A return to contingent commissions - Insurance Times by zhangyun


									   Strategic RISK                                                                                                                                     daily
OCTOBER 5 2009

 NEWS                     INTERVIEW             VIEWPOINT              PROFILE                    AROUND THE EXHIBITION                                 SPONSORED BY
 The latest               The state of          Cutting costs          Meet Jana                  Pages 10–11
 developments             the market            doesn’t mean           Bicanova, chairman,
 and views in the         Page 3                killing innovation     Association of             WHAT’S ON
 European risk                                  Page 7                 Insurance and Risk         Page 12
 management               HOT TOPIC                                    Management
 arena                    Directors’ and        CASE STUDY             Experts of the             INTERVIEW
 Pages 1,2,4,6            officers’ liability   Crisis in Prague       Czech Republic             Marie Gemma Dequae
                          Page 5                Page 8                 Page 9                     Pages 14–15

A return to contingent
MOVES ARE AFOOT to remove                   attorney Elliot Spitzer investigated the   risks don’t have a great deal of say on
the 2005 ban on contingent                  issue. His actions resulted in an $850m    the risks’ quality.
commissions charged by large brokers        settlement with Marsh and agreement           In September, the state of New York
in the US. And this could be very bad       from Marsh, Aon and Willis to stop         indicated that it was looking at steps to
news for risk and insurance managers        taking these commissions.                  regulate contingent commissions,
worldwide.                                     US supporters of contingent             suggesting that it intended to relax or
   Contingent commissions are fees          commissions suggest that they provide      even lift the ban on the ‘big three’. A
paid by insurers, based on the volume       an incentive for intermediaries to be      major consideration in this move
and profitability of the business that      selective in the risks that they submit    seems to be the fact that smaller
brokers generate for them. Identifying      to companies. ‘That seems pretty           brokers don’t have the same
a clear conflict of interest between the    nonsensical,’ says Carl Leeman, chief      restriction. New York regulators have
major brokers and their clients, some       risk officer, Katoen Natie, as brokers     submitted new contingent
five years ago New York’s then state        who are in the business of placing         commission regulations to the               Carl Leeman, chief risk officer, Katoen Natie
                                                 FERMA DAILY NEWS

