMBERSHIP, ATTENDANCE at this year’s annual conference in Brighton is also at an all-time high with 400 members and another 450 non-members registered. The event, like previous conferences, will see many of Airmic’s activities come to fruition and new ones emerge from discussions. At this year’s conference Airmic will launch new guidelines and suggested wordings to neutralise the effects of Basis Clauses used in commercial insurance contracts, according to John Hurrell, Airmic’s Chief Executive. The association has been working with UK law firm Herbert Smith on the wordings, which, if used, should reduce the chances of a contract being voided because of mistakes made in disclosure. The initiative follows similar previous initiatives to deal with other onerous clauses, such as Reservation of Rights in 2012 and the Non-disclosure Clause in 2011. The association also continues to work on a planned international compliance database. It is currently in talks with US risk management association RIMS, the Federation of Insurance and Risk Management Associations (Ferma), as well as Zurich Insurance and AXCO that operate regulatory and tax compliance databases to develop the tool. An update on progress is expected during the conference.

Airmic is also due to publish its long awaited Roads to Resilience report, which follows the highly successful Roads to Ruin study in which Airmic identified the key causes of company failure. The latest report, which has been produced in collaboration with Cranfield University, considers a number of case studies that display real examples of organisations with effective risk management. Airmic has also looked into the causes of supply chain risk. It is due to publish a number of case studies, including the battery failure that grounded Boeing’s new Dreamliner, the disruption caused by the 2011 Japanese earthquake and tsunami, as well as product recalls and the failure of G4S to supply security services to the London Olympics. The report is intended to help risk managers learn from such failings and minimise the risks in the supply chain. The conference will also see Airmic publish the results of its work on risk reporting among FTSE 350 companies. The study will look at the reporting of risk strategy, communication and governance against best risk reporting practices. “Risk reporting to stakeholders and investors has become bland and repetitive,” said Mr Hurrell. The association is also working on a technical paper on the value of risk and insurance management. The study, expected to be released later this year, will give guidance on achieving claims and contract certainty.

STRATEGIC VISIBILITY “It is important to have a strategy— it gives us more visibility of where we will be in the future,” said Mr Bailey. “Airmic is in a good place right now and is headed in the right direction. Conference attendance and membership levels suggest we are doing a good job and that we are well positioned for the future.” There is a lot more continuity of management and buy-in to Airmic activities by members, said Mr Bailey. The organisation also benefits from having an effective Chief Executive in John Hurrell. He is driving the challenge to grow the organisation and our moves into the risk management space, said Mr Bailey. Mr Hurrell has been particularly successful in improving Airmic’s financial position, in part a reflection of the association’s partnerships with insurers and brokers. It now has 16 insurer and broker partners, but the association continues to seek risk management partners among consultants, the big four auditors and law firms. This is proving to be a much harder sell, admitted Mr Bailey. Education is likely to be a key issue for Airmic going forward, including the development of the Airmic Academy, which will need to be kept fresh and relevant, he said. “We want to educate, inform and promote the value of what our members do for their companies, and give them the tools to promote their value,” said Mr Bailey. It will also be a challenge to develop Airmic’s risk management offering and capabilities, while helping keep insurance managers and insurers generally relevant and valued in corporations, said Mr Bailey.

4/6/13 14:08:39

Airmic 2013

NEWS

We look back at the development of Airmic since its founding members sat down in London’s Bonnington Hotel 50 years ago

Happy 50th Airmic That high profile role continued under the next executive director, David Gamble. In the nine years he was in charge Airmic continued to grow in confidence and began to expand its support to a growing number of risk managers. Airmic was instrumental in shaping UK risk management in its early stages of development, helping establish the Institute of Risk Management [IRM] and an early set of standards. These were powerful contributions to risk management, which was increasingly being seen in terms of corporate governance, said Mr Fleming. “There was far less emphasis on risk management in the early days of Airmic but the world moved on. Corporate governance pushed risk up to the board level and Airmic began to make a more conscious move to support its members with risk management,” he said.

Stuart Collins news@commercialriskeurope.com

AIRMIC THIS YEAR CELEBRATES ITS 50TH birthday and over the last half a century it has helped insurance buyers find their collective voice as well as helping them overcome technical challenges and major market disrupting events. It is now looking to do the same for a much broader community of risk managers. The Association of Insurance Managers in Industry and Commerce (Aimic), as the Association was first known, was established by a small group of insurance managers when they met in December 1963 at the Bonnington Hotel in London. The “R” was added later because risk management as we understand it today did not exist—the term was not used in any Aimic documents until 1968. Back then there was no forum for insurance managers to meet and discuss issues from a buyers perspective, according to Nick Hughes, Director and Company Secretary of Airmic, who’s father Glyn was then insurance manager at engineering firm Vickers and one of the founding Aimic members present at the Bonnington. PROFESSIONAL DEVELOPMENT Today, Airmic is a professional body with technical staff and a chief executive. But at the start things were very different. Airmic didn’t have a full time member of staff until 1970, nor its own office until 1978. In many respects Airmic today bears little resemblance to the organisation of the past. But the principles that drove pioneering insurance managers like Glyn Hughes to establish Airmic are much the same as those underpinning the organisation today. In the early days Airmic focussed on insurance management issues, with far less discussion of business risk management than is the case today, said Mr Hughes, who is also a partner at law firm Holman Fenwick Willan. However, if around today, the founders would see little change from the Association’s original objectives, although the means of delivery have expanded greatly, he said. From the outset it was the ambition of Airmic’s founders to increase the influence of insurance managers in the market and provide them with technical support, said Mr Hughes. The need to share information was at least as important in

the 1960s as it is today. In the beginning there was a drive to share industry practices and knowledge. One of Airmic’s first technical reports covered international insurance programmes, an issue that continues to feature prominently on its agenda. Although the organisation continued to grow steadily in the following two decades, the 1990s were the next important period for the development of Airmic and for risk management in general, according to Alan Fleming, two-time former executive director of Airmic and one-time chair. Significantly, Airmic changed its membership structure in the early 1990s and introduced corporate membership, which increased its influence with third parties. This was also evidenced by the Association’s response to the IRA terrorist bombings in London during the early 1990s, and again in following the 9/11 attack on New York in 2001. Insurers responded to both events with restrictions on cover, but Airmic became the voice of insurance buyers in negotiating a solution. Pool Re, which was established in 1993 after reinsurers withdrew cover following the bombing of the Baltic Exchange in 1992, was the result of Airmic working with insurers and government, said Mr Fleming, who was the Association’s executive director at the time. “This was a very active time for Airmic and it helped changed the Association’s reputation and made it the focal point for risk managers,” he said.

FINANCIAL FOOTWORK The appointment of John Hurrell has been another boost to the Association’s activities and crucially its finances. Under Mr Hurrell, who joined after a 30-year career at Marsh, Airmic has been put on a sound footing and forged closer working ties with the insurance industry, while at the same time tackling some thorny issues. Airmic is now more confident, more authoritative and better informed, said Mr Hughes. It is also better resourced and more active, as well as more focussed following the recent introduction of a strategic plan, he said. Airmic is moving in the right direction, agrees Mr Fleming. “Insurance is still important, but as risk evolves, risk management will become a more important factor. The world is changing and quickly, and insurance is only one aspect, so Airmic will need to equip its members for a broader role in the future,” he said. However, as the Association increases its support for risk managers it will have to find the right balance between representation and education and this may mean working more closely with the IRM, he said. “I see Airmic becoming ever more in tune with the needs of its members and the activity required to support them in the global management of risk,” said Mr Hughes. “It will continue with the activities valued by members, but I expect it will expand its technical competency and focus more and more on the management of business risk,” he said. “The founders would be immensely proud of what Airmic has become,” he added.

WIKIPEDIA TYPE TOOL TO TRACK COUNTERPARTY EXPOSURE FREE FOR AIRMIC MEMBERS A NEW SERVICE THAT KEEPS TRACK of insurers and helps manage aggregate counterparty exposures is being made available to Airmic members, and could be extended to other buyers in the future. Under a deal struck with ratings consultancy Litmus Analysis, Airmic members can now track their current and legacy insurers globally, at both the legal entity and group level, for free. The information could help calculate a company’s aggregate exposure to its insurers. Corporate governance and insurance industry regulation, like Solvency II in Europe, encourage companies to correctly measure counterparty exposures, explained Stuart Shipperlee, Partner at Litmus. However, keeping track of insurers is not easy. Legacy insurance companies go into runoff, change their names and are bought and sold. Even with the ‘live insurance

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market’ it can be tricky to keep track of aggregate exposures, what with mergers and acquisitions and the complex nature of some insurance and reinsurance groups, Mr Shipperlee said. Companies own records on insurers vary enormously as people and systems change over the years, and as companies merge. Many companies have imperfect records and many rely on brokers, said Mr Shipperlee. Technology now makes a shared system to pool information on insurers a reality. Known as LUCID, the online service works like a Wikipedia for information on insurers, but with an editorial layer, explained Mr Shipperlee. “There is clearly a gap in the industry for such information, we just need to ensure that we get the execution right,” he said. LUCID is already being used by insurers and brokers, but is now being rolled out to risk managers. While insurers

are required to pay a small fee for the service, buyers receive complementary access in return for their valuable insight and feedback, which will help build the database. “As well as using the system to keep track of their own existing and legacy insurers, risk managers can also help improve and update the database. The risk management community can help by giving feedback, such as information on their insurer, or informing us of companies that they can’t locate,” said Mr Shipperlee. The service is the first publically accessible record of insurers of its kind, according to Litmus. “While the service does not provide information on insurer financial strength or ratings, it can help with the critical issue of ensuring the carrier being used is correctly identified and, for example, confirming whether it actually carries a wider group

rating,” explained Mr Shipperlee. Initially the service provides an online search tool for keeping track of insurers, but the system will be developed. “If it takes off in the way we hope it could form the architecture for sharing other data, such as news on insurers and market data. The system could be used to monitor information on insurers, claims experience, news etc., at a legal entity and group level,” he said. Litmus Analysis is in early discussions with the Federation of European Risk Managers (Ferma) about opening up LUCID to European buyers. And with many US insurers covered by LUCID, it is likely that the service will eventually be made available to US insurance buyers. “If we find other suitable alliances, such as the one with Airmic, we are open to giving complementary access to insurance buyers,” said Mr Shipperlee. —Stuart Collins

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COMMENT

NEWS Association News—Polrisk

Polrisk ups the ante

Information is king

he interviews and roundtables with risk managers carried out by the Commercial Risk Europe team in recent months have all stressed one key point: information is king in risk management and transfer. This is not a shocking revelation of course because we live in an age that is driven by the immediate and worldwide transmission of data. Key decisions are made, transmitted and acted upon at the bat of an eyelid. The success or failure of a venture, company or nation can depend upon actions that are prepared, distributed and acted upon in a matter of seconds. This of course has huge implications for risk and insurance managers. Not so long ago the job was primarily physical. The success or otherwise of an organisation was dependent upon the creation and distribution of an object. This process basically involved the most efficient deployment of resources to match supply and demand. The winners were those who spotted the demand first, worked out how to most efficiently create the product to meet that demand and then get it to market as quickly and cheaply as possible. This was a relatively simple job when dealing with local markets and control of the whole process was really not that difficult. The risk management job was basically to ensure that the process worked and that mitigation actions were prepared and acted upon when forces intervened that interrupted the deployment of resources. The rise of the global, web-based economy has changed all that. The deployment of resources has become much more complex and stretched and the management of risk is therefore that much more complex. The key tool in managing this risk is information and the winners are those that can acquire it, manipulate it and distribute it in the most efficient manner possible. The bigger and more geographically spread the company, the more critical this role becomes. Charlotte Barnekow, Head of Insurance and Risk Management at Ericsson in Sweden, summed it up neatly in the Swedish leg of our annual European Risk Frontiers survey that is published in this issue. She said: “This is what risk management is turning into—you have to be very communicative. In a way it is turning more into a management role than a risk role. It is not just about security and compliance, it is about reasoning based on common sense.” And the same principles are extended to insurance management and the business of risk transfer.

By Friederike Kriger news@commercialriskeurope.com

As production and supply chains become ever more extended and complex, the job of risk identification, assessment and measurement becomes that much more challenging. Insurers and brokers of corporate insurance will be increasingly judged and benchmarked by their ability and willingness to work with their customers to transparently gather and analyse data. As Juan José Gil Sánchez, the Risks Finance and Corporate Insurance Director at Telefónica, said in the Spanish Risk Frontiers discussion, also published in this issue: “The support of the broker and even the insurer acting as a consultant is of much help to prepare the information in such a way that it will convince the underwriter to take the risk.” Mr Gil added that he thinks that insurers and brokers have much of the data the risk managers need in their own files and are failing to liberate that information and thus help meet the needs of their clients. “We as insurance buyers need this information internally to prepare benchmarks about premiums and losses. It is very clear that insurance companies are losing to brokers the battle to provide this service to their clients. Brokers have been using their databanks to satisfy the needs of their clients by meeting the needs that we have to compare data and statistics,” explained Mr Gil. Cristina Martínez, Director of Risk Management at Campofrío Food Group, added: “As part of the services provided by insurers, it should be delivered to buyers as a report of losses, including a comparison with market averages, with data not only from the subsidiary that has written the risk, but from the whole insurance group internationally.” And, as the Spanish, Portuguese and Swedish risk managers pointed out, this enhanced analysis and sharing of data can be invaluable in the field of claims, which is the most important part of the chain after all. The overall conclusion from all the discussion and debate carried out for both the Global Risk Frontiers survey, which concluded with our recent conference in London, and the first European Risk Frontiers roundtables is that the market really needs to step up its efforts in this regard. All the key debates in the sector of late, such as global programmes compliance and insurer demands on business interruption and cyber risk, have centred on information—its availability, use and misuse. And this of course also presents a big opportunity for those insurers, brokers, risk advisers and risk managers that are able to steal a march on the competition and work out how to do this better.

Editorial Director Adrian Ladbury Tel: +44 (0)7818 451 882 [m] aladbury@commercialriskeurope.com

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[WARSAW]—Poland’s risk managers’ association Polrisk is working on major changes to the organisation as it attempts to up its game and develop risk management in the country, board members told Commercial Risk Europe during its annual conference in Warsaw on May 9 and 10. “We are transforming Polrisk into a more active organisation than it has been during the last seven years,” said Slawomir Pijanowski, President of Polrisk. “This year we developed a new strategy and we would like to shift from risk management as a label to risk management creating value,” he explained. Polrisk would like to show Polish companies that effective risk management is not just a compliance activity or an activity that produces additional paperwork for governance purposes, but one that can deliver real value, mainly through helping enterprises make better decisions. Unlike other European countries, risk management in many Polish companies is still in its infancy. This is in part because the insurance market had been soft for a long time. Companies found cheap cover easy to come by and saw no need to take risk management action to reduce risks and losses. However, this situation has changed considerably. Premiums for commercial cover have been rising in Poland for about five years, making risk management and alternative risk transfer options, such as captives, more important. Polrisk co-founder and management board representative Sylwester Rakowski does not expect prices for commercial cover in Poland to continue rising. However, neither does he expect them to decrease. “I think the prices will remain at the current level for the time being,” he said. Thus risk management will remain important. Another Polrisk aim is to promote the profession of risk manager. “The risk management profession is still not properly and adequately recognised in Poland,” said Mr Pijanowski. “We would like to develop the profession in the same way it is recognised in mature countries such as the UK, Italy, France, Germany, Netherlands, South Africa and Australia.” Polrisk wants to enhance not only the standing of risk managers, but also their knowledge. “The demand side needs to be more educated than it is now, so that it can optimise the respective insurance coverage,” he explained. Risk managers must be able to decide how much their company can absorb if a loss occurs and how much risk therefore needs to be transferred to insurers. “Then we can think about using more sophisticated insurance products, not only ‘simple’ life or asset insurance,” said Mr Pijanowski. He also thinks Polrisk should educate the Polish risk management community about alternative risk transfer measures such as captives. Captives are still underused in Poland, an issue stressed at last year’s Polrisk conference. “Polrisk has a special responsibility and has, I think, a mandate to promote greater knowledge of captive creation and captive management since there are still so few captives operated from Poland,” Mr Pijanowski said. Many risk managers consider captive creation and management a big mystery. “Few people know about captives and in fact all the advantages of captives are still not generally known,” explained the Polrisk president. Polrisk is currently in the process of acquiring supporting members from the world of risk and insurance. It is in discussions with market players such as Crawford, Lloyds, Baker & McKenzie and AIG to support efforts in encouraging the use of captives and educating Polish risk managers. “We are also discussing the required competence level for risk managers, and of course we would like to be the certification body for risk managers in Poland soon,” said Mr Pijanowski. Another important task for Polrisk is starting a discussion about the regulation of captives in Poland. Since captives are not mentioned in the country’s insurance law, there is a huge legal uncertainty for Polish captive owners and those who want to set up a captive. It is not always clear what can or cannot be done. “If you do not have a legal form you can encounter problems regarding how to organise your business from a legal point of view and what obligations you have to fulfill. There may also be tax issues,” said Mr Pijanowski. “Thus the Polish insurance act should be changed to include not CONTINUED ON PAGE 8

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Polrisk

NEWS

Polish risk managers told to adapt and sell concepts to their boards By Friederike Kriger news@commercialriskeurope.com

[WARSAW]—Risk managers can only create value for their organisation if they put themselves in the position of the management board members and the company’s employees, a consultant claimed at a recent risk management event in Poland. “We must move away from seeing the world through our eyes and start seeing it through their eyes,” Grant Purdy, Associate Director of consultancy Broadleaf Capital International, told the 50 delegates who participated in the annual conference of the Polish risk managers’ association Polrisk in Warsaw in May. Mr Purdy was the keynote speaker at the conference. He has been a specialist in the practical application of risk management for over 35 years and has helped create several norms in this field such as the ISO 31000.