“   the reintroduction of
contingent commissions
will add another expense
                                               Chase enforces
layer into the cost of
buying insurance                               global village concept
governor’s office for review, stipulating
that intermediaries must disclose their                                                   the world.                                  understanding risk in very specific and
commission agreements with insurers if                                                       Chase referred to the Aon 2009 global    comprehensive way with a very clear
requested by a client.                                                                    risk management survey. ‘Talking to risk    view of the actions that they need to
   Arthur J Gallagher & Co, the US                                                        managers across Europe, it was clear        take to reduce it.’
fourth largest brokerage, has already                                                     that they ranked economic slow down            Chase did not predict any imminent
agreed with Illinois regulators to end a                                                  as the number one issue accompanied         hardening of the current ‘flat’ insurance
ban on contingent commissions as from                                                     also with the potential disruption of the   premium rates. ‘At the start of 2009, we
1 October. The company estimates that                                                     supply chain. Also cited was the impact     saw a decline in capital of the primary
lifting the ban will generate about $10m                                                  of a pandemic and other traumas on the      insurers and, to a lesser extent, that of
in additional annual revenues.                                                            supply chain.’                              the reinsurers. Those reductions were
   Last month, Reuters reported that                                                         What suggestions could Chase give        not due to the normal types of losses
Marsh, Aon and Willis are lobbying US                                                     on the ways that risk managers might        but mainly on the asset side of balance
regulators to overturn the ban. The                                                       manage these risks? He responded: ‘We       sheets. Over the course of the summer
brokers’ incentives are significant if the                                                believe the role of risk leader/manager     we have seen a significant
ban is lifted, for example estimated, as                                                  has never been more important. It is at     replenishment on the asset side of
well as the additional $10m income for                                                    the heart of how clients earn money and     balance sheets. Rates have been fairly
Arthur J. Gallagher, a possible extra                                                     therefore is a major concern for the way    flat, down slightly in retail and up
$254m for Marsh.                                                                          their companies grow and develop.           slightly in reinsurance. We see that trend
   Risk management associations were                                                      Building the capability to manage,          continuing in 2010.’
quick to respond to the Illinois decision.                                                quantify and mitigate all risk to the          Finally, Chase gave his views on the
The US Risk and Insurance                      Greg Chase, president & CEO of Aon         balance sheet’s added volatility is key,    thorny subject of contingency
Management Society (RIMS) was the                                                         and companies need to be able to            commissions. ‘In the US and across
first to give its verdict on the new ruling.   The FERMA Forum’s theme of ‘Global         continue to retain that capability. We      Europe and Asia the whole contingency
It said that contingent commissions can        village: the future of risk management’    believe that risk assessment is critical    commissions issue is secondary. The
be, and were in the past, ‘manipulated to      was enforced by comments from Greg         and will continue to innovate to come       primary issue is transparency – making
the detriment of the insurance                 Chase, president and CEO of Aon . ‘The     up with some solutions.’                    sure clients know what they pay for and
consumer’.                                     risks in the European environment are         On the subject of enterprise risk        the value they get for it. It’s essential and
   FERMA said it was ‘disappointed’ with       similar to the ones we see on the global   management (ERM), Chase said that           critical to have this transparency and it’s
the decision. The fear is that the ruling      stage,’ he said.                           European companies have been very           not often provided in the global broking
could have implications across the                In an interview with StrategicRISK,     much at the forefront but once again he     world. With transparency, there can be
industry, in that insurance regulators         Chase stressed that global economic        stressed the global perspective. ‘No        different forms of remuneration but
elsewhere could consider allowing              slow down has put tremendous               group of companies around the world –       clients can have a full understanding
similar practices. Once one big broker         pressure on businesses around the          wherever they are – has universally         of these.
decides to accept contingent                   world. ‘It makes the efforts around risk   adopted ERM across the board on a              He said that Aon does not currently
commissions, the fear is that others will      management and risk leadership even        broad basis. However, many of our           take contingent or secondary
have to follow suit.                           more important,’ he claimed. There is a    European clients have done an               commissions. ‘In the US there are
   And herein lies the rub. Regulators         clear view that the pressures that are     exceptional job in developing elements      multiple agreements in place that
and brokers seem to be taking the              being put forward are common around        of ERM. They appreciate the concept of      preclude us from doing so.’
attitude that if there’s transparency –
and a broker tells its client that it is
accepting contingent commissions –
everything will be OK because the client
can make its choice of broker based on
                                               Bigger investment in RM?
this information.                              Investment in risk management              activities into a common set of               enterprise wide risk management
   However, Leeman points out that in          initiatives will increase in 2010 as       processes supported by a single               and nearly 62% said that the crisis is
this case transparency does not equal          businesses try to focus on what is         technology platform to reduce costs           making them re-think their
choice. ‘In practice it won’t. There is        important to avoid unexpected              and improve efficiency,’ said Open            approach to risk management at
only a handful of brokers with the             outcomes whilst improving business         Pages.                                        board level
resources and know-how to arrange              performance. The message of a survey         Other key findings were:                  • 53% of respondents have a siloed
multinational programmes. If they are          published last month by Open Pages is      • 82% of those polled expect new              approach to their IT risk and
all committed to receiving contingent          that 89% of respondent companies             laws and regulations to be                  compliance management activities
commissions, buyers will face a fait           expect GRC (governance, risk and             introduced next year in an effort ‘to       in relation to their GRC
accompli.’ And the reintroduction of           compliance) spending to stay the same        improve corporate risk                      programme, yet 93% stated that
contingent commissions will add                or increase next year.                       management oversight’                       within two to three years they are
another expense layer into the cost of            ‘Companies will be looking to           • 62% said that the current financial         likely to converge or coordinate this
buying insurance.                              integrate disparate risk management          crisis has increased the priority of        with GRC.

              Keep up to date with FERMA 2009 at www.strategicrisk.co.uk
2     FERMA DAILY OCTOBER 5 2009                                                                               SPONSORED BY                 PUBLISHED BY Strategic RISK
                                                                              FERMA DAILY INTERVIEW