‘BORING WORKSHOPS’ “One of the problems we face in the risk management profession is that we may be forced to do things which other people in the company do not perceive as value creating or value adding, e.g. getting them to complete forms and going to boring workshops,” he explained. Often the rest of the company does not understand the value that is being created through proper risk management. “This is our problem, not their problem,” Mr Purdy said. “We must change our language and our ways of managing risk instead of their ways of thinking.” It is important to come to a common understanding of risk and risk management in the first place. “There are often different views on what is risk and risk management,” explained Mr Purdy. “Unless we have a coherent and consistent view, we cannot really move forward. That is true for any organisation.” The globally accepted definition of risk is the effect uncertainty has on the company’s objectives. From Mr Purdy’s point of view, risk is not positive nor negative. “Most humans think that risk is negative, but if we do not take risks, life becomes pretty boring,” he said. According to his definition, risk management is ‘the process we use to inform decisions where we have inadequate information so that we improve the chances of obtaining our overall objectives.’ The consultant stressed that risk management

CONTINUED FROM PAGE 6 only mutuals, but also captives,” he stressed. Since the captive business differs from that of standard insurers, from his point of view a separate law for captives would be even better. With regard to Solvency II a lot of captive owners in Europe are arguing that their business is not comparable with that of standard insurers since they only insure one company in most cases. “For captive owners from the UK, France or Germany this is an important issue because they have a lot of captives and if these captives are included in Solvency II this will raise capital requirements for companies,” said Mr Pijanowski. Since there are only few captives in Poland, Solvency II is not currently much of an issue there.

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is not static. “It is a dynamic decision support process, not something you do once year for some cosy governance purpose,” said Mr Purdy. “Risk management is something humans apply every day when making decisions,” he explained. Mr Purdy used an airplane captain as an example. The captain’s primary objective is to fly all the passengers to the destination while pursuing other minor goals such as the minimization of the fuel consumption via an ideal route. Uncertainties lie ahead. For example, unexpected turbulence may force the captain to adapt to new situations and sacrifice the minor objective by adjusting the course. But the captain will stick to reaching the destination. Doing risk management in a company is the same, explained Mr Purdy. “We set off with the best intentions of achieving our objectives, we have to do course corrections and we have to change direction to adapt to risks and sources of uncertaintly in order to enable us to achieve our objectives,” he said. The outcome of good risk management is a more resilient organisation that can deal with uncertainty both internally and externally and can capitalise on that uncertainty, see opportunities and lead its market. Objectives can be achieved much faster and easier. Effective risk management is also a requirement that the Warsaw stock exchange demands from listed companies, stressed Mr Purdy. The typical mistake that companies make when they install risk management is to make it too complex. “You do not need to make it unnecessarily complex,” he told the delegates. “In fact, the more complex we make it, the more value we destroy and the more difficult it is for people to adopt, understand and appreciate the effect of risk management,” said Mr Purdy. The key to making risk management happen in an organisation is to have a proper risk management framework. “It is the essence of how we create risk management in the organisation”, explained Mr Purdy. The framework consists of two parts. The first is the expression of the organisation’s intentions. In this area the definition of standards is very important. This means ethics-based performance requirements for individuals in the organisation to ensure that there is effective risk management. “The standards should be short and crisp, so that people understand directly what they are expected to do,” Mr Purdy said. “Get away from details,

complex policies and procedures.” The organisation’s intent should go beyond policy statements. “It is characterisised much more by the actions of the managers than what is written on a piece of paper,” he said. The second part of the framework is the capacity to manage risk according to the intent. “It comes as a surprise for some organisations that just by issuing written instructions, nothing happens, people do not change overnight,” explained Mr Purdy. Practice is necessary. From Mr Purdy’s point of view, this is the area where most organisations are very weak. “Somehow we believe that a two hour power point presentation is all the training most people need on risk management,” he said. “We need a comprehensive strategy for framing risk management which means training people in risk management.” However, workshops should not be dedicated to risk management only. “We should train people in other aspects of business such as safety or financial management and integrate risk management into that,” Mr Purdy explained. “If we want risk management to become effective, it has to be integrated.” From his point of view, integration with decision making is the only way to achieve true value from risk management. “Risk management on its own is worthless, in fact less than worthless because we waste time doing it,” he said.

RELEVANCY RISK This is also the way to make risk management relevant to the rest of the organisation and overcome the unwillingness to participate in it. “People are not motivated in risk management because it is only linked to reporting and the generation of paper,” said Mr Purdy. “This feels worthless and does not create value for the organisation.” It is important that risk management is integrated into day-to-day activities. “This involves seeing the world through other peoples’ eyes,” said Mr Purdy. “We must understand how they make decisions and then look what we can do to improve decision making processes,” he added. Risk management is at its best when it is totally subsumed into the organisation’s existing system of management and decision making processes, Mr Purdy concluded at the Polrisk event.

However, Polrisk would prefer the exclusion of captives from Solvency II Another hot topic under discussion in the Polish market is the review of the European Insurance Mediation Directive (IMD2). “Beside legislation, tax and market risks resulting from the crisis, compliance risks and cyber risks which pop up from time to time, there is concern about how the IMD2 will influence the transformation of insurance and the intermediary market,” said Mr Pijanowski. Since it is still uncertain what the IMD2 will look like, the regulation poses a systemic risk for the Polish insurance market. “Everybody is keen to know what the final version of the directive will look like, e.g. if claims handlers will be excluded from being treated as intermediaries or not,”

explained Mr Pijanowski. From the risk managers’ point of view, Polrisk supports the Ferma-Bipar mediation protocol signed in 2010. “Risk managers should have the comfort of knowing whether the offer proposed by a broker really is the best choice for the company or if the broker is recommending a certain insurer or product in order to earn the highest commission possible,” said Mr Pijanowski. That does not inevitably mean that risk managers have to know the exact amount brokers are earning but they need to know how the remuneration is calculated. “We consider and treat the concerns and opinions of intermediaries with respect,” said Polrisk’s president. “The point is that we have to find reasonable solutions that work best for the market.”

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Introduction Risk Frontiers

Your call

n this issue of Commercial Risk Europe we kick off our annual Risk Frontiers survey having begun our discussions with leading risk managers from across Europe. This month we bring you highlights from our roundtables and meetings in Spain, Belgium, Sweden and Portugal. Over the next few months we will bring you the views of risk managers across Europe on what they and their companies believe to be the biggest risks, how they are managing them and what they want from the insurance sector to help them more effectively manage these risks. Risk Frontiers is not a mass-based survey carried out by impersonal email questionnaires sent to hundreds of individuals. Rather we focus on what we believe we do best: meet risk managers face-to-face and use our independent position to host lively debates that enable us to dig a little deeper. Many of the individuals taking part are leaders of the national associations, and, as such, represent their members’ interests and views. The combination of the associations’ representation and in-depth face-to-face discussion thus enables us to find out what are the key challenges and opportunities facing Europe’s risk managers currently and, crucially, what kind of solutions they seek, not least from their brokers and insurers. We will also round up the findings in a final pan-European report that will summarise the key issues. This will be published in time for the Ferma conference in Maastricht, at the end of September. This is a big effort for the CRE team and also for the busy individual risk managers who take part and we are very grateful for the time taken by all whom participate. We are also grateful for the support given to us by the national associations, which have helped organise the meetings. The project is sponsored once again by XL, which has appreciated the value of this independent project since CRE was launched in February 2010, and we thank XL for its support, without which the project would not be possible. Again this year we have Willis on board as our broker sponsor, enabling us to expand the scope of our enquiries. Both XL and Willis fully appreciate the importance of this project remaining totally independent, and we thank them for this stance. We hope you enjoy our coverage and please feel free to contact us with any queries or suggestions regarding Risk Frontiers.

Nicholas Pratt, Commercial Risk Europe’s Ireland based reporter, travelled to Belgium to host a roundtable discussion among leading Belrim members for this year’s Belgian Risk Frontiers meeting. He found that the big macro economic matters continue to dominate the corporate risk agenda

The big risks:

economy & skills shortages stay on top of the list

he discussion around the headline risks for Belgian risk managers and their chief executives focused, in the main, on the same macro issues that were the big concerns in 2012. This included the economy and the availability of credit; increasing regulation; cyber threats and data security; the battle for talent; and the need for innovation and product development. Of all these risks and for all of the risk managers, the state of the economy is still the biggest problem. For Carl Leeman, Chief Risk Officer at Katoen Natie, an international logistics service provider, it is the speed of change in the economic situation that poses the problems. “It is not stopping. It is increasing. That means that we have to take drastic steps to move with the changes in the economy,” he said. This is a global phenomenon, said Mr Leeman, rather than just a Belgian or a European matter.

GROWING RULEBOOK

“Countries all over the world are having to adapt to situations and we face more rules and regulations as we go into new territories. This is making it more difficult to operate in emerging markets. On top of that we as Europeans are also making our own life more and more difficult by inventing new rules and regulations on a daily basis. For example, the very tight anti-bribery laws in the UK could be a regulatory nightmare in other countries. But there is also useless EU regulation such as Solvency II,” he continued. Emerging markets are seen as both a risk and an opportunity by an increasing number of Belgian and European companies, said Gaëtan Lefèvre, President of Belrim and Group Risk and Insurance Manager at engineering group CMI. “We need to go outside our borders to develop new products. The problem is in finding the right market,” he said. Consequently engineering companies and other industrial companies are embarking on two to three year projects in emerging markets like Africa or Asia but stopping short of establishing a ‘bricks and mortar’ presence that involves investment in local assets.

Marie-Gemma Dequae

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RISK FRONTIERS

Belgium

Carl Leeman “At a global level, we certainly see increasingly more companies seeking growth opportunities in emerging markets,” said Rudi Casteels, Client & Distribution Leader, Benelux Region for XL Group, the project sponsor who represented the insurance industry in the discussion. “Of the 1,600 global programmes we lead, one third or more already have one or more policies in Asia and/or Latin America. We believe that this number will continue to increase, especially as a result of the eurocrisis,” he said. Another factor driving Belgian companies to look beyond their borders is a conspicuous imbalance in the local labour market. In essence, explained Dr Marie-Gemma Dequae, Scientific Advisor at European risk management association Ferma, there is a skills shortage. “Engineering schools are not growing at a rate required to realise the technical innovation that is needed. There is a problem convincing students to go into the more technical side. Every year technical services departments cannot find enough graduates to fill the vacancies they have,” he said.

WAGE QUESTIONS

The difficulties in the labour market are not limited to Belgium though, said Sonia Cambier, Risk Manager with Solvay, the international chemicals and plastics group. Asia has for many years been seen as a source of cheap labour but wages in the region are increasing, said Ms Cambier. There are also more jobs available to local workers which means that manual labour positions compete against jobs in the service industries. For example, Mr Leeman cited the difficulty of recruiting forklift operators for a factory in Singapore given that many are now choosing to work, for a higher salary, at the local casino. One positive consequence of the maturity of the labour force in emerging markets is that it may lead to a number of jobs returning to Europe and curb the offshoring and outsourcing trends that have prevailed over the last decade. For example, even countries like France, with its long history of trade union disputes, are becoming attractive domiciles for new investment, said Ms Cambier.

4/6/13 14:11:22

RISK FRONTIERS Belgium

Globalisation drives emerging risks agenda By Nicholas Pratt npratt@commercialriskeurope.com

he rejuvenation of Europe’s job market would be a timely development given that the future of Europe was cited as one of the emerging risks that is not yet possible to manage by Dr MarieGemma Dequae of Ferma. “Sub-Sahara Africa is classed by the Organisation of Economic Cooperation and Development (OECD) as a growth area but Europe is classified as a non-growth region. It also faces two huge economic issues. One is the ongoing uncertainty of the Eurozone which could result in another short-term crisis as we have seen in Cyprus or the end of the euro altogether. The other risk is more long-term, the pension deficit in many European countries that has resulted from an ageing population,” said the former President of the federation and current scientific adviser. It is another area where the economic equilibrium, between those who currently draw on pensions and those who contribute to it, is being gradually eroded. Another critical risk that is developing is environmental—both in terms of water supply and also clean air, said Carl Leeman of Katoen Natie and IFRIMA, the international federation of risk management associations. “This is an area where Europe has made relative progress by insisting on strict environmental regulations. Meanwhile, in the industrial areas of China and Russia, environmental regulations are not impinging on industrial growth but are stretching the extent of pollution and the quality of breathable air to their limits,” he pointed out. The key, said Gaëtan LeFevre of CMI and President of Belrim, is in finding a balance

between an acceptable level of industrial activity that generates enough economic growth without reducing the sustainability of the environment. In many ways, it is an ethical issue that can be related back to the labour market in developing countries and the social and environmental risks that were made all too evident following the recent factory disaster in Bangladesh in April. Aside from the human loss, there was also considerable reputational damage for the Western clothing retailers that had used the factory and the labour for the manufacture of their goods. The tragedy turned the media spotlight on the ethics of the manufacturing supply chain. Whether this critical attention on the use of manufacturing plants and factories in developing markets (and the cheap labour and poor working conditions that are commonly involved) may lead to a rise in standards or even a return to manufacturing in Europe, would depend on a change in consumer behaviour, said Mr Leeman.

ETHICS=PRICE

It would also need a recognition that a higher standard of ethics in manufacturing will have a cumulative effect on the price of goods. “Consumers have to realise that if there are jeans on sale in the high street for €7 there is no way that they have been produced in humane conditions,” he said. The realisation that higher ethical standards will have an impact on cost must also be understood by shareholders and senior management. For publicly traded companies, this may be an issue but ‘it is a completely different ball game’ for privately-owned companies, said Mr Leeman. He said that such companies are generally more prepared to take a long-term view of risk. And the bulk of

has resulted from a property/casualty event like the Bangladesh factory collapse also highlights the interconnectivity of risk, another emerging area of risk that was highlighted by the panel. “We tend to have well-defined categories of risk but increasingly these categories are connected—banking, financial, IT, reputation,” said Ms Desantoine.

INTERCONNECTIVITY

Sonia Cambier Belgian companies are privately-owned. The ability to take a long-term view of risk is not helped by the short-term use of regulation by politicians that look no further than the next election and the prospect of reelection. This is especially problematic in the financial services industry which is feeling the brunt of post-crises regulation more than most, said Sabine Desantoine, Insurable Risk Manager at financial institution ING Belgium. “The problem is that more and more regulatory initiatives are being proposed and they have to be voted and passed before the next election. When you want to change something, normally you take time to consider all the direct and indirect consequences. But in the current environment, we do not have time to react to the new regulations and the impact. They can say they have done something about it but it is the banks and the risk managers that are left to manage the impact of this rushed legislation and regulatory changes,” said Ms Desantoine. The reputational and financial damage that

The interconnectivity of risk is a central tenet of enterprise risk management, a concept which has long been evident in risk management. However this has not made risk any easier to manage by recent economic developments. “It has made life more complicated for risk managers because the risks are harder to map,” said Ms Sonia Cambier, Risk Manager with chemicals and plastics group Solvay. “It is also more difficult because of the impact. Reputation used to be seen as a separate risk but now it is something that can affect everything. The impact is felt across the organisation and not just one department,” she said. For larger organisations, this makes managing risk especially complex because of the sheer number of people involved, added Mr Leeman. “Additionally, it seems that in very large, publicly traded companies active in different countries, risk management has become limited to compliance management.” Rudi Casteels of project sponsor XL said that the increase in natural catastrophes and their broader impact as a result of the world being so interconnected is also an issue that will prompt companies to rethink their risk strategies. “Is there enough investment in catastrophe preparedness? This is a question I believe will be looked at more closely in the future,” he said.

Data sharing & transparency key to product development By Nicholas Pratt npratt@commercialriskeurope.com

n some of the new and challenging areas of insurance such as cyber, brokers are making efforts to help clients and to encourage adoption of new insurance products, said Sabine Desantoine of ING. However the insurance industry is just at the beginning of product development, whereas for a financial institutions such as ING, there is a far greater experience of cyber risks and a greater maturity in its risk management efforts. “They are trying and they are probably having success in other regions and other sectors but in our case, our experts know more than their experts,” pointed out the risk manager. Given the internal expertise that risk managers have in some of the emerging risks, maybe there is a role that they could play in disclosing more information to their insurers? “The more information you disclose, the better relationship you have with the insurer,” said Gaëtan Lefevre of Belrim and CMI. “At a minimum we need to be transparent. If the insurer is surprised by any of your activity, then you are in trouble,” he said.