The state of the market
What’s the state of play in today’s European insurance market – and is it well placed to meet clients’
needs in the future? Sue Copeman talks to David Furby, president, ACE Continental Europe

    see a marketplace that is still competitive – but it
    has been a fascinating year,’ says David Furby. As
    an example of the ‘fascinating’ aspect, he cites the
significant erosion on the asset side of insurers’ bal-
                                                             “  In the current
                                                             environment, risk
                                                                                          expertise to help manage and mitigate potential risks.
                                                                                          Clearly, the extent that risk management suffers as a
                                                                                          function within corporates will be a consideration
                                                                                          that insurers need to look at fairly carefully. But I am
ance sheets in the fourth quarter of 2008 and the
beginning of 2009, followed by a fairly quick recov-         managers have been able      not seeing signs of erosion of care and detail of risk
ery. ‘This was aided perhaps by a clarification of
accounting standards relative to unrealised losses           to negotiate reductions in      He points out that insurers have obviously got to
                                                                                          be ever mindful of the pressures that their clients are
which together with more stable international credit
markets has enabled insurers to regain some of their         their insurance spend        under. ‘In the current environment, risk managers
                                                                                          have been able to negotiate reductions in their
loss capital without having necessarily to go to the
capital markets. Whilst the cost of capital has gone up      through negotiations         insurance spend through negotiations with insurers. I
                                                                                          believe the market has been very responsive in
in the marketplace balance sheets remain relatively
strong,’ he adds. As a result, there is plenty of capacity   with insurers. I believe     responding favourably to risk managements’
                                                                                          budgetary issues.’
in the insurance market place – which means contin-
ued competition.                                             the market has been             He warns, however, that this may not continue in
                                                                                          the future. ‘There will be a point inevitably when the
   ‘There are no immediate signs of a hardening
market,’ states Furby. However, he warns that this           very responsive in           market will have to change because insurers will start
                                                                                          losing money and will have to repair the damage to
may be a temporary state of affairs. ‘If you look at
recent insurance companies’ results, one conclusion          responding favourably to     their balance sheets. Whether that happens during
                                                                                          the current economic crisis at a time of considerable
you would draw is that generally speaking accident
year loss ratios in the industry are deteriorating and       risk managements’            budgetary restraint or afterwards is still uncertain.
                                                                                             ‘Assuming that the market does start to turn and
the contribution from prior year favourable
                                                             budgetary issues.            there are continued pressures on insurance buyers –
development has diminished. And that signals a
tightening of margins for insurers.’
   Typically, a continuation of current trends will
shortly, and in some cases already, result in
                                                                               ”          and this is quite a sensible assumption – we as
                                                                                          insurers need to be very mindful of those pressures
                                                                                          and have to be flexible in the way they tailor our
                                                                                          products. This means achieving a balance between
underwriting losses, ultimately eroding capital. ‘The                                     meeting the clients’ demands for protection of assets
capital loss has to be remedied and results have to be                                    and, meeting insurers’ requirements for adequate risk
put into a favourable position.                                                           premium for the businesses they are writing.
That only happens with a change in market                                                    ‘That is where real underwriting comes to the fore.
underwriting conditions whether in terms of higher                                        The underwriter has to be able to understand
premiums or more restrictive terms and conditions,’                                       coverage, the value of deductibles and coverage
warns Furby.                                                                              extensions, and to be able to price and tailor the
   He points out that there are a few exceptions to the                                   product not only to meet the needs of their
flat or even softening state of most sectors of                                           customers but also the budget with which they are
insurance business. ‘An area where premiums are                                           operating.
increasing and where capacity is arguably less readily                                       Furby also points out that both insurers and risk
available is directors’ and officers’ liability,                                          managers need to take adjustments into account
professional indemnity cover and errors and                                               when they come to renew coverage. ‘For many
omissions coverage for financial institutions.’                                           businesses, the effects of the recession mean that
Although ACE does not have a significant presence in                                      insurance values are going down in certain areas such
the credit insurance market, this is of course also an                                    as business interruption and cargo values. Redefining
area where premiums have increased significantly                                          these values will obviously have an impact on the
‘But we’re not seeing a real change in the other areas                                    insurance price.’
of business,’ emphasises Furby.                                                              He concludes: ‘Insurers need to be very
                                                                                          transparent. There has been a lot of volatility in terms
Serving clients                                                                           of insurers’ balance sheets. Risk managers have to be
In an economic climate where almost all companies –                                       mindful of the strength and security of the counter
including insurers – are under financial pressure, can                                    parties they are dealing with. While there has not
insurers meet the needs of customers who themselves                                       been a huge flight to quality, buyers are more
are focused on reducing their costs? Especially since                                     concerned about the financial security of the counter
corporate cost cutting may extend to risk                                                 party insurers they are working with and
management initiatives.                                                                   consequently insurance companies need to be more
   Furby responds: ‘Insurers put a great deal of                                          transparent in terms of the state of their balance
emphasis on the risk management that companies                                            sheets.’
apply across their business. They rely upon their
major corporate customers’ risk management                                                Sue Copeman is editor, StrategicRISK