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‘‘W

e will have to adjust much quicker because of social media. If you try to hide information in the event of a big a disaster, it will blow up in your face...” —CArl LeeMAN, KATOEN NATIEm There is a real need for an industry-wide database of risks that sets out a benchmark for major risks, said Dr Marie-Gemma Dequae of Ferma. “Everybody wants to know the benchmark for major risks. In the US there is a greater level of statistics but in Europe there is often a lack of up-to-date statistics from insurers because the reports take two years to be completed. “ The insurance industry could learn from the banking sector, said Dr Dequae. “What I see is a lot of work being done on operational risk. Specialist

organisations are putting together the information that is provided by the banks and allows them to benchmark their operational risk programmes.” The requirements of banking regulations like Basel II require a certain level of disclosure on risk management from banks. The adoption of greater disclosure will depend on a change of mentality among companies, said Carl Leeman. “We will have to adjust to this much quicker than we think because of social media. If you try to hide information in the event of a big claim or a disaster, it will eventually blow up in your face. Your share value can be hit very hard,” he said. Ultimately insurers can only serve clients correctly if they receive the right information, said Rudi Casteels of XL, the project sponsor along with broker Willis. “We have set up a unit called Complex Risks and it is based on the idea that if a client is facing a new risk, we put an interdisciplinary team in place to work closely with the client to understand all aspects of say, a new venture and how different risks play together. It has been welcomed because not many insurers are willing to put in the effort—but without information, there can be no solution. We are certainly also investing in analytics so we are able to share our insights with our clients,” he said.

4/6/13 14:11:30

Belgium

RISK FRONTIERS

Belgian risk managers still waiting for more joined up approach from insurers on emerging risks

By Nicholas Pratt npratt@commercialriskeurope.com

he issue of so-called ‘emerging risk’ highlights what is a clear tension between risk managers and the insurance industry, as Carl Leeman of Katoen Natie illustrated during this year’s Belgian Risk Frontiers discussion. “The issue is not whether we are happy with new insurance products for cyber and supply chain and environmental risks. It is whether there are any insurance products at all. For supply chain, it is a risk we have had for 80 years so it is not an emerging risk for us.” For risk managers, the term ‘emerging risk’ should be more accurately termed as ‘emerging insurance’. There is a belief that many of these risks, such as supply chain and business interruption, used to be provided by insurers as part of mainstream coverage but, because the nature of the exposure is changing, they are now being excluded and packaged as new and separate insurance products. This is typified by cyber insurance, said Gaëtan Lefevre, President of Belrim and CMI. “We make a lot of noise about cyber risk but I am not sure that the insurance is related to the right risks.” This is not even true of the banking sector, said Sabine Desantoine of ING. “In the banking sector we already have some existing coverage because cyber risk is just another form of fraud— computer fraud. So there is not a lot of interest in cyber risk among Belgian banks because there is no feeling there is something new in the insurance market.”

INCORPORATE

The development of cyber risk insurance is similar to the development of reputation insurance products, said Mr Leeman. This is because it is being sold as a separate, stand-alone product when it should be incorporated as part of existing coverage. “There is also a lot of confusion in the market about what is and what is not included in the coverage and there are a lot of grey zones,” he said. The approach by insurers runs in contrast to the trend identified by risk managers, that risks are increasingly interconnected, said Mr Leeman. “Insurers should be developing blended coverage where you have all types of risk in one policy.” He likened it to a sausage of risk where insurers are selling coverage as separate slices.

demands of the insurers and the commissions they provide. “The system is not working as it should. Brokers should be wholly paid by the insured and not by the insurer,” said Mr Leeman. Insurers are also to blame though. “It is becoming more and more difficult to manage your claims with insurers, although there are some exceptions,” said Mr Lefevre. “The first reason is because they are more afraid after some of the huge claims they have had in the last two years. The second reason is due to a lack of competency in the claims handling departments.” The lack of competency has resulted from a widespread cull of senior claims handlers who have been replaced by very junior staff and if there is one position that you need very experienced staff it is in the claims handling department, said Ms Cambier.

Insurers & brokers need to focus on claims as much as placement in global programmes The difficulty of having claims paid in countries separate to where policies are placed remains a big concern for risk managers with international companies, agreed the Belgian risk managers who took part in this year’s Brussels Risk Frontiers roundtable. “Without a local policy it is very difficult to have a claim paid,” said Sonia Cambier. “I would prefer to see local policies mixed with global programmes. There is too great a focus on placement where there are big teams and global centres to bring in business but not the same level of resources for claims,” she added. This uncertainty over international claims has led a number of larger firms to seek more self-insurance, especially in the energy sector where liability exposure is so large and global. Added to this is the fact that, since the financial crisis and the slowdown in investment, a number of large companies are sitting on large amounts of cash, often higher than many insurers, and would prefer to manage the risk internally rather than pay an insurer. “I think insurers are missing out on a lot of opportunities,” said Carl Leeman of Katoen Natie. “For example, there is a very low percentage of insurance in the energy market,” he said. —Nicholas Pratt

Gaëtan Lefèvre For example, cyber risk should be part of a fraud policy and environmental risk should be part of a liability policy but instead they are being sold as separate policies, or slices to stick with the sausage analogy. Inevitably, said Mr Lefevre, this creates a gap in coverage between the two policies. Whether a risk that used to be simple but has now become more complex is blended into a package or separated, the issue for insurers is appropriate pricing, said Rudi Casteels. “Many risks have been around for a while but their dimension has changed and this needs to be looked at closely.” While full-time insurance managers are able to identify the gaps that Mr Leeman referred to and press their insurers for the type of products that meet their demands, the same luxury is not available to smaller companies. Consequently there is a real risk that many of them will wrongly believe they are insured for certain exposures—a realisation that will only become evident when they suffer a loss and try to claim, said Sonia Cambier of Solvay. “And when claims are not paid, this hurts the reputation of the insurance industry,” she pointed out.

SERVICE QUALITY

If risk managers are unhappy with the provision of insurance as separate products rather than a blended policy, they are also frustrated with the quality of their claims service. The blame lies mostly on the brokers, according to the risk managers, who are sometimes conflicted in their interests, and feel they have to balance the demands of the insureds and their claims with the

‘GREATER TIMIDITY’

According to Mr Leeman, the change is indicative of a wider trend across larger companies in all industries of a greater timidity and aversion to action. “People do not want to take decisions any more. They want to be covered or backed up by 20 other people. They do not want to ask difficult questions of their superiors and the fear of being fired reigns on the shop floor. They are not creative and they have to stick to very tight procedures. Internal audit is always around to cut off the heads and hands of talented people who dare to think out of the box. “This is a sad evolution and it is a difficult condition to operate in and one that causes much more stress than a high production regime. The bulk of the western economy is shooting itself in the foot with its obsessive regulatory behaviour. Don’t get me wrong, we should not go back to the Wild West but a little bit of that spirit would be good for our economic future.” There are exceptions. The marine insurance sector was cited by the panellists as one area of the insurance industry where there are still experienced claims handlers and underwriters, a greater reliance on trust and a willingness to find creative solutions. Although the marine insurers were not immune to criticism from the panellists, especially for claims that are made in countries different to where the policy was placed. In defending the insurance industry Mr Casteels said: “We are convinced that service is important to clients, especially as we have seen some clients move to another carrier based on price but then come back to us for the service. Of course, experience and service come with a price tag.”

Market outlook flat but SII could prove a trigger By Nicholas Pratt npratt@commercialriskeurope.com

hen asked to predict any movement in rates for the coming year, there is an innate reluctance from risk managers to comment. To predict that rates will decrease is to tempt fate and to predict that they will increase is the beginning of a self-fulfilling prophecy. “We expect the market to harden each year but we have yet to see it, so it is difficult to foresee. It can also vary from sector to sector,” said Mr Lefevre, President of Belrim and risk manager for CMI. “For the last two years the financial industry has been hit very hard but it could be another sector this year or next,” he said. There is also an expectancy, said Ms Desantoine of ING, that insurers will face increased costs from the eventual introduction of Solvency II regulations as well as the reduced value of their investment because of the low interest rate environment. There are broadly two solutions for the insurers, to decrease their costs or to increase their premiums. So a lot will depend on the claims experience. For years insurers have been compensating their claims costs through the return of their investments but with a low interest rate environment and poor performance in the

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investments, there is a possibility that insurers will have to compensate for this reduced income through higher premiums. On the positive side, there is still plenty of capacity in all lines and plenty of competition, said Ms Cambier of Solvay. However, as Mr Leeman of Katoen Natie said, the spectre of Solvency II threatens to upset the positive outlook. “We have been saying for years that Solvency II is a bad thing for the industry. The only ones to benefit will be the consultants and accountants and lawyers; everyone else is a loser, including the clients. Now insurers have one technical argument to increase their rates. Without Solvency II there would be no technical grounds to increase rates other than their own financial results,” he concluded. Head: Service: Local treatment, better information and multi-year contracts on the shopping list The risk managers who take part in this year’s Risk Frontiers survey are being asked what they would you like insurers and brokers to focus upon in the key area of service generally. Ms Cambier of Solvay said that she would like to see greater local servicing from insurers, not only in the placement of insurance but in claims handling. This is a view supported by Mr Leeman of Katoen Natie. “If an insurer provides coverage in one country it should pay

claims in the same country,” he said. Dr Dequae, Scientific Adviser to Ferma said she would like to see a greater use of internet-based information services from insurers and brokers. “This is one area where the insurance industry has lagged behind. They are not good at providing information such as risk information, claims follow-up and premium information,” she said. Mr Casteels of project sponsor XL conceded that the insurance industry in general was slow to embrace the integration of technology into the service side of things. But he added that XL is quite proud of the global claims platform it launched last year in order to serve clients more effectively. “We’ve won awards with it,” he said. For Mr Leeman, the availability of multi-year contracts in all markets would be a welcome development. “I think it is a waste of resources to renew every year. In Europe there are lots of multi-year policies but in the US and Canada we cannot get around this. It also makes sense for the insurers. They want to price the risks properly so they use models and put engineers on each policy but how can that be economical if they lose that client after a year? It should be a multi-year commitment from both parties, client and insurer, so everyone can concentrate on the real risk and client service instead of doing the same stupid and useless insurance renewal exercise every year over and over again,” he said.

4/6/13 14:11:37

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4/6/13 14:06:20 20.02.13 12:48

Spain

RISK FRONTIERS

Cyber RISK & sOCIAL cOnFLICT TOP AGENDA IN SPAIN Cyber risks and social conflicts rank among the most pressing emerging risks for Spanish companies, according to participants in the recent Risk Frontiers survey roundtable in Madrid. Rodrigo Amaral reports

uring a lively debate hosted at the headquarters of project sponsor XL in the Spanish capital, leading risk managers highlighted the importance of emerging risks such as such as environmental liability and the fact that finding adequate and affordable insurance solutions often remains a considerable challenge. “Emerging risks that can cause us grievances are all those related to the management of data and information,” said Cristina Martínez, a member of the board at IGREA, the risk management association with which the meeting was organised, and the Director of Risk Management at Campofrío Food Group. “We can call them e-risks as they refer to the type of risks linked to new ways of communicating, managing and storing information,” added Ms Martínez. She noted that the sheer amount of data that companies need to deal with today makes the management of these risks particularly challenging. “We receive much more information than we are able to manage,” Ms Martínez said.

DATA STANDARDS

“Maybe we do not put as much emphasis as we should on how this information is created, on the standardisation of data, especially in international companies where there is a need to consolidate and to aggregate lots of data,” she explained. Ms Martínez added: “Another issue is the existence of new ways to communicate, not only within the company itself, but also among our customers. It is important to take into account the speed with which information is communicated between one consumer and another and the strength of social media. The way a company manages a crisis related to negative mentions of its brands or products on social media requires a different approach and

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much more agility.” Miguel Ángel Zarandona, a Vice-President of AGERS, the risk management association, and the Director of Risk & Insurance Management at retail giant El Corte Inglés, pointed out that cyber risks have been a worry for a long time within his group. “It is fashionable to talk about IT risks, but they are not just a fad, they are for real,” he said. “Especially for a company like us, as the opportunities created by the online presence of the brand are just tremendous.” But so are the risks. “In our case, the risk catches us from all sides,” Mr Zarandona pointed out. “We have stored all kinds of data about clients, we provide consumer credit, and we have a complex supply chain, with lots of third parties that can be the targets of cyber crime or even hacktivism.” Companies do not even need to be active in the IT sector or have an important presence on the internet to be affected by the problem, participants noted. “The threat of cyber risks is present not only for companies with a strong presence online,” said Agustín Barrenechea, a general subdirector at Willis in Spain, the broker sponsor of this year’s survey. “A cyber attack can hit a company indirectly too. For example, if hackers target the sources of electricity to a firm, this company can suffer severe problems. We need to think about such risks,” he said. Participants also noted that transferring this particular set of risks to the insurance market remains a tough challenge, not least because buyers themselves are still learning about them. “There are coverages against cyber risks available in the market, some of which are already very much standard,” said Juan José Gil Sánchez, a member of IGREA’s board and the Risks Finance and Corporate Insurance Director at Telefónica, the telecommunications group. “But in general, in order to buy such coverage, you need to have a good internal understanding of the risk, and insurers need to

Cristina Martínez know what your exposures are and how you are mitigating them. And in the case of large corporations, the fact is that this is a coverage that needs to be tailor-made in basically all the cases.” But he said that progress has been made in the segment in recent years. “We have had cyber risks coverage for several years already, and we have changed it gradually in the course of the years,” Mr Gil said. “Insurers have been offering ever better coverages, and there is more capacity in the market today,” he added. Emerging risks faced by Spanish companies are not restricted to the virtual world. Spain is going through a difficult period. The economic crisis increases social discontent in the country and this is also an issue for risk managers to worry about, Mr Zarandona said. “One emerging risk that is hard to find a solution for is the increase of social conflicts. We are going through an increase of this phenomenon, and this is something that is related to the topic of social activism,” he said. “Social conflicts are affecting areas that range from education or client culture to strikes and the interruption of the activities of companies,” added the risk manager. Dealing with suppliers is another

important risk, especially following several dramatic experiences that have confronted Spanish companies of late. “One emerging risk that is a concern and where insurance solutions have room for improvement is supply chain,” Ms Martínez said. “We believe that in the current context, there is a growing complexity involving the number of suppliers working with us. Not only do we need to take care of our own activities, but we need to be able to manage the activities of all the suppliers that directly or indirectly are involved in our supply chain.” For his part, Iván Delgado de Robles, the Risk Manager at ACS, a construction and concessions group, expressed concern about the way the market is meeting demand for alternatives to transfer environmental risks.

POOR COVER

“I see a scarcity in the offer of solutions for environmental liability risks in Spain today,” he said. “The variety of environmental liability coverages available is poor, especially compared to other segments of the market. Maybe the reason for this is that we have an environmental insurance pool in place, but it helps little or not at all. Few companies offer coverages for this risk, which is of little frequency although losses can be high, and I think insurers could collect more premiums in this segment.” ENCE, a pulp producer, also has to pay attention to environmental risks, but Director Angel Cea voiced a more positive view about the response of the market to the needs of his company. “I believe I have got good advice in the environmental insurance sector,” he said. “Our current coverage provides us an answer to the challenges presented by current legislation. We transfer part of the environmental risk we are exposed to, which is the one linked to third party liability, and we retain everything that is related to the image of the company.”

4/6/13 14:10:42

RISK FRONTIERS Spain

Little sign of hard

market in Spain

Rodrigo Amaral ramaral@commercialriskeurope.com

[madrid]—Spanish risk managers do not fear the risk of insurance rates rising in the country, even though signs have been reported of a hardening market in some lines across the world. “Studies have shown that there is ever more capital coming into the reinsurance market, as it is delivering better returns than fixed income and other assets,” said Daniel San Milán, President of Igrea. “In general, I think we are moving towards an even softer market,” he added. In addition to the availability of capital, fierce competition is also keeping rates in check in Spain, according to Iván Delgado de Robles, the Risk Manager at ACS. “Insurance companies are working very hard right now to collect premiums,” he said. “I’ve seen things in the market that were not seen two or three years ago. So it sounds unlikely that any company could believe that it is a good idea to raise rates in areas like property and civil liability,” he added. “The Spanish market is very mature,” pointed

“W

out Agustín Barrenechea, a general subdirector at Willis in Spain. “We are seeing at the global level that rates are hardening gradually in almost all insurance lines, and that this correction has been met with some acceptance from buyers. But the Spanish market is so competitive that the situation can be different here. And I do not see any signs that it is about to change.” There is one important exception to the rule, however. “An area where the market has been hardening in Spain is financial institutions,” said José Ramón Morales, the Client and Distribution Leader, Iberia, at the XL Group. “Some insurers have left the market, others have reduced Barrencechea, willis their risk appetite as a result of the developments in the Spanish financial sector.” He also stressed that there are signs that other corners of the market are starting to move outside Spain. “We observe that in some territories more brokers and clients increasingly accept the need for rate increases,” Mr Morales said. “For example, I understand that this was evident in the US at the recent RIMS conference in Los Angeles. It is also happening in some markets of Central Europe,” he said.

e are seeing at the global level that rates are hardening gradually in almost all insurance lines, and that this correction has been met with some acceptance from buyers...” —Agustín

Spanish risk managers worried about ‘legalisation’ of claims Rodrigo Amaral ramaral@commercialriskeurope.com

[madrid]—Participants OF this year’s Risk Frontiers roundtable in Madrid expressed discontent about the way claims are serviced by their partners in the insurance market. “Insurers are increasingly turning claims into a legal matter,” said Ivan Delgado de Robles, the Risk Manager at construction and concessions group ACS. “When we report a loss, the answers we usually receive from our insurers appear to have been written by a lawyer. I’ve been noticing that this is happening today much more frequently than before. We have had to spend more effort justifying and negotiating our claims. I understand that insurers have their issues as with any other companies, but the truth is that the servicing of claims has become much more heavy-handed of late.” Daniel San Millán, the President of Igrea, stressed the importance of the efficient flow of information, which is often lacking during the claims process. “I believe it is possible to improve the service of claims,” he said. “I think there is a lack of communication between

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the underwriting and claims departments at insurance companies. I would ask them to make an effort in the sense that those departments talk to each other before there is a conflict. The fact is that it is not easy to interpret the meaning of insurance policies, and this a problem with the insurance sector. So the best course is to avoid that conflicts take place altogether.” He also urged brokers to employ talented professionals in their claims departments and not use the service as a mere stepping stone for other positions. “Brokers can make an effort too,” said the Igrea President. “I would request, for example, that when there is a good professional working at the claims departments, please do not transfer this person to sales. That is what usually happens after a few years.” Cristina Martínez, Director of Risk Management at Campofrío Food Group, made a similar point. “I believe that, in general, specialised departments that deal with claims do not have the prominence that they should have in renewal processes,” she said. Claims service has been a concern for IGREA, which has recently released a guide of good practices that the association hopes will become a reference for

the market. “Our guide reflects clear gaps in the distribution of responsibilities between the parties involved,” said Ms Martínez, who is also a member of IGREA’s board. “It is necessary to allow other experts to get involved with the process and to clarify the role of loss adjusters. The traditional, obscure ways of servicing claims must be left behind,” she added. Participants of the roundtable also complained about how difficult it can be to obtain data about losses, a process that could help make claims processes more efficient. But Ms Martínez reported that risk managers are coming together to try and fill this information gap to some extent. “We have been trying to organise regular meetings to share experiences of incidents,” she said. “For us at least, it is as important to have information about losses of higher frequency and low impact, as about those with small frequency and high impact.” Ms Martinez added: “Insurers could help us here by sharing information, albeit not confidential, about the loss experience of certain industries. But it is a complex thing. No one feels comfortable making public sensitive information about one’s own company.”

sPANISH COMPANIES ADAPT TO NEW CHALLENGES ABROAD Spanish companies continue to look for new sources of growth abroad, and as a result they have to face the risks attached to a more global profile, according to leading risk managers in Spain. Rodrigo Amaral reports from the Risk Frontiers meeting in Madrid “We pay much attention to the risks created by the increasing internationalisation of our group,” said Daniel San Millán, the President of Risk Management association IGREA,, and the Risk Manager at construction and concessions group Ferrovial, during this year’s Risk Frontiers roundtable in Madrid. “About 90% of our EBITDA already comes from foreign markets, and we are always looking for new opportunities,” he said. “The challenge of managing this process is something that concerns both our CEO and ourselves at the risk management department.” Mr Millán added: “The change of direction that is required by an internationalisation process Daniel San Millán generates a number of risks, both insurable and non-insurable, that need to be managed via an efficient ERM program.” “An emerging risk that worries us is political risk,” pointed out Ivan Delgado de Robles, the Risk Manager at ACS, another construction and concessions group. “We are also a very international company and there are some countries where we have to make a very careful study of political and regulatory issues to assess whether it is a good idea to participate in tenders.” He added: “A case in point is Brazil, which has been targeted by several Spanish companies. Even though there is a construction boom going on in Brazil, we have not taken a step forward to get into tenders, and it is mostly because of political and regulatory risk.” In addition to their global presence, Spanish companies face a difficult economic environment at home. This compounds the challenge for the risk managers. “The main risks that we face nowadays are fundamentally three,” noted Juan José Gil Sánchez, a member of IGREA’s board and the Risks Finance and Corporate Insurance Director at Telefónica, the telecommunications group. “The first one is economic stagnation, especially in some parts of the world. The second is the technological evolution towards a strong digitalisation of all our activities. Finally, there are regulatory pressures. We work in a highly regulated sector and decisions made by regulators in each country where we operate are very important for us,” he explained. A growing regulatory burden, arising from European as well as domestic laws, is also on the list of worries expressed by Ángel Cea, a Director at Grupo ENCE, the group engaged in the production of cellulose pulp and solid wood products, as well as in the production of biomass-fuelled renewable energy. “We basically produce pulp for the production of paper, and for this reason regulatory changes, especially those concerning the energy sector, constitute a major risk for us,” he said. “We have taken a look at alternatives to transfer this risk, but we have yet not found the right conditions in the market,” he added. The prevalent economic and financial instability constitutes another source of concern for Mr Cea, whose company sells its products mainly to export markets. “We produce a commodity, and as a result pricing is out of our control,” he said. “Pulp prices are defined by the larger producers. Price volatility and currency risk are therefore issues that we work actively to mitigate.” Participants also stressed that risk managers need to stay on the same wavelength as their bosses. “A risk that is common to all of us risk managers is to be out of line with what our CEOs want,” said Miguel Angel Zarandona, a Vice-President of AGERS, Spain’s risk management association. “It is incredible, but the truth is that sometimes we do not have any idea of what our CEOs think.” He added: “A real risk is an incomplete alignment between a strategic approach and the tactical decisions required to make it work.”

4/6/13 14:10:50

Spain

RISK FRONTIERS

Access to market information still A big issue Rodrigo Amaral ramaral@commercialriskeurope.com

[madrid]—Spanish risk managers want more access to data gathered by insurers and brokers but they also believe that a vital step towards a good flow of information in the market is an effective implementation of their own internal communication channels. “For almost every company the main problem is to strengthen, within its own organisation, the knowledge of the key mechanisms linked to the coverages that it needs,” said Juan José Gil Sánchez, the Risks Finance and Corporate Insurance Director at Telefónica, the telecommunications group.

DATA SHARING

He stressed, however, that insurance market partners also have an important role to play in this process. “Our experience is that the support of the broker and even the insurer acting as a consultant is of much help to prepare the information in such a way that it will convince the underwriter to take the risk.” Buyers would like to make use of information to elaborate benchmarks and other compilation of data to support their daily toils. Mr Gil thinks that insurers and brokers have much of the data they need in their own files, and are often failing to meet the needs of their clients in this area. “It is clear that, when it comes to large risks, in the big industrial sectors, there is a lot of valuable information that is held by insurers and, to a lesser extent, by brokers,” he said. “We as insurance buyers need this information internally to prepare benchmarks about premiums and losses. It is very clear that insurance companies are

14_CRE_Y4_05_RF_Spain.indd 16

“I

nsurers increasingly make use of actuarial studies to define the premium for large risks. Some of them have set specific ranges for the premiums charged in certain sectors, of which almost no buyer can escape...” —JUAN JOSé gil SáNCHEZ, TELEFóNICA losing to brokers the battle to provide this service to their clients. Brokers have been using their databanks to satisfy the needs of their clients by meeting the needs that we have to compare data and statistics,” explained Mr Gil. He added: “Insurers increasingly make use of actuarial studies to define the premium for large risks. Some of them have set specific ranges for the premiums charged in certain sectors, of which almost no buyer can escape. And we as risk managers are kept completely without access to this information.” “I understand that the information that I provide in the case of a loss belongs to my company. So I have always supported that we should have access to loss adjuster reports, as they are drafted based on information that we have provided,” said

Cristina Martínez, the Director of Risk Management at Campofrío Food Group. “As part of the services provided by insurers, it should be delivered to buyers as a report of losses, including a comparison with market averages, with data not only from the subsidiary that has written the risk, but from the whole insurance group internationally,” she pointed out.

CONFLICTS OF INTEREST

For his part, Ivan Delgado de Robles, the Risk Manager at ACS, expressed concerns about the handling of sensitive data by brokers, especially in ultra-competitive international tenders that can be decided by any small advantage held by one of the companies involved. “In the early stages of international tenders, we often have to share information with brokers that is very important, as it can win us a project. So I always ask my brokers if there are any conflicts of interest, such as the possibility that they are already working for other participants in the same tender,” he said. “Brokers answer that, if that is the case, they have ‘Chinese Wall’ policies in place, and they assign different teams to deal with each client. Even then, however, if there are alternatives available, I prefer to avoid the risk. The teams are different, but they use the same offices, the same equipment, and this is something that worries me,” said Mr de Robles. Miguel Angel Zarandona, a Vice-President at AGERS, the risk management association, urged a higher level of collaboration between companies in order to promote the flow of valuable information about the market. “It is of essence to promote networking among insurance buyers,” he said. “This is where associations like AGERS and IGREA have an important role to play.”

4/6/13 14:11:08

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4/6/13 16:05:00

Sweden

RISK FRONTIERS

BEN NORRIS attended the Swerma conference in late March in Stockholm, Sweden and took the opportunity to meet and interview a number of Swedish risk managers for this year’s Risk Frontiers survey. He found that cyber and supply chain risk top the agenda. Information needs are also a hot topic in Sweden as elsewhere in Europe

Cyber and supply chain top concerns for Swedes C

YBER AND SUPPLY CHAIN risk are seen as the big and emerging risks by Swedish risk managers who took part in this year’s European Risk Frontiers survey. Although they note improvements have been made to cyber cover, Sweden’s risk managers remain unconvinced by the solutions on offer and the risk industry’s ability to fully grasp this growing threat. On supply chain and nat cat risk, particularly in terms of contingent business interruption exposures and cover, the risk managers partly understand demands from insurers for improved data from corporates to continue the supply of risk transfer options. But they appear somewhat frustrated by the level of demand placed upon them and some suggested a different approach to try and solve this global conundrum. “Cyber risk is something that needs to be looked at. Cyber risk means different things for different companies. Five years ago for us most of our key risks were mechanical but now we sell more and more electronic and mobile solutions. So how to assess those types of exposures and how to manage those and what type of insurance capacity is out there for those risks nobody really comprehends,” said Fredrik Finnman, Swerma’s President and Group Risk and Insurance Manager at ASSA ABLOY, who rates cyber risk as one of the scariest emerging risks yet to be fully indentified, measured, managed and transferred. Gaps in coverage for cyber risk, and some other insurance lines, exist because insurers tend to sell ‘off the shelf’ solutions rather than analysing insureds’ individual needs and situations, added the risk manager. “They don’t tend to map the risk and then come up with a solution. I think a lot of the products are more off the shelf, certainly in terms of cyber. More discussion is needed in order to get a product that works in real life,” he said.

CYBER=CYPHER

Lennart Edström, Vice President of Group Risk Management at Electrolux, the multinational household and professional appliances manufacturer, agreed that cyber risk remains one of the major risks that organisations face today and can cause confusion. He conceded that it is ‘very hard to fully understand our company’s risks within the cyber area’. “If I cannot come up with a clear and specific description of what I am talking about on cyber I have a hard sell internally. So it is a concern that grows more and more but it is still hard to grasp. If you ask 10 people what cyber risk is my guess is you will get 10 different answers. For example, if you ask someone from IT as opposed to the operations side you will get different responses—so it is difficult,” he explained. But this confusion is not helped by the fact that risk transfer partners appear equally

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stumped over cyber risk and are falling short in this critical area. There are a lot of suppliers and consultants who talk about cyber risk but it is very hard to understand exactly what they are selling, said Mr Edström. Although he believes the market is making progress. “I am gradually getting slightly more interested in the products. A year, or two years ago, I was not even interested because sellers were not able to communicate their products—where were the triggers, how was the cover designed. If you buy that cover and you communicate that internally people think we have cover and never see the exclusions. But if the insurer doesn’t fully understand how it should be handled in a claims situation how can I have the confidence to buy? I think the market needs to mature a little more before we go in. So if the board asks me are we covered for cyber risk I would say not—we have to manage the risk ourselves,” said Mr Edström. “I have my ear to the ground on cyber cover and there are positive developments but it is taking time. I also think you need a few claims as well to really develop the market—so people actually see there are payouts.” For her part, Charlotte Barnekow, Head of Insurance and Risk Management at Ericsson, the provider of telecommunications equipment, data communication, television and video systems, argued that cyber risks are difficult to pin down. “You have to pin the risks down in order to deal with them correctly. I think sometimes with a focus on enterprise risk management you lose the details and the devil is in the details when you deal with risk management,” she said. “We are now a society that deals in IT and I would say we are still immature in understanding how to deal with that. With this overflow of information, people struggle to find their way through and can’t see the wood for the trees,” added Ms Barnekow. Whilst new specific cyber transfer products are emerging, Ms Barnekow said she prefers opting to look at existing coverages and tailor those to her company’s cyber transfer needs. “I think, as we always have done, we need to continue working with existing coverages to mirror the new risks that we have—including cyber,” she argued. Ms Barnekow also noted that forthcoming changes to EU data protection rules that aim to better protect consumers will put a lot more pressure on companies to communicate, inform and notify in cases of a data privacy breach. This will be ‘very costly’ and add to the cyber threat, she said. On developments in coverage for key areas such as cyber, Anders Esbjörnsson, Group Risk Manager at construction firm NCC Försäkring AB, is ‘fairly’ content. Insurers, and perhaps more crucially brokers and consultants, are driving market changes more rapidly than used to be the case, he argued.

“When I started at this company 10 years ago it was more the case that the insurers had a package that you could buy. Now risk transfer partners look into companies, assess our needs and you work with a broker to package your company’s risk and get quotes from insurers with solutions that fit your purpose, rather than us buying what insurers have in stock,” he said. The other big risk currently, according to the Swedish risk managers, relates to the supply chain and contingent business interruption in particular. There is increased demand for risk managers to supply more detailed information to insurers in order to obtain full cover for these exposures. Swedish risk managers understand this development but there are concerns over the level of detail required.

DIGGING DEEP

“I fully understand why insurance companies are asking all of these questions. I think they are doing the right thing as it forces us to dig deep within our own organisations,” said Mr Edström. “The question is how far down [the supply chain] can you go and how far down will the insurance company ask for information,” he said. Mr Edström added that requests for sensitive information must be dealt with accordingly by insurers. “On CBI some of the information required by the insurers will be business secrets. When handing over this type of information we must ensure we have the right non-disclosure agreements in place.” But Ms Barnekow was less understanding of insurers’ demands for information on supply chain risk and is concerned that sub limits are being enforced and already limiting cover. For larger corporations the provision of detailed information on suppliers is problematic because they constantly change as a result of efficiency drives, she said. Ms Barnekow argued for a different approach from insurers whereby they monitor risk mitigation systems and practices rather than demand the finest of details. “It is important that insurers understand the risk but not necessarily as a result of zip code level detail. The information and risk assessment could just as well be found in the processes an organistaion has in place to actually procure a service or component. Proving that as an insured you have a solid process, good crisis management systems and cultural mechanisms in order to act immediately in case of earthquake or flooding or a supply chain issue is what I am talking about. That is the information that insurers should look at. Some do this but not always. You rather hear this noise about detailed information and uncertainty driving prices,” she said. Mr Esbjörnsson of NCC also bemoaned

the fact that insurers demand more and more detailed information. He did concede, however, that it does afford a better understanding of risk. “Since I joined my company all insurers and reinsurers, no matter what line we are operating in, want more and more information from us on a much more detailed level. This is even the case on risks that we directly insure in the captive—so even for reinsurance they ask for as detailed information as they would do for direct insurance,” he said. “Half of the extra work we are forced to do in terms of reporting is not always necessary and adds value to us. There is some wastage and some overkill for sure,” he added. But it gives us a better understanding of our own company, he continued, adding that the extra time and effort pays off in reduced premiums. “This carrot is necessary of course because those companies with a good loss ratio that shows it has control over its risks should, and does, get a benefit on the premium side,” he said. Mr Edström also believes the supply of information is a two-way street and insurers could do more to provide insureds with better risk information. “We are feeding the information to the insurers on our risks as much as we can but I would also like to have the information available from the other side… They have a lot of information that I would like to get my hands on, or have a partner at these insurance companies with whom I can discuss how they look upon nat cat risks of clients. I could then use that information internally,” he said. “If we are planning a factory somewhere I would be extremely happy to go to the insurer and say okay we have these four sites, what is your view on them from a nat cat point of view? They have this information but there is not a natural flow to us as buyers. I don’t think they are unwilling, it is just not part of their practice. That would be good cooperation,” he added.