    PUBLISHED BY Strategic RISK                 SPONSORED BY                                                       OCTOBER 5 2009 FERMA DAILY    3
                                               FERMA DAILY NEWS

Personalise risk management
Bureaucratic management systems that         Validation was handed over to a              types of risks that the organisation will   organisations across the board could
enable executives to take risks without      bureaucracy of outside regulators and        tolerate. And, periodically, external       benefit from personalising risk
responsibility are largely to blame for      credit-rating agencies. This, he says,       agencies are brought in to validate and     management.
the economic crisis, according to a new      allowed individuals to detach                quality assure the internal processes.         However, personalisation of risk is
study funded by the UK Advanced              themselves – legally and morally – from         Professor Birkinshaw cites the           not straightforward – a corporate
Institute of Management Research (AIM        the system in which they worked.             example of JP Morgan Chase, which is        culture is required that is both
Research). Poor risk management was at          The study argues for a shift towards      one of the major players unaffected by      conducive and supportive. In line with
the heart of the sub prime meltdown in       greater personalisation of risk              the crisis. It has a highly cohesive top    AIM Research’s objective to impact on
2007, it can be blamed for Lehman            management, particularly in large firms      team that takes ownership of its risk-      management practice, the research
Brothers’ failure and it continues to        – a system where the individuals who         management agenda. In 2006, they saw        outlines several basic principles that
haunt the banks today.                       make the decisions take personal             early warning signals of the credit risk    firms can apply:
   ‘Imagine a plane, where the decision      responsibility for evaluating the risk and   on mortgages and reduced the bank’s         • Develop high quality information,
about whether it is safe to fly is taken     for the consequences of their decisions.     level of exposure to mortgage backed           effective analytical tools and the
not by the pilot but by the airline boss        It is not that formal procedures and      securities.                                    competence to interpret this
and you get an idea of how some              outside agencies are redundant. The             By contrast, the large banks had            information.
financial institutions are managing risk,’   best-managed firms balance                   hundreds of employees working in risk       • Ensure that rewards are linked to
says Julian Birkinshaw of the London         formalisation and externalisation of risk    management, using procedures so                decisions taken
Business School.                             management with a personalisation            carefully defined that they could no        • Avoid situations where the decision
   He points out that in the years leading   approach. This means that there is true      longer see the bigger picture. They have       maker is too far removed from the
up to the credit crisis, financial           ownership of the decision to underwrite      borne disproportionate losses, says the        action to feel responsible
institutions focused unduly on the           a risk by the manager, who has the           report                                      • Build a supportive culture that
formalisation and externalisation of risk    appropriate level of expertise and              It is not just in the financial sector      includes a commitment to a set of
management. Risk was evaluated               information. There are formal systems        where rigid bureaucracies have                 non-financial objectives
through bureaucratic procedures.             for setting the limits for exposure to the   undermined performance. Firms and           • Refuse to simplify the big picture.

The dangers of complexity
A paper published last month argues that traditional        to successfully weather the collapse of Lehman              management systems was only a single contributor
approaches to risk management have become too               Brothers.                                                   to the financial crisis – broader issues of internal
complex, thereby undermining the value that a                  In short, if used effectively, business continuity       control and remuneration systems also played their
broadly-balanced board can bring to a company.              management helps the board focus on some                    part. Whatever the causes of the crisis, this paper
   The UK Business Continuity Institute’s discussion        key questions:                                              asserts that more complexity is not going to solve
paper – ‘Risk management is dead, long live risk            • the company’s business and operating model                the problem. Complexity is the enemy of
management’ - looks at how risk oversight and               • key value creating products and services                  understanding. Companies need to pause and
transparency can be improved for non-executive              • key dependencies such as critical assets                  reflect on what information is needed at board
directors and shareholders through applying                    and processes                                            level before simply investing in more tools
business continuity management practices.                   • how the company will respond to a loss or threat          and specialists.
   It suggests that there is a need for a corporate            to any of the above                                         ‘The business continuity management framework
impact policy that considers the dependencies and           • what the main threats are today and what is on            has the advantage of simplicity and provides non-
vulnerabilities of a business around the seven areas           the horizon                                              executive directors with the tools to ask the right
of disruptive impact which include reputation,              • evidence that the resulting business continuity           questions. The development of a corporate impact
finance, supply chain and people. The paper also               plans will work in practice.                             policy would provide a much clearer direction to the
covers the case of a financial institution, Euroclear          Lyndon Bird, international and technical director        company’s underlying businesses and provide easier
Bank, that applied business continuity management           at the BCI, commented: ‘The failure of risk                 oversight at board level.’