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RISK FRONTIERS Sweden CLAIMS SERVICES GET THUMBS UP BUT RISK MANAGERS DEMAND MORE FOCUS Swedish risk managers who took part in this year’s Risk Frontiers survey appear to be generally content with claims services provided currently. But they noted that the level of service can depend on the market covered or the country in which the claim originates. They also called for more focus on pre claims scenario planning. BEN NORRIS reports from Stockholm LENNART EDSTRÖM, VICE PRESIDENT OF Group Risk Management at Electrolux, told Commercial Risk Europe that he is generally happy with the claims services provided by risk transfer partners. But he added that this can depend on the insurance market with which buyers are dealing. “If you are just looking for the cheapest possible capacity, some Bermudan companies, cheap capital that goes in and out of the market is available but you will have a problem when you have a claim because they don’t really consider paying claims. They will put their lawyers on the case to try to get out of the claim and then they will run. So we are always looking for long-term relationships—companies that we know and that understand us and will help us in the event of a claim. And we have really good partners,” he said. Charlotte Barnekow, Head of Insurance and Risk Management at Ericsson, also reports a positive claims experience. She stressed the importance of early claims scenario planning and feels more can be done in this critical area. “It is not the limit that should be discussed when you are entering an insurance contract but rather how will the product be delivered in a claim, who will be there and how are you going to coordinate all insurers together in cases where there a number of insurers or reinsurers on the risk,” she stressed. “You cannot have twenty different insurers debating if something is covered or not, you need to give the authority to a lead or a panel. That pre claims discussion must take place well in advance of any loss. I think a lot is talked about this but then other things take over, and although as a risk manager you might want to prioritise this discussion it doesn’t always, or even often, take place,” she added Anders Esbjörnsson, Group Risk Manager at construction firm NCC Försäkring AB, said he is happy with claims services and praised insurers and loss adjusters with which he has worked. However he raised doubts as to whether this experience would extend to all countries around the world. “Of course we have had hard discussions with insurers or reinsurers from time to time, generally on the bigger claims, but it is a mature business and loss adjusters and insurers are professional. When there is a large claim you look into conditions and the contracts and act professionally. So I would say that the loss adjusters and insurers we work with are really good. So I am more than happy. But we operate in a region where we are familiar with the culture, which makes things easier, so I would guess that I may have answered differently if I had business all over the world and was trying to solve losses in India or China,” he said. Like his fellow risk managers, Fredrik Finnman, Swerma’s President and Group Risk and Insurance Manager at ASSA ABLOY, has no real complaints over claims services and payment. But he noted that problematic delays can be caused by a lack of authority at local insurers. “A couple of years back we had a problem with one of our insurers but that was not so much to do with the acceptance of the claim but rather the authority that the local insurer office needed to approve it. They always need to make a referral to the head office. When you have a big claim local offices need a quick answer. So for us the problem was that it took a long time just to get an answer on whether the claim was going to be accepted or not,” he explained.

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Risk standards roll-out proves major challenge The creation and implementation of appropriate risk management standards throughout worldwide operations remains a challenge, admitted Swedish risk managers who took part in this year’s Risk Frontiers survey. BEN NORRIS found that they employ a variety of tactics to encourage improvements and mitigate potential weaknesses.

ISK MANAGEMENT STANDARDS AND practices at partners, subsidiaries and plants of multinationals can vary greatly, according to leading Swedish risk managers interviewed for Commercial Risk Europe’s annual Risk Frontiers survey. “When it comes to risk management practices we see very big differences. For instance we bought a company in Egypt a year and a half ago and companies with business in Chile and Argentina at the same time. They have had a completely different philosophy with respect to loss prevention. That doesn’t stop us from implementing our loss prevention standards, and we are doing that, but it will take time,” said Lennart Edström, Vice President of Group Risk Management at Electrolux. Fredrik Finnman, Swerma’s President and Group Risk and Insurance Manager at ASSA ABLOY, agreed that in certain countries, such as China, where his company has acquired plants, risk awareness and risk management often leaves ‘a lot of room for improvement’. This is often because of differences between local and centralised risk management standards, added Charlotte Barnekow, Head of Insurance and Risk Management at Ericsson. Addressing this issue is challenging, she said. “We have our risk management standards for things such as physical risks that are usually based on well known international standards that are adapted to what kind of company you are. When I go out and benchmark the actual conditions in a factory or warehouse or supplier it might not match. What I can hear back from the local side is that our approach or standard is not in accordance with their national standards. The national standards are often focused on personal security to save lives and to save our asset is of less interest, as they should be. I can understand that as previously this was the majority of the national standards concern,” she explained. In order to overcome this problem risk managers at multinational companies need to be able to educate

“T

HIS IS WHAT RISK MANAGEMENT is turning into—you have to be very communicative. In a way it is turning more into a management role than a risk role. It is not just about security and compliance, it is about reasoning based on common sense.” —CHARLOTTE BARNEKOW, ERICSSON

Fredrik Finnman their partners and communicate their wishes more effectively, advised Ms Barnekow. “You have to have open eyes and be a good listener in order to be able to put your message across… you need to be able to communicate to explain our standard is not only about saving lives but we also have a big business here and we are also looking to safeguard our property or future income,” she said. “This is what risk management is turning into— you have to be very communicative. In a way it is turning more into a management role than a risk role. It is not just about security and compliance, it is about reasoning based on common sense,” she said. Mr Finnman believes that insurers and brokers have a role to play in helping to develop worldwide risk standards through incentive tools. But he stressed companies themselves must be proactive. His company holds workshops and seminars for operational managers in China to educate on loss prevention. These are run in a joint effort with insurers. “We now have a workshop or seminar for the operational managers in China to educate them on loss prevention on the property side. It is a joint effort with the insurance company, but we also have an interest to safeguard our business and start this process of building risk awareness,” he said. A year ago ASSA ABLOY initiated a premium incentive programme to encourage better risk management and loss prevention at subsidiaries, predominantly in China. Each site is rated on risk management and loss prevention standards and is then charged either a 50% premium increase or decrease depending into which category they fall into. “In the beginning when the risk awareness is low this is more or less the only way to achieve some sort of progress, because when we launched this programme people that had never cared about loss prevention all of a sudden sat up and started to listen,” said Mr Finnman. In order to protect the parent company from weaknesses in foreign-owned assets, Mr Edström said his company excludes certain units from its captives. “We are not bringing those new units into the captives before we have good loss prevention in place. So we keep it [the risk] outside, in the external market, probably at a higher premium, and then when they are protected we will bring them in,” he explained.

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Portugal

RISK FRONTIERS

As part of our annual Risk Frontiers survey of leading European risk managers, Commercial Risk Europe travelled to Lisbon to gather the views of the Portuguese. They and their bosses are clearly worried by the country’s ongoing weak economy and are keeping a close eye on threats posed by social change, supply chain weaknesses and IT. Discussion also turned to claims settlement concerns and the reassuringly stubborn soft insurance market. Rodrigo Amaral reports

WEAK ECONOMY &

CATASTROPHE CONCERNS

SLUGGISH ECONOMY, AN increase in social pressures and the threat of catastrophes are among the risks of most concern to risk managers at Portuguese companies, according to participants in the latest Risk Frontiers roundtable hosted by Commercial Risk Europe in Lisbon. Portuguese companies are dealing with the effects of an economic environment in which austerity measures and high unemployment have combined to depress consumption. At the same time, the lack of a catastrophe insurance pool is a permanent source of worry for risk managers in a country that has previously been devastated by an earthquake and tsunami. Also, general discontentment among the Portuguese only increases the risk of terrorism and other social turmoil, the risk managers pointed out. But with the Portuguese economy having struggled for several years in a row, at least many risk managers in the country are now used to operating in these difficult conditions.

STATUS QUO

“There have not been many changes compared to last year,” said José Luis Amorim, Director of Risk Management at Sonae, the business group active in sectors such as retail, telecommunications and insurance. “We are all still in crisis mode, especially companies like ours that are dependent on Iberian markets. And there is a new word that we have to listen to every day now which is ‘austerity’, and which nobody had even heard of about five years ago,” he said. Mr Amorim added: “For us the most important risks are those linked to external economic conditions. The macroeconomic situation is having very important effects on our business. And even though we have taken action and much creativity has been employed in the effort to mitigate the effects of the poor

José Luis Amorim economy, it is very difficult to begin to answer all the challenges.” He pointed out that unemployment is rising very quickly in Portugal and Spain and that the situation is even worse where the young are concerned. “It affects very strongly the purchasing power of people and especially of young consumers who are consuming less than young people used to do in the past,” Mr Amorim said. “We are living in an environment with big economic and social difficulties. It is only natural that top managers of our firms are mostly concerned about such issues nowadays, mainly because we work with a kind of infrastructure that is vital to the Portuguese economy,” agreed Pedro Nazaré, Head of Risk Management at Refer, Portugal’s rail firm. The economic conditions are not only affecting consumption. They are also making it difficult for companies to raise money to fund their activities. This is another issue that keeps many a CEO up at night in Portugal. “The financial side is an important concern for us,” Mr Nazaré said. “The infrastructure that we manage requires constant investments in maintenance, and resources have become increasingly scarce.”

This situation is not unique to Mr Nazaré’s firm. “The availability of capital is another risk that we already faced in 2012, and it has turned ever more important,” Mr Amorim agreed. “The state has had to pump a lot of money into the financial system, particularly in Spain but also in Portugal. Banks say that they are healthier today than in the past but they are still not lending to companies and the economic depression means that there are not many takers of loans either.” Another effect of the crisis is a spike in social discontentment, which creates its own set of problems. “With the increase of social pressures in the country terrorism has surely climbed in the list of my concerns,” Mr Nazaré said. A terror attack or some other catastrophic event could in fact cause huge disruption for Portuguese companies because the country lacks a catastrophe pool to help the insurance market face up to potential losses. Mr Nazaré said it is more than time for the country to look for solutions to this problem. “It takes time to build up a catastrophe pool, but in any case it is necessary to begin building up the funds,” he said. “It has not started yet, however I think that we should move in that direction.” Lisbon and other parts of Portugal were destroyed by an earthquake and tsunami in the 18th century, so it is not surprising that catastrophe risks are a concern for many firms in the country. It is certainly a worry for EDP, the energy group, according to its Director of Insurable Risks, Demetrio Tahoces. “Most of our assets are based in Portugal and our operations are very much concentrated, so we are concerned about catastrophe risks, especially earthquakes,” he said. “But there are other risks too. For example, the tropical storms that have hit Portugal in recent years and have the potential to affect our distribution lines.” In addition, risk managers have to deal with the operational risks that are specific to their lines of business and which can have a huge impact on their companies’ bottom line. “Another risk that is linked to the

concentration of our business units is the risk that a boiler explodes in one of our big coal plants,” Mr Tahoces mentioned as an example. “In such a case, losses could be big, both in terms of property damage and a loss of profits.” And then there are the new risks that companies have to face as they look for new sources of growth. “We have been developing offshore activities off the Scottish coast, where we have two projects going on,” Mr Tahoces said. “We have been investing considerable amounts of money in a field where we still have limited experience.”

NUANCED APPROACH

Mr Amorim noted there are many risks that cause a common concern for the risk management department and CEO of his company. But there are some nuances between the way risk managers and top bosses deal with some of these threats. “There is not much difference between what we at the risk management function and our CEO think, but there certainly is a difference of approach to risks,” Mr Amorim said. “We do not have only one business, we have several of them. For us the main focus is our most important business, which is retail. Our CEO is more concerned about the group as a whole and about risks like the quality of our human resources.” In this case the financial crisis in Portugal has added yet further problems. “One of the main worries of our CEO is to hire and keep quality staff,” Mr Amorim said. “This is a problematic area as people are not finding opportunities in Portugal today and, as a result, they are emigrating to other countries. It is a challenge that we have to face in our local markets, and an even more significant one when we are making an effort to increasingly internationalise our activities. We have to attract and retain talent here in Portugal and abroad too.”

SOCIAL CHANGES AND CYBER THREATS CREATE NEW RISKS FOR PORTUGUESE FIRMS S

OCIAL CHANGES AND NEW THREATS LINKED TO IT SYSTEMS AND SUPPLY chain disruptions are creating new exposures for Portuguese companies but the insurance market has not always been able to come up with the required solutions to transfer these emerging risks. That is the view of leading Portuguese risk managers that took part in this year’s Risk Frontiers survey of European risk managers. “The emerging risks that concern us most today are those linked to civil liability, as a result of social and legal changes,” said Demetrio Tahoces, Director of Insurable Risks at energy group EDP. “For example, when it comes to environmental liability society is becoming increasingly sensitive and demanding on issues like the levels of pollution caused by large industrial firms. Companies have had to adapt themselves continually, and we have made big investments towards that goal,” he pointed out. Mr Tahoces also stressed that the same phenomenon has increased the risk companies face when services they supply are disrupted, even if caused by factors out of their control. “The media repercussion is huge and we are expected to take responsibility for the disruption even when we are merely passive actors in such events,” he said. Public opinion also has the capacity to influence the way authorities interpret the responsibility of businesses. “As social demands change there is always a risk that regulators adopt the view that they need to become more conservative and demanding towards what they see as the responsibilities of companies,” Mr Tahoces said. For his part, Pedro Nazaré, Head of Risk Management at rail firm Refer,

expressed concern over the offer of liability insurance in the Portuguese market today. A lack of transparency among suppliers only adds to the difficulty of purchasing such cover, he added. “The lack of consistency in liability insurance concerns me,” he said. “I understand that this is a very dynamic area and liability policies today are different than others present in the market years ago. But we cannot lose sight of the fact that there must be some kind of standardisation and homogeneity of concepts in the market.” Risk managers also voiced their concern over the scarcity of satisfactory insurance coverages for a host of emerging risks. José Luis Amorim, Director of Risk Management at the Sonae group, noted that cyber risks are one of the main threats faced by his company today. But it is an area where a good insurance policy is most difficult to come by, he said. “The insurance sector does not like to deal with the unknown, which is a natural reaction, but the fact is that risk is uncertainty,” Mr Amorim said. “In general it has been very hard to find in the international insurance market the right coverages for cyber risks. We are very active looking for solutions in areas like client data protection, but the market has been unable to present us with satisfactory coverages.” Mr Amorim has had first hand experience of cyber risk. The website of a loyalty card scheme belonging to his group was attacked by hackers earlier this year. “Fortunately repercussions were almost none as we had previously identified the risk and were working on solutions, some of which were already up and running, while others had to be accelerated,” he said.

The attack has only highlighted how desirable adequate transfer solutions are. “The potential for losses is huge,” Mr Amorim said. “Our loyalty card has three million users.” He noted that in order to mitigate cyber risks, Sonae has invested heavily in boosting security measures. “We had recently invested a lot of money in IT security, completely overhauling our systems and preparing them for eventual attacks,” Mr Amorim said. “In fact, the site of our loyalty card that was attacked was actually managed by a financial services partner and one of the ways we found to solve the problem was to bring the site within our own internal security system, which proved to be safer. Investments in IT security do pay off.” Another emerging and growing risk that worries Mr Amorim involves the disruption of supply chains. “Supply chain risk has been a focus for several years already and we have increasingly been working on its mitigation,” he said. “Insurance coverages remain too focused on physical damage, but that is not always the case,” he said. “There are sometimes problems with the quality of products, for example, and there are no takers for this risk when we try to transfer it to the market. We would also like the insurance business to be more innovative in the segment of business interruption. Challenges in this area have been changing very quickly, and insurers are not adapting coverages at the same pace.” “The market struggles to offer coverages for new risks,” Mr Tahoces agreed. “When a risk is not standardised we find it very difficult to find coverages, and when we find them prices are often too high,” he concluded. —Rodrigo Amaral, Lisbon

Global

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4/6/13 14:09:24

RISK FRONTIERS Portugal

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5/25/12 12:13 PM

4/6/13 14:09:34

Portugal

RISK FRONTIERS

Flow of information is key to concerns over claims services Rodrigo Amaral ramaral@commercialriskeurope.com

[lisbon]—Insurance companies have shown an increasing tendency to dispute the payment of large losses, according to a leading Portuguese risk manager. Pedro Nazaré, Head of Risk Management at Refer, the rail group, said the servicing of small claims is not a problem in Portugal but that the situation changes when big sums of money are involved. “I feel that there has been less sensitivity on the part of insurers when it comes to properly understanding and classifying what has really happened in certain loss events,” Mr Nazaré said during the Risk Frontiers roundtable in Lisbon. “I also believe that there is a systematic effort to try and find legal ways to avoid responsibility for the payment of large losses. I do not feel, from the part of insurers, much commitment to sitting down with their clients in order to identify the real nature of a claim. Insurers need to act more like real partners of companies. Of course there are some exceptions, but that is the general impression I have,” he said. José Luis Amorim, Director of Risk Management at Sonae group, said he recently had a positive experience when settling a large loss. This was despite the fact that it involved a great number of claims

Crispin Stilwell

“I

feel that there has been less sensitivity on the part of insurers when it comes to properly understanding and classifying what has really happened in certain loss events...” —PEDRO NAZARé, REFEr

experts, including 24 loss adjusters. But he stressed that the process could have been improved. “The negative side of claims services, of course, is that the whole process takes a long time, which is not such a big problem for a group with several stores, like ours, but can be fatal for a small company,” he said. “So one aspect that could be improved would be to make the money paid as compensation more promptly available.” The sharing of experiences amongst risk transfer partners could go some way towards reducing the time spent servicing a claim, he pointed out. “Loss adjusters, insurers and brokers have a lot of experience in dealing with claims and they could share the information they have in order to reduce the learning curve about a loss,” Mr Amorim said. “If it was possible to know early about the problems that will inevitably arise during the servicing of a claim it would greatly help the process. Also, sharing knowledge of major incidents, their causes and how to avoid them, would help a great deal in improving risk management processes.” Demetrio Tahoces, Director of Insurable Risks at EDP, the energy group, agreed that closer links

between interested parties is the best way to achieve satisfactory claims settlements. “We have learned that the servicing of claims is much improved when insurers, brokers, loss adjusters and risk managers work very closely together from the beginning,” he said. “The biggest difficulty is probably to guarantee that information flows freely during the whole process. In fact it is an internal struggle for many companies that have a claim to gather all the documents required. If companies have an efficient internal flow of information, it helps insurers and brokers very much.” He added: “We have made important efforts to make sure that the information we deliver to the market in the case of a claim is the best possible. Thus insurers can properly evaluate the losses and make the process work better.” Crispin Stilwell, New Business Director and member of the board at Willis Portugal, believes that the availability of information is key to making sure claims are processed efficiently. “It is more difficult to service a claim if we receive only partial information from our clients, especially in the case of large losses, which are dynamic situations that require intensive management,” he said, adding that companies need to do their homework well before a loss takes place. “We were recently called in to help with a large claim where on the one hand the client had no broker and on the other it had no preparation for such a large event – no contingency plans in place,” he said. “This resulted in a huge distance between the client’s capacity of response and the insurance company’s well-oiled procedures. The client’s in-house capacity could not match the pace of the servicing by the insurance company and they certainly could not influence the insurer.” Mr Stilwell added: “Well prepared in-house expertise to deal with a loss can help to avoid many problems when a claim is processed. Many times the payment of claims is delayed by the client’s lack of know-how. So preparation for a crisis is a worthwhile investment because in a claim quick access to information is key.”

No hard market in sight Rodrigo Amaral ramaral@commercialriskeurope.com

[lisbon]—Portuguese risk managers do not expect a hard market in the near future, although they have identified a tendency among insurers to be more selective about the risks they take. Risk managers taking part in the Portuguese round of Commercial Risk Europe’s Risk Frontiers survey reported a similar view to their colleagues in other European countries who have found little evidence so far that the long-running soft market is finally coming to an end.

NO MOVEMENT

“I do not see the market changing tack from the trend that has been observed in recent years,” said Demetrio Tahoces, Director of Insurable Risk at EDP, the energy group. “We have not met tougher conditions either, although deductibles may have got somewhat higher. What we have seen, though, is that insurers have become more selective about the risks that they take.” “Insurance and reinsurance companies have been reporting good results, so I do not see where the

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pressure for a hard market can come from,” added José Luis Amorim, Director of Risk Management at the Sonae group. “In fact, I see the opposite. There is an excess of capital available in the market, as insurers have been fleeing from bad risks and surplus funds are available worldwide for good risks.” Pedro Nazaré, Head of Risk Management at Refer, the rail group, noted that, although narrowing margins are pushing insurance companies closer to the brink, they have a little room to manoeuvre. “The soft market has persisted, to the point where in some segments, like workplace accidents, rates may have fallen beyond the limits that underwriters can cope,” he said. “At the same time, however, the market has shrunk, as more companies have gone out of business than new companies have been created. So if insurers raise their prices they risk losing even more clients. The only silver lining for the insurance market is that during a crisis the volume of losses falls too,” he added. Mr Amorim pointed out that the market for catastrophe risks is under most pressure. But even then the situation is not as bleak as some insurers and reinsurers like to paint it, he said. “Even in catastrophe risks there was more pressure in 2012 than this year.” If they do not have many reasons to complain about

rates, Portuguese companies would like to receive more support from their insurance partners as they expand internationally in a quest to find alternative sources of growth. The issue is especially important because one of the main foreign markets for Portuguese companies is Brazil, a particular nightmare for managers of international insurance programmes.

REGIONAL PITFALLS

“EDP is present in Europe, the US and Brazil,” Mr Tahoces said. “We have no problems implementing our international programmes in Europe. There are some difficulties in the US, but they are much more severe in Brazil.” He noted that the Brazilian regulators are very protective of the local market, which makes it very difficult to implement an international programme there. But the insurance industry can play a role in mitigating this problem, he argued. “What the market could do to help us in such situations is to adapt policies to local requirements, and to offer a more thorough coverage for risks that eventually cannot be covered in some jurisdictions,” he said.

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Q&A

GLOBAL RISK FRONTIERS

GLOBAL RISK FRONTIERS ROUNDUP LONDON

HE GLOBAL RISK FRONTIERS PROCESS FORMALLY DREW to a close late last month as we held an excellent one-day conference in London to discuss the initial findings and start really working out what it all means and what action is needed. The following pages contain a selection of interviews with individual risk managers who took part in Global Risk Frontiers and a number of these will follow in our weekly newsletter over the coming weeks. We will also publish in the next issue of Commercial Risk Europe a standalone survey based on interviews with Latin American risk managers that are currently being carried out by our Madrid-based Brazilian reporter Rodrigo Amaral. The Middle Eastern and Asian reports, plus coverage of a debate hosted by ADRIAN LADBURY and organised by Lockton for its partner brokers at the Rims conference this year, will also follow next month.

Then the really interesting part of the survey begins as we meld all the answers to the questions we posed across the globe over the last six months into the final report, which will be published in September. As discussed at our event in London last month there are already a number of clear conclusions about the developing role and influence of the profession as risk rises up the corporate agenda, with interesting insights on how to gain more buyin at board level and implement true ERM throughout organisations. The one really pressing point, however, that clearly needs to be tackled by risk managers around the globe, is the topic of education. There is a desire among the profession worldwide for a more formal and internationally transportable accreditation process for risk managers that is recognised by peers and bosses alike. If there is one point to take away from this survey then it is clearly the need for action on this effort, which requires a joined up effort. If not, the profession risks losing the initiative to others in related professions, such as internal audit, who would like to take ownership of the field, and that would be a big loss.

The forever rising tide John Ludlow is Senior VP and Head of Global Risk Management for London-based InterContinental Hotels Group. The hospitality industry has seen big changes in recent years and managing the risks around technology and reputational exposures has become increasingly important, he says. Mr Ludlow talks about those challenges and others, while discussing how insurers could improve the services they provide CRE: What are the biggest risks your organisation faces over the next three years and why? JOHN LUDLOW: The whole area of technology is a significant

area for us in so many ways. There is the challenge of replacing old technology to enable new guest experiences whilst at the same time improving cyber threat mitigation and achieving resiliency. IT is becoming largely outsourced to specialist providers, more integrated and time-critical to our business and also more complex and exposed to threats. Also, the competitive landscape has changed. The tide is always rising in business and if you are doing business the way you did three years ago, you are probably doing it wrong. New corporate value lies in the trusted reputation of our brands, which need to be relevant, disciplined and distinctive, and that is a whole new challenge for risk managers. The risks related to delivering distinctive brand experiences are quite different from those around IT systems and from the traditional fire and property risks that we were used to managing. Managing risks today is so very challenging, be it delivering safety and the well-being of guests and employees, delivering commercial resilience and success of the business or the trust and advocacy of our guests and other stakeholders in our brands.

CRE: Do CEOs and boards generally take risk management seriously and understand the benefits, or is it a tick box/ compliance function? How can senior management be persuaded to ‘buy into’ the concept of risk management?

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JL: They do take risk management seriously. The secret is in risk managers understanding how the board is adding value to the corporation. That value is increasingly in its reputation. Whilst it is relatively easy to talk to them about strategic risks and risks to the change programme, it can be more difficult for them to relate to operational risks. For instance, safety is important and the board will consider it seriously, of course, but will do so in a more engaging manner if presented in relation to the company’s brand reputation. If you can link those concepts, they will get it. CRE: How can risk managers ensure that risk management is properly carried out at the line manager level throughout a group? How can it be truly embedded? JL: You need, first, to have a healthy culture. That means a culture where people are concerned for all stakeholders over the long-term. They need to think not just of the shareholders, but also of their colleagues, customers and communities. A healthy culture means working together and showing you care—it’s about doing the right thing. If you can do that, doing business in a responsible way will be intuitive. Secondly, to get the same effect across many hotels things also have to be done with a systematic approach to deliver consistent standards, encompassing learning and systems to build capability and review performance. You have to have minimum standards to provide a base consistency and familiarity across different locations. CRE: Would the creation of a globally recognised, formal risk management qualification help convince senior management of the value of the function and raise the influence of the risk manager? JL: The more training that can be delivered, the better. It needs to be more of a global menu of qualifications— nobody needs to know everything. There could be a coordinated and harmonised menu of training for different levels and specialties of risk management. Do I think we should have a chartered risk manager designation? Yes, I do. But there may have to be different routes leading up to that. CRE: Should the risk manager of a global corporation also be in charge of insurance management or should the functions be split? JL: Risk transfer is a vital part of risk management. Insurance shouldn’t lead risk management, but it is a part of risk management. There are significant synergies and premium savings to be had.

CRE: Is corporate insurance good value? Are there coverage gaps and is there anything the market can do to make the uninsurable more insurable? JL: The insurance industry has gone through quite tough times. Prices have come down and investment returns have been miserable for a number of years. As a result many insurers have probably under-invested in the development of their people. Insurance is becoming more of a process and claims are becoming more of a legal contest, innovation is slow and conservative. These factors, combined with the evolution of business, are undermining the long-term value of insurance. Insurers need to invest in their people and trust in their people so that they can continually innovate. But that’s a long-term trend that needs reversing. CRE: Are you happy with the coverage offered in the marketplace for cross-border risks? JL: There are more entrants into that market, more of the major players that can do it, so that is good. But we need products to better address residual risk in the areas of IT risk and reputation protection. Insurers are in a recession mode and they need to get into investing in the future—someone needs to change their game. CRE: Is it time to end the annual renewal process, as some say it maintains a short-term commoditised approach to the business of insurance? JL: I like insurers who want long-term relationships. We tend to go for longer terms, but we still need to do an annual refresh because the business continues to grow and change. If you can get a long-term framework and relationship with an annual refresh, that is a good place to be. CRE: Does the global risk management profession need a stronger lobbying voice? Should Rims, Ferma and other associations work together to make sure the voice of the risk manager is heard? JL: Part of the problem is a risk manager can’t afford to have relationships with all the associations. I work with associations in the UK and look to my American team to work with Rims. I would like to see more collaboration among the groups, maybe a clearer framework. Some of them focus on education and others on customer issues. If there was a flat structure whereby they could all collaborate, that could work.

4/6/13 14:15:11

GLOBAL RISK FRONTIERS Q&A

FROM THE TOP DOWN ISTANBUL

CRE: Should the risk manager of a global corporation also be in charge of insurance management or should the functions be split. Does insurance management hold risk management back, or vice versa?

CRE: What are the three biggest risks your organisation faces over the next three years and why? MURAT GÜSAR: I would say political and

economic stability is the most important risk. It has always had the potential to affect domestic markets and will continue to do so. Also critical are the hot issues along the southeastern Turkish border. Problems in countries like Syria and Iran create a threat to sustainable growth and peace for Turkey and its companies. Our total group sales contributed 9% of Turkey’s gross domestic product in 2011, and exports made up almost 10% of Turkey’s total exports in 2012. Our share of the capitalisation of the Istanbul Stock Exchange was 16% at year-end 2012. As a company of that size, it is vitally important that all of our businesses and assets are properly protected, and therefore properly insured. In light of this responsibility our biggest risk is earthquake. At the moment capacity for nat-cat cover is limited, if it is available at all, and the cost is high. As Turkey is an earthquake-prone country we put great effort in providing the coverage for our companies’ assets. Therefore, I would name natural catastrophes, and earthquake in particular, as the second most important exposure for us. Changes and transformation within the Turkish insurance market is another risky area that we are closely monitoring. We believe that fierce competition is coming to an end now and within a few years will be followed by consolidation of insurance companies.

CRE: Do CEOs and boards generally take risk management seriously and understand the benefits, or is it a tick box/compliance function? How can senior management be persuaded to ‘buy into’ the concept of enterprise-wide risk management? MG: In all this rapidly changing environment

we are exposed to various risks that attract senior management’s attention. It is critical for senior management to first be informed about such risks, then to prepare accordingly. I believe that in Turkey, in groups similar to ours, risk management is taken very seriously and is widely applied, although one can argue whether it is applied appropriately or competently. Big Turkish companies are familiar with enterprise risk management and apply it in various ways. It is still developing and the learning curve is quite fast. ERM is more difficult for smaller companies as the stakeholders and professionals there have not reached the same level of awareness as in large companies.

CRE: How can risk managers ensure that risk management is properly carried out at line manager level throughout a group and in overseas locations? In other words, how can it be truly embedded in a global corporation?

MG: Not necessarily. However, if they are split,

Koc Holding is Turkey’s largest conglomerate, with companies involved in energy, consumer goods, financial services and other sectors in domestic and international markets. Murat Güsar serves as General Manager of Koc’s inhouse broker, Ram Sigorta Aracilik Hizmetleri AS, and is responsible for the holding company’s insurance matters. He reports to Koc Holdings’ CFO, whose office oversees the organisation’s risk management activities. In this interview, Mr Güsar discusses the challenges of managing the risk and insurance needs of a large Turkish operation and some of the concerns facing Europe’s global risk managers lot of thought should be put into what this qualification should contain. Standards of the programme should be designed in such a way that holders of the qualification and their expertise are acknowledged across the globe.

the function and raise the influence of the risk manager? MG: Such a qualification would help in

convincing senior management. However, a

CRE: Would the creation of a globally recognised, formal risk management qualification help convince senior management of the value of

24_CRE_Y4_05_GRF.indd 25

CRE: Is corporate insurance currently good value? Are there coverage availability gaps and is there anything the insurance market can do to make the uninsurable more insurable? Can risk managers help create new coverages? MG: The answer is yes, but insurance cannot

cover all risks. There are capacity issues, geographical restrictions or international sanctions. And some risks are simply uninsurable. Insurers should work harder to adapt their products to meet the changing needs of clients. Risk and insurance managers do force the market in this direction together with the international insurance/reinsurance brokers, but more interaction and empathy with clients is really vital if insurers wish to be more proactive.

CRE: Are you happy with the coverage offered for cross border risks, such as global programmes? What can be done to make global programmes more compliant, consistent and cost-effective? “ In came the new CFO questioning our BI values, so we called on Dempsey Partners for an independent analysis. Now we’re completely validated.”

nice move.

MG: We have one global programme that

covers many locations and jurisdictions around the world and, at the moment, meets our expectations. Of course, we need good support from our stakeholders—insurance carriers, brokers and local people –about the changes in these countries as soon as they happen or even before they happen. As part of this a strong presence and competence of insurers in resident countries is required.

CRE: Is it time to end the annual renewal process, as some say it maintains a short-term, commoditised approach to the business of insurance? MG: I do not expect that the annual renewal

process will come to an end. Long-term policies may be necessary for certain types of businesses, but because of market dynamics, each party—insurers and clients—would like to maintain annual policies.

b e s e c u r e . r e q u e s t a n x- v a n a ly s i s ® o f y o u r s u p p ly c h a i n r i s k t o d ay !

MG: This can only be achieved from the top

down. From the shareholders to the CEO and board, everyone must speak the same language, they must be aligned with the risk management approach and must show to the line managers that they really do own the concept. If not, risk management becomes a matter for the risk manager alone, and he or she would be lost after some time.

there should be strong, sound and uniform cooperation, coordination and communications between the risk and insurance manager. To a certain extent I would agree that insurance management holds risk management back, especially if the scope of coverage and conditions are broad, and coverage is at a lower cost than alternative mitigation solutions. Those conditions can create a comfort zone for those involved in the process and may cause them to delay certain risk management actions that should have been taken.

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CRE: Does the global risk management profession need a stronger global lobbying voice? Should Rims, Ferma and other associations work more closely through Ifrima to make sure the voice of the risk manager is heard? MG: Definitely. Organisations such as Rims and

Ferma form a pool of experts –professionals and practitioners—where information, data, expertise and best practices are accumulated, exchanged, developed and finally distributed to various stakeholders. From these activities certain standards and common definitions are recommended to governments, local authorities and public and private companies, which in turn tend to benefit.

4/6/13 14:15:19

Q&A

GLOBAL RISK FRONTIERS

THE VIEW FROM ISTANBUL

YSAN SINANLIOGLU IS RESPONSIBLE FOR RISK MANAGEMENT AT Dogus Holding AS, the Istanbul-based holding company parent of Dogus Group. The Group is involved in financial services, automotive, construction, media, tourism, real estate, energy and entertainment businesses. Ms Sinanlioglu, an experienced risk manager who has been in her position with Dogus for less than a full insurance renewal cycle, shares her perceptions of the state of risk management in Turkey and beyond

CRE: What are the biggest risks your organisation faces over the next three years and why? AYSAN SINANLIOGLU: The risks are those related to

the macroeconomic environment, whether they be global or at the local economy level. At the Group level, we closely monitor our foreign exchange and interest rate risks.

CRE: Do CEOs and boards generally take risk management seriously and understand the benefits, or is it a tick box/compliance function? AS: At Dogus Holding yes, they do take risk

management seriously. Every two months the individual sector company and what we refer to as the Holding Risk functions present their analysis and risk-related issues to the respective risk and audit committees for discussion. From there matters are escalated to the board of directors meetings when necessary. There is a risk presentation and discussion at the board meetings that covers risk issues at the Group level as well as at the individual sector company level.

CRE: How can risk managers ensure that risk management is properly carried out at line manager level throughout a group and in overseas locations? How can it be truly embedded in a global corporation? AS: At our company there is a governance structure

in place that includes a risk and audit committee that reports to the board of directors. Each sector company has a designated team responsible for

24_CRE_Y4_05_GRF.indd 26

[ABOVE] The skyline of modern Istanbul

risk that performs scheduled and ad-hoc activities including risk analysis and reporting as directed by the Holding Risk function. Holding Risk also provides expertise on specialty subjects as needed. Risk functions operate under an enterprise risk management structure that encompasses financial and strategic risks as well as operational and emerging risks. Plus, there are top-down and bottom-up risk identification processes in place. CRE: Would the creation of a globally recognised, formal risk management qualification help convince senior management of the value of the function and raise the influence of the risk manager? AS: It would help draw a line in the sand as far

as the basic skills of risk professionals go. There are a growing number of university courses and programmes on risk management, yet, as of now, most risk management staff come from consulting and/or auditing backgrounds. It would also help to establish a common language of risk management.

CRE: Should the risk manager of a global corporation also be in charge of insurance management or should the functions be split? AS: I think one would need to consider the

complexity and size of a company to make such a decision. A manufacturing company that produces similar product lines in multiple global locations might benefit from specialised skills to manage the entire risk and insurance centrally in-house.

Otherwise, partnering with, and effectively managing, a broker and prudent discussions with each company executive team and keeping a Group-level view in an aggregated approach may do the trick. We think we do a decent job facilitating and coordinating the process. CRE: Are you happy with the coverage offered for cross border risks? AS: Our Group continues to expand both inside

and outside the Turkish borders. And, naturally, so do our insurance needs. Our marinas in Greece and Croatia and restaurants around the globe, as well as big construction projects in the Middle East and Central and Eastern Europe, have been adequately insured with due consideration and effective management of cross border risks. Where there is international exposure I do not foresee any limitiations in securing the insurance we need. We are able to insure our risks.

CRE: Is it time to end the annual renewal process, as some say it maintains a short-term, commoditised approach to the business of insurance? AS: As of now the bulk of our programmes

renew annually. I have been through this process only once, and even that was not a complete renewal cycle, so it is hard for me to say anything conclusive at this time. Nonetheless at Dogus we view our risksâ&#x20AC;&#x201D;existing and emergingâ&#x20AC;&#x201D;in a longer time horizon and, equally, we view how and with whom we insure prudently.

4/6/13 14:15:32

E-NEWSLETTER

» T HE BEST OF THE WEB Commercial Risk Europe reports the leading news stories of relevance to Europe’s risk and insurance managers every week in its electronic newsletter. Below is a round-up of the most popular articles published last month. To sign up for the free CRE weekly newsletter please go to: http://www.commercialriskeurope.com/ more-information/newsletter/sign-up-here

with a flood of opportunistic actions. “[The bill] does not risk to import to the French law the drifts that have been seen in other countries,” the government said in a statement, in a thinly veiled reference to the class action industry that has developed in the United States. For that reason, the bill establishes that class actions can only be launched by a recognised consumer association. Lawyers and consumer advocates have derided the idea, saying that it restricts the rights of consumers to seek compensation. Critics of the bill also say that it only creates the possibility of seeking compensation for ‘material’ losses caused by companies via the class actions. Medef, the association of French companies, has also criticised the introduction, albeit from the opposite point of view. The association believes that the bill will increase legal insecurity for French companies, which already face challenging economic conditions. The body also doubts the efficiency of class actions to solve disputes. “The class action is not the quickest nor the least expensive or the most efficient way for consumers and companies,” Medef argued in a statement. —Rodrigo Amaral

» COMPANIES SEE COMPLIANCE AS BIGGEST RISK WHEN EXPANDING OVERSEAS: QBE SURVEY » WaLSH TAKES OVER EUROPE FOR AIG AS SCHIMEK HEADS HOME

» FRENCH CLASS ACTION PROPOSALS MOVE CLOSER TO BECOMING LAW

[london]—Rob Schimek, President and CEO of Europe, Middle East, and Africa at AIG, returns to the US to take up the role of President and Chief Executive Officer of AIG Property Casualty’s Americas region, in a senior management reshuffle following the loss of four executives to Berkshire Hathaway. Berkshire, which is part of the US group run by legendary investor Warren Buffett, snapped up the four AIG executives as part of its plan to expand its commercial insurance business. Mr Schimek came to Europe to run the EMEA corporate insurance business two years ago after Lex Baugh returned to the US to become Chief Risk Officer and Head of Strategy for AIG Property Casualty. The lively and popular Mr Schimek is one of the company’s most experienced executives and before coming to Europe was Chief Financial Officer of AIG Property Casualty. Mr Schimek continues to report to Peter Hancock, President and Chief Executive Officer of AIG Property Casualty. The reshuffle sees Nicholas Walsh, who ran AIG’s international property casualty businesses for many years, become president and Chief Executive Officer of EMEA on an interim basis as the company seeks a permanent successor to Mr Schimek ‘in due course’. Mr Walsh, an AIG veteran of nearly 40 years, is chairman of AIG Europe. He has served as a senior adviser on broker, client and government relations since 2011. He will also report to Mr Hancock. Mr Baugh will take on responsibility for AIG’s global casualty business. He will report to John Doyle, Chief Executive Officer of Global Commercial Insurance within AIG Property Casualty. —Adrian Ladbury

[paris]—France

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moved a step closer to allowing US-style class actions, as the government of president François Hollande presented a bill that could see consumers access collective legal redress. The proposals still need to go through Parliament, which is controlled by the Socialist Party headed by Mr Hollande. But business leaders in France have already expressed concern as they fear their companies, like their American counterparts, could become embroiled in long, expensive court procedures driven by groups of consumers. However, consumer advocates and lawyers have expressed disappointment as they believe the bill does not go far enough to protect the interests of consumers. The introduction of class actions is part of broader legislation drafted by the government with the stated goal of re-establishing trust between companies and consumers. The bill will also make it easier for motor and home insurance policyholders to cancel contracts in the first year, if they are unhappy with their insurers. However, the class action proposals have really caught the attention of the public, as a number of products in France, especially in the medical and pharmaceutical sectors, have been deemed to have caused harm to large numbers of users in recent years. The government says that class actions à la Française will enable the public to get compensation for damages caused by mass-market products and anti-competitive practices, reducing the disadvantage that a consumer is prone to suffer when taking action alone against a big corporation. But the government also said that the bill will avoid destabilising businesses

[london]—European companies are increasingly looking to expand in new markets, but see local laws as their biggest risk, according to a survey from insurer QBE. The company said that 50% of businesses surveyed in the UK, France, Germany, Italy and Spain expect it will take at least another two years before their respective economies recover. As a result 66% plan to respond by expanding their operations into new countries over the next five years. Asia is proving most popular, with 29% saying that the region is key for business expansion, while 27% cite South America and 16% Africa. According to QBE, 44% of the 500 companies surveyed consider compliance with local regulations to be the biggest risk to overseas expansion. “The biggest risk European businesses believe they face when starting to operate in new markets is dealing with local regulations,” said QBE. This is far more a concern than worries over differing cultures and business practices (at 35%), financial risks and instability (at 33%) or even political risks/instability (at 28%). According to QBE, companies are not making full use of their insurers as advisers when looking to expand in new markets. While 24.3% of the companies surveyed use an international insurer th operations in the countries into which they expand, just 3.1% cited an insurer’s ability to ensure local tax and regulatory compliance as a reason for choosing their insurance carrier. “An equally surprising finding was that just 7% of respondents ranked as ‘first most important’ an insurer’s ability to handle claims locally in the countries in which they operate,” QBE said in a statement. “There’s a clear challenge for the international insurance community to demonstrate just how we can help our customers when setting up operations or trading overseas,” said Barbara Chandler, Head of QBE Multinational. —Stuart Collins

» GLOBAL RISK FRONTIERS: BACK STANDARDS AND STOP SQUABBLING: ANTONUCCI [london]—Risk managers and their associations should stop squabbling and get behind the industry risk management standard ISO 31000, according to risk manager Domenic Antonucci, speaking at Commercial Risk Europe’s inaugural Global Risk Frontiers Debate last month. “We need to come together as an industry and get behind ISO 31000. It is not perfect but it is on the right track and it will be updated,” said Mr Antonucci. US risk managers, in particular, have been slow to embrace the standard, he said. A guide to help risk managers and other professionals implement international risk management standard ISO 31000 is set for publication this September. The standard, which is up for review following its initial publication in 2009, is expected to be updated and revised following a vote that closes on June 18. Mr Antonucci also expressed his frustration with the pace of change in the industry and the apparent lack of cooperation between the major risk management associations, namely RIMS in the US and the members of the Federation of European Risk Management Associations (Ferma). “I am sick and tired of the infighting and squabbling in our profession,” said Mr Antonucci, Chief Risk Officer at Dubai-based Red Sea Housing Service Co. “It takes years to get things done.” He questioned why ‘the minnows have to do all the innovating’, referring to the pioneering work on risk management standards and professional standards in Australia. He also criticised US risk managers for their past reluctance to back standards. “Why is it the US has adopted the ‘not invented here syndrome?’” he asked. “If we do not self-regulate our guidelines then there is a risk that others will come in. In emerging countries regulators are frustrated and pass crazy country level regulation,” said Mr Antonucci. Risk management associations were strenuous in their opposition to the setting of standards when ISO 31000 was first developed, said fellow Australian Kevin Knight of FAPARMO, and Chairman of the ISO Working Group that developed the standard. “RIMS and Ferma were both approached to contribute to the standards project, however their responses were dismissive,” said Mr Knight, who also spoke at our Global Risk Frontiers debate. Risk management associations were ‘conspicuous by their absence’ at the time, however, RIMS and Ferma are now begging to get involved, he said. —Stuart Collins

4/6/13 14:08:55

INTERNATIONAL PROGRAMME NEWS

» THE BEST OF IPN The whole issue of international insurance programmes and cross-border risks has become such an important and complex area that we at Commercial Risk Europe believe that a dedicated publication is required to deliver the level of news, views and analysis needed by our core readers to enable them to make sense of all the information and decide upon the best solutions. This is why we launched International Programme News, sponsored by AIG, in September 2012 to track changes in national and regional insurance regulations and keep an eye on national fiscal rules that affect the way taxes are due and how coverage should be bought. This monthly web-based service reports on developments at an international level and examines initiatives from insurers, brokers and captive managers to help risk and insurance managers improve the way they manage and transfer their cross-border risks. IPN has gone down very well with our online readers and so we have decided to give our hard copy readers a flavour of the news and analysis we offer. As such below are some of the highlights from the latest issue. You can access the full newsletter at http://www.commercialriskeurope.com/ipn-home/ipn and sign up to receive the monthly email alert at http://www.commercialriskeurope.com/ipn-signup.

» CYBER RISK—A GLOBAL PROBLEM (PART TWO) The growth in cyber attacks is helping raise awareness of cyber risk around the world. Corporate decision makers are deeply concerned about the exposure their companies face to cyber-related risks. Cyber risk, in fact, topped the list of threats of concern to executives in a recent AIG survey, in which more than 85% of 258 clients surveyed said they were very or somewhat concerned about cyber risks. A similar survey of European companies, commissioned by Zurich, found that 76% of organisations have become more concerned about information security and privacy over the past three years, but only 19% have purchased insurance specifically designed to cover these exposures. The survey, carried out by Harvard Business Review Analytic Services, in association with Ferma and

27_CRE_Y4_05_BOW.indd 28

Primo, found that only 16% of companies have designated a chief information security officer to oversee cyber risk and fewer than half (44%) have increased their budget to tackle the problem. The survey found that regulation and compliance concerns appear to be driving much of organisations’ planning around cyber risk. While survey respondents most frequently placed business income loss and the cost to restore crucial proprietary electronic information among their top five concerns, the next three concerns were all related to legal liability: legal defence and settlement costs from third party claims; costs to comply with regulatory settlements; and costs to defend against regulatory investigations. In the UK, a recent survey by QBE found that just over half of UK businesses (52%) have no insurance policy against fraudulent or malicious online activity against them. Around 40% of UK businesses had bought some form of insurance cover against cyber crime. In the US, the use of cyber insurance to protect their organisations from the financial consequences of a data breach or cyber attack is on the increase, according to a report by Marsh. The number of Marsh US clients purchasing cyber insurance increased 33% in 2012 over 2011, with those in the services and educational sectors leading the way. Companies are also purchasing higher levels of cyber coverage, according to the report. Cyber insurance limits purchased in 2012 averaged $16.8m across all industries, an increase of nearly 20% over 2011. “Awareness of cyber and privacy risks continue to grow, especially in the wake of

a number of highly visible data breaches, hacking attacks, litigation, and increased government focus on cyber security,” said Bob Parisi, Network Security and Privacy Practice Leader for Marsh. “As a result, companies are now looking to manage their day-to-day cyber risks in the same way they do more traditional risks through the purchase of insurance.” According to the report, the services industry which includes professional, business, legal, accounting, and personal services firms, experienced the largest increase in the number of clients purchasing cyber insurance—a 76% jump over 2011. This was followed closely by the education sector, which experienced a 72% rise, and financial institutions, which registered a 32% rise. Ian Pollard, Vice President in Financial Lines, Asia Pacific and Far East at AIG, said: “We know from feedback from clients that there is a need for cyber insurance. In the US, the average annual AIG cyber claim between 2007 and 2011 was $5.2m. Insurance is certainly one piece of the jigsaw and many businesses will have a raft of insurance policies in place already, and might be forgiven for assuming that cyber threats are covered under one or another of these. This can be a costly mistake.” —Tony Dowding

» AON REPORT HIGHLIGHTS PROGRAMME PREFERENCES Multinational companies tend to use corporate headquarters to control placements when it comes to global insurance programmes, but a significant minority also allow local offices to purchase certain lines. This is according to Aon Risk Solutions’ Global Risk Management Survey 2013, a biennial survey of 1,415 participants from 28 industry sectors, encompassing small, medium and large companies in 70 countries from all regions of the world. The survey found that 49% of companies operating in more than one country say their corporate headquarters controls procurement of all of their global and local insurance programmes, while 43% control some lines and leave local offices to purchase other lines. Of the 49% that control all placements centrally, the group that had the highest percentage of companies exercising this tight control is multinationals with operations in two to five countries. Of the 43% that combine controlling some lines from corporate headquarters with allowing local purchases, the group that had the highest percentage of companies is multinationals with operations in 26 to 50 countries. According to Aon, this demonstrates that the ability to control all placements runs in opposite correlation to the number of countries in which multinational firms operate. “The answers by respondents clearly suggest that for multinational firms, reliance on local insurance procurement at the foreign subsidiary level or complete reliance on policies with global territories procured at the corporate headquarters level is not the norm,” said the report. Indeed, only 9% of respondents buy

global policies issued to the parent with no local policies, and just 6% only buy local policies. Programmes tend to be a combination of global policies issued to parent companies and local policies issued to local operations. Aon said that this could be a result of several factors, such as the fact that local and master policies do not yet exist for all lines from all insurers, and/or the fact that in many countries there are specific insurances that must be procured for risks present in only that country (i.e. compulsory coverage). Consistent with prior years, general/ public liability, property damage/business interruption, and D&O liability are most frequently purchased as programmes including a global/master policy issued to the parent with local policies issued to some or all of the international subsidiaries. Types of global insurance coverage purchased include General Liability/Public Liability (86%), Property Damage and Business Interruption (78%), Directors & Officers Liability (63%), Marine /Ocean Cargo (43%), Auto/Motor Vehicle Liability (40%), Workers Compensation/Employers Liability (39%), and Crime (32%). —Tony Dowding

» FRAUD—AN INEVITABLE RISK FACTOR IN CHINA The risk of falling foul of corruption and bribery laws in their home countries has emerged as one of the most important threats faced by multinational companies doing business in China, according to experts gathered at RIMS 2013 the US risk management association conference, held recently in Los Angeles. Participants in a crowded session on the closing day of the event stressed how common business practices in China can often be seen as contrary to corruption and ethics laws in countries like the US. On the other hand, businesses can miss out on business opportunities if they refuse to play the Chinese way, the audience was told. Companies should be prepared to face such risks in China because corruption is endemic, the experts pointed out. “Fraud is rampant is China,” said James Chapman, a partner at Bingham McCutchen LLP, a law office. “Sometimes it is opportunistic, sometimes it is more systemic. There is a cultural mindset there that makes people feel that there are no consequences for their decisions and actions, especially when they are taking advantage of foreigners.” Business partners, including in jointventures with local firms, are often the culprits, but so are local employees who companies trust with running their Chinese units. For example, one of the recommendations that Mr Chapman gave to participants was not to allow a locally hired general manager to choose the unit’s financial manager, as it would increase the risk of collusion in fraud at the firm. To push the point forward, he mentioned the real life experience of a US mining company that invested millions of dollars in a production unit in Northern China, hiring a local general manager upon the recommendation of a Chinese shareholder. “Within a year, the general manager removed all of the equipment and opened a competing mining company with the equipment and employees of the US company,” Mr Chapman said. In other examples, multinational firms can find themselves in a situation where they are required to engage in practices that would be frowned upon in their home markets, but may be necessary to open business doors in China. —Rodrigo Amaral n F or full version of these articles please go to http://www.commercialriskeurope.com/ ipn-home/ipn/

4/6/13 14:09:09

NEWS Continued from Page One

CERTIFICATION: Grandfathering could lead to derision CONTINUED FROM PAGE ONE the long established professions such as medicine, law, accounting and engineering’. Kevin Knight, President of FAPARMO, echoed Mr Fowler’s comments on grandfathering. The risk is that people will look on those that have been grandfathered with ‘derision’ as they have not earned accreditation, he said. An alternative is to make existing risk managers pass an intensive course, he added. At the event organised to discuss the findings of Commercial Risk Europe’s Global Risk Frontiers survey that is published in September, risk managers engaged in a lively debate on the relative merits of a certified professionalised risk management role versus more informal approaches, such as a skill set based on experience and understanding of the business. Some believe that risk management is a competency that should be integrated into business management, rather than be placed

in a silo or become a profession. Preliminary key findings from the Global Risk Frontiers survey show that risk management has been rising up the corporate agenda, with risk managers increasingly reporting to the main board and a greater use of enterprise risk management. The survey also found wide support for a global framework of accreditation and transportable qualifications to help raise the profile of risk management. OPPOSING APPROACHES The contrasting views aired at the debate in London reflected the many different approaches to risk management among companies, and the varying roles of those responsible for insurance and risk management. However, the rising profile of risk at a board level is helping drive the debate on who should be responsible for managing risk. In some organisations, especially in high-risk industries like aerospace and energy, risk management is becoming more professionalised

with increasing use of enterprise risk management and chief risk officers. However, many companies do not have risk management departments, with insurance and operational risk managers, as well as finance and legal professionals, developing the role within their own areas. One risk manager at the event neatly described the two contrasting perspectives: a ‘protectionist’ view of risk management with professional qualifications, and risk management as a competency and knowledge to be used by all in an organisation. “I see risk management as a basic competency, so the focus should be on improving that competency in every day management,” the risk manager said. He went on to say: “By professionalising risk management you will make things worse. Should a risk manager go to jail for not predicting the future correctly, in the way a lawyer or a finance officer could if they get things wrong?” Risk management exists at two levels, agreed Mr Fowler. A

professional risk manager would help managers in an organisation manage risk and develop and implement the firm’s overall risk management framework, in much the same way as a qualified human resources professional would help managers develop and apply their HR skills. Developing this theme, Mr Fowler made the point that finance too exists as a general competence for most managers these days, but Chief Financial Officers have never been more in demand. Why should risk management be any different, he asked. IN-LINE TRUST The most effective risk managers are those who are trusted by line managers and who can work within the business culture, said Mr Fowler. “The challenge [for certification] is not to substitute education for experience. Risk managers must be able to navigate and be ambassadors within their organisations.” Risk management is best carried out by line managers, but companies

also require professional risk managers to act as consultants and advisers to local risk and operational managers, argued Christoph Schwager, Chief Risk Officer at European aerospace group EADS, who also spoke at the event. Certification is not intended to prevent people from other disciplines—such as lawyers and engineers—from participating in risk management, said Carl Leeman, President of Ifrima. “The purpose of certification is to broaden risk management, not to put it in a box,” he said. “The IRM, Ferma and RIMS are all trying to give people qualifications and certify what an individual knows, which will make it easier for companies to find the right person for the job,” he said. However, the danger of education is when it is too prescriptive, said Mr Leeman. “There is no one system for risk management and people do it in different ways. That is the charm of it. You can adjust it to suit your own company and operations.”

UK: Reforms should spark faster and greater settlements CONTINUED FROM PAGE ONE nied by good practices, could lead to a 25% or greater increase in the value of claims settlements for large losses, said Mr Hepburn. Claims will be paid quicker and with bigger quantum of settlement, he said. However, premiums may need to increase by 25% or more to compensate. “If insurers have to pay out more and quicker, someone has to pay, and that is likely to be the customer,” said Mr Hepburn. However, Airmic sees no reason why premiums should rise. “The market tells us that the uncertainty inherent in the present legal framework does not prejudice clients or have an impact on valid claims. So, similarly, the process of removing that uncertainty should have no impact on claims costs,” said Mr Hepburn. Proposed changes to insurance contract law are seen by some as a golden opportunity for buyers, brokers and insurers to change current business models and make the insurance product more relevant to UK companies. ‘CHANGE PATH’ “The industry is at the beginning of a significant change path, with buyers demanding new standards of professionalism,” said Mr Hepburn. “Weak practices have protected the insurance industry and customers allowed that, but significant change is coming,” he said. Change will not be triggered by legislative reform alone, said Mr Hepburn. “The legislation will provide better statutory underpinning of insurance contracts, but to get the benefits buyers will need to embrace better placement practices.” Risk managers will need to exert more control over how their nominated broker markets insurance and how insurance contracts are drafted and bound, said Mr Hepburn. “Customers need to realise that the buck stops with them, they can’t outsource the controlling mind behind insurance programmes to the broker,” he said. The efficacy of insurance often comes down to individual contract negotiation, agreed Nicolas Bailey, current Chair of Airmic and Group Risk Manager at BBA Aviation.

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CHANGE IN UK INSURANCE CONTRACT LAW MAY BE SEEN NEXT YEAR Broad support from buyers and insurers means that changes to the UK’s commercial insurance contract law could happen as early as next year. The Law Commission expects to publish draft legislation early in 2014, which should be much the same as the proposals it consulted on last year. They address the perceived imbalance in insurance contract law, which is widely believed to overly favour insurers. There is strong support for the reform, according to Law Commissioner David Hertzell. Some 70-80% of the organisations that responded to the consultation back the proposals, including many insurers, he said. “It took a while for insurers to adjust their thinking but many now just see the proposed changes as good practice,” he said. Nothing is certain in the political process, but there is also a degree of support from government, which is concerned about the competitiveness of UK business. “There is a reasonable chance that the proposed changes will become law before the next election in 2015,” said Mr Hertzell. “The government has seen what we are proposing and in my view has no principled opposition—it is just a question of political process.” The Law Commission may seek to use the dedicated parliamentary procedure for non-controversial bills—a streamlined process for Law Commission Bills through

“The efficiency of insurance is under the microscope at the moment, and there are areas that could be improved, such as some general policy conditions. But it is down to the individual risk manager to understand the constraints of an insurance policy. Buyers need to understand what it is that insurers are offering and decide for themselves if it offers value, and to ensure it is fit for purpose and ready to respond,” he said.

the House of Lords, he said. Insurance buyers, notably through Airmic, have expressed their strong support for the changes, which could see the balance of contract law swing away from insurers. “At the root of the problem is that the law needs to catch up,” said Mr Hertzell. The current insurance contract law dates to 1906, and was in fact drafted in the late 1800s, he said. “The world is now a very different place, in particular with technology and the growing size and complexity of organisations involved in the insurance chain. If we drafted that law today, it would be done very differently,” he said. The changes are not ‘overly radical,’ said Mr Hertzell. The Commission proposes to change the remedies available to an underwriter— mainly for non-disclosure and warranties. “The principles are right but need rewriting in 21st century speak—a change of emphasis,” he said. “The changes will clarify the underwriting process and say that there is a duty to make a fair presentation—it won’t support incompetent risk management or underwriting. We expect competence on both sides,” he said. The legislative change will give buyers a level of confidence that a claim will be paid if the risk has been presented fairly, said Mr Hertzell. “We suggest a more proportionate response and more flexible outcome,” he said. —Stuart Collins

Risk managers, brokers and insurers can all do more to improve the placement process, but law reform should level the playing field and remove some of the uncertainty that can result from the current legal framework, said John Hurrell, Airmic’s Chief Executive. In addition to claims certainty, buyers are increasingly concerned about the relevance of insurance products in today’s business environment.

For the larger and more complex organisations, insurance is looking ‘tired’ and financially uninspiring, said Julia Graham, Chief Risk Officer, DLA Piper and former Chair of Airmic. The insurance sector is slow in responding to emerging risks with solutions rather than products, she said. Companies are not well served by insurers when it comes to emerging risks, according to Mr Hurrell. “Insurers put out their own wordings with limited capacity as a way of testing the water, but they do not meet the needs of most buyers,” he said. “They need to think of new ways of developing products and shorten the time scale— share more data, share wordings and pull programmes together more quickly. They also need to take a long-term view of product development and accept that there may be initial underwriting losses as they develop the book of business,” said Mr Hurrell. UNDERSTANDING The effectiveness of insurance contracts depends on understanding the underlying risks faced, said George Davies, Chief Client Officer, Europe, Marsh. “The broker has to help the risk manager understand and evaluate those risks and overlay this with how responsive the insurance contract would be to those risks, leading to a better understanding of the value and relevance of the transfer,” he said. Allianz Global Corporate & Specialty (AGCS) is investing in technology and academic research to improve understanding of new risks like cyber and supply chain, according to Brian Kirwan, Head of Market Management & Communication at the insurer. Such risks require a vast amount of effort and data to comprehend, and will need insurers and risk managers to work in close partnership in the future, he said. Allianz also recognises that insurers will have to add more value on services in the future, as trends in self-insurance and non-traditional products evolve, said Mr Kirwan. “We need to work with risk managers to get products to a level that are of strategic relevance to the board. So we look to build broader and deeper relationships with clients on a corporate to corporate level,” he said.

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NEWS Continued from Page One

EC SUBS: More not less capacity needs say buyers Continued from Page One the selection of the lead insurer, is highly competitive. Once the lead insurer is selected, this practice is time-efficient, avoiding heavy and complex individual negotiation with every possible co-insurer, it added. The practice brings legal certainty for the parties involved when handling claims and resolving disputes, stated Ferma.

The system also makes sure that terms and prices are clear and consistent among all participants, argued the federation. Because of this recognised efficiency, the subscription market attracts a great diversity of insurance companies, which is in the corporate insurance buyers ‘best interest’, continued Ferma. “The subscription process allows non-specialised insurers to provide capacity to cover a risk relying on the leader’s

expertise in that specific area of risk. Consequently, a whole range of large risks can find coverage,” it explained. Ferma welcomed this latest opportunity to restate its confidence in co(re) insurance practices that it says have fostered beneficial cooperation between insurers and the risk management community. EU-LEVEL COOPERATION The federation added that it would gladly

collaborate on any future initiative at EU level. Ferma also noted that at a national level some insurance pools are ‘needed where the traditional insurance market is not interested or can’t solve temporary market problem on its own’. They are sometimes the only way to find huge financial capacities in the business insurance sector, it said. “These pools are considered so necessary because there is no viable alternative in the member state for coverage of large

and new risks. Pool members on their own would not be able to provide the necessary capacity for the (re)insurance of these risks,” said the federation. However Ferma did concede that if kept in place with a monopoly position, pools could work as barriers for potential new entrants to the market. Therefore, they have to be checked regularly against market reality so the insurance market remains dynamic and competitive, it concluded.

RELEVANCE: Teamwork needed to tackle uninsurable risks Continued from Page One Nigel Bamber, UK Country Manager and Regional Manager UK & Ireland at XL Group, pointed out to the gathered audience of risk professionals that today less of the top ranked business risks are insurable than they were in the past. He noted that Aon’s annual Global Risk Report now finds non-insurable risks, such as economic slowdown, regulatory changes and increased competition, dominate the corporate risk agenda. This has changed from 2007 when insurable risks such as business interruption, third party liability and supply chain failure rated most highly. Mr Bamber stressed that the insurance industry remains ‘very strong’ in core property and casualty lines. But he conceded that it has ‘clearly become less relevant’ in the overall effort to manage business risks. “You might argue it is not our job to protect you against such risks so perhaps we need to look at how we operate against your insurable risks. But I think in this latter part, again, we have become slightly less relevant,” he conceded to the risk manager delegates. “I think there are areas like emerging risk, cyber insurance for example, where we have to provide a better product for you to buy—that is a reality,” he added. John Hurrell, Airmic’s Chief Executiven was quick to agree that less corporate risk is now insurable. “If you look at the average corporate risk map and say what percentage in 2013 is insurable compared with 2003, the answer is very much less,” he said. “If you look at assets now on the balance sheet they are all around things like technology, intellectual property, brand and reputation, it is not around how many factories you have and the value of your buildings. So again, as a value of corporate assets, the insurance industry is covering less,” he added. Insurance executives who took part in the Future Role of Risk Transfer in Enterprise Wide Risk Management panel debate all agreed that their industry must work harder to maintain relevance in today’s economy. Nicolas Aubert, General Manager at AIG UK, said he is continually ‘surprised and shocked’ that insurance solutions still tend to take the form of products. There remains a ‘very big gap’ between the way carriers and buyers manage companies’ overall capital risk, he said. “I think the real relevance of insurance is to structure solutions from products from time to time but also from alternative mechanisms in order to redeploy our capital in front of your risk and not to deploy our products in front of your risk. For big companies there are

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a limited number of players that can do that and we encourage you to stretch our minds and your minds in ways to deploy our capital to supply you with solutions,” he said. Fellow panellist Joseph Clabby, Regional President at ACE Continental Europe, said that a high number of risk managers seem to question the relevance of the insurance industry and so it is easy to conclude that its relevance is diminishing. Signs of this include the expansion of captives and a perceived lack of innovation, he said. “But I think that is an easy conclusion and just because these emerging risks are happening and happening fairly quickly and we really don’t perhaps see much of a response as yet, that doesn’t mean the industry isn’t responding and that the industry isn’t actually investing,” he argued. INDUSTRY CAUTION “It will take some time and I think sometimes the industry is a little more cautious than the buyers need us to be. Buyers are saying they need solutions today and we are taking a more patient and pragmatic approach until we get a little more comfortable with some of the solutions,” he explained. For his part, Fredrik Rosencrantz, CEO of Zurich in Europe, said the insurance industry is probably more relevant than ever when talking about insurable risk. “However, if we talk about the increased demand for uninsurable risk for that we are probably not becoming increasingly relevant, but rather less relevant,” he added. In order to improve what they offer and address coverage gaps insurers are looking to make better use of data and analytics. This involves getting to grips with the huge amount of information potentially available to them from a variety of sources—both within the organisations from which they transfer risk and external sources. It will require a greater use of experts and increased dialogue with, and cooperation amongst, insureds, brokers and even competing insurers, they say. “We need much more skills in our companies—a lot of diversity from a technical, cultural and geographical standpoint—because this is about imagination and tuning our solutions to the very specific issues that you are facing across your companies and across the world. That requires a very different use of data and analytics,” said Mr Aubert. “The way we look at data at AIG has very much changed over the last couple of years and to be honest it is a revolution for us. We have always been big data users but the way we look at it now is totally

different. Instead of just using actuaries we are using much more varied skills and capacities than in the past,” he continued. Mr Aubert added: “When we talk about data we talk about big data and this is the big thing at the moment. But data is not only about the accumulation, it is also about understanding how your companies are operating.” Singing from the same hymn sheet, Mr Bamber said that a key reason why insurers have not been able to tackle the more tricky risks is because they are not close enough to their clients. “We need to understand your risks better and you need to get your key people in front of us so we can understand them. I think that is a failure on our part because we should be pushing for that,” he said. Mr Bamber also laid down the gauntlet to insureds over the provision of deeper and better information on their risks. “The fact is we are not a gambling industry. We look to judge risk and price accordingly and what we need is good data…we understand it is incredibly difficult for insurance buyers to get their head around supply chain risk, for example, but without that knowledge it is very difficult for us to price the risk,” he said. Mr Clabby believes a dynamic tripartite relationship between insureds, brokers and insurers is developing and providing better information exchange. His company is also making greater use of experts and the huge amount of data at their disposal to achieve a better understanding of emerging and complicated risks. “I think the data is there, it is really a question of the volume and the velocity of it. We have access now to data we didn’t have five years ago, the challenge is how do you mine it and how do you navigate it—you can drown in this stuff very quickly,” he said. CALL TO ARMS Mr Clabby called on insurance companies to work together to tackle this dilemma. “A challenge is how do we take external data and begin to understand some of these broader issues so we can begin to understand solutions. I think unquestionably it will require a sharing of that information among the industry, an element of that has to happen. If we are going to stay relevant and keep pace some level of information sharing has to happen,” he said. Mr Hurrell of Airmic said that dialogue across the risk transfer chain needs to increase and that his members would welcome such a move. He added that there should be much more coordination between insurers to build capacity and broader cover for certain risks. For him, better use and

analysis of data is a must. He also criticised brokers for failing to drive innovation and push the market to its full capabilities. “I just sense that brokers have lost some of the edge they had a few years ago in driving innovation,” he said. “Somehow the broking industry has got to rediscover its enthusiasm for innovation.” The insurers on the panel agreed that this represents a huge opportunity to the broking community. “I think that is really, really important. Maybe it’s a bold statement but I would say insurance companies are not that willing to develop new products. We don’t invest a lot of money in that because we don’t see it as a sustainable advantage because they become so easy to copy. So brokers have a very important role in daring us to develop solutions,” said Mr Rosencrantz. Fellow panellist Carl Leeman, President of Ifrima and risk manager for Belgian-based international logistics firm Katoen Natie, said that the insurance industry has a problem with its reputation and is failing to address the needs of the modern economy. Furthermore the Ifrima president poured scorn on assertions from some panel members that a spirit of cooperation exists between insurers and their clients to tackle complex and emerging risks. “I haven’t seen this change in dynamic. I have seen a lot of compliance, procedures, reporting and due to that underwriters do not spend time with clients. I have not had any insures come to me and say we can be creative and inventive and work together by talking,” he stated. In a refreshingly honest and imaginative suggestion Mr Bamber said insurers should and could work together to deliver solutions to risks that individually they cannot supply for reasons of capacity and scale. “My view is if you are looking at emerging risks, or risks that are very difficult, the reality is you probably have to look at some sort of industry solution. I don’t see why you can’t do that for some risks. So in effect you could have some sort of pooling or consortium that provides some mutualised cover for you as companies. I see that as a possible and credible way of getting some sort of solution. They do it in the defence industry so why can we not do it in the insurance industry?” he said. n The final Global Risk Frontiers survey which is based on interviews with risk managers across the globe carried out over the last six months will be published in September and available to all registered CRE readers. To register please go to www. commercialriskeurope.com.

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