Managing health and risk benefit costs
‘Many employers are experiencing               these can be reduced by up to 50%.         4 Benefit funding. Sharing the cost
substantial pressure on expenditure in       2 Benefit remodelling. Decreasing the          for private medical insurance with
the current economic climate. A range          income protection benefit payment            employees by introducing a
of cost reduction strategies are available     term from the age of 65 to a limited         co-payment or claim excess can
for employee healthcare and other              term of five years can reduce                potentially reduce costs by up to 20%.
insured benefits, and can be                   premiums by up to 40%. In addition,          Removing or reducing paid
implemented quickly with immediate             reducing the claim escalation on             dependant cover could potentially
savings, says Steve Clements, a principal      income protection could cut                  yield even greater savings.
in Mercer’s health and benefits business:      premiums by up to 10%.                     5 Managing benefit usage. Limiting
   Mercer’s five top tips are:               3 Commission/fee structure.                    ineligible membership will help
1 Compare the current market.                  Ensuring that fee and commission             manage costs. Employers should
   Conducting a competitive market             arrangements are fully transparent,          benchmark benefit entitlement and
   review of benefit providers can             and incentivising the desired                review internal eligibility procedures
   reduce premiums and, by using               outcomes will help to control costs          to ensure that only eligible employees
   brokers’ preferred provider discounts,      and avoid unexpected expenses.               and dependants are covered.               Steve Clements, Mercer

4     FERMA DAILY OCTOBER 5 2009                                                                               SPONSORED BY                PUBLISHED BY Strategic RISK
                                                                                                                FERMA DAILY HOT TOPIC

  HOT TOPIC                               Directors’ and officers’ liability
If there’s one subject that grabs the board’s attention it’s directors’ and officers’ liability (D&O) with
the potential threat to their personal assets. Here’s a rundown of the latest news from the market

Aon’s view                                     means that those prepared to shop                          2.6

                                                                                                                                                                                                Source: Aon’s Quarterly Directors and Officers Pricing Index
US financial institutions (FI) saw             around can still find bargains in the
premium increases of 15% on average in         market. This is more so in the excess                                           Quarterly Index of D&O Pricing
Q2, according to Aon’s quarterly D&O           than the primary market as new
pricing index. Its UK counterparts             entrants fight the established players for
experienced similar increases. However,        market share.                                              2.2
renewals have been mixed and will
continue to depend on specific risk            Motor sector varies
factors and financial performance.             One notable difference in cross-Atlantic
The analysis finds that pricing increased      premiums is in the automotive sector.

                                                                                            Index value
                                                                                                                                                                D&O Pricing Index
4.07% in the second quarter as compared        While the US has seen two very high                        1.8                                                      Q2 ‘09 vs Q2 ’08
with the second quarter of 2008. Current       profile bankruptcies in the second                                                                                       +4.07%
rates in the S&P financials sector (banks,     quarter, the UK D&O market has not
diversified financial, insurance and real      experienced the same challenges.
estate) are up 14.77%. The economic            Pricing in the related sector in the US is
turmoil means rates are increasing             up nearly 44% (consumer discretionary).                    1.4
significantly, capacity is constricting and     In the UK it is flat with premium
coverage terms are tightening.                 reductions available in certain instances.
   Meanwhile, all other S&P sectors            Adam Codrington, executive director at
(service, manufacturing, technology, etc)      Aon’s financial services group,
were flat, marking the first time in more      comments: ‘There has been a definite                       1.0
                                                                                                                2002 2003 2004 2005 2006 2007               2008                 2009
than three years that rates did not            rise in UK claims activity but mostly
                                                                                                                                                   Q1     Q2     Q3     Q4     Q1      Q2
decrease. Exceptions seen in the               confined to the primary layer of
commercial realm stem from industries          programmes. We anticipate that this                 continue to be relatively unencumbered       increase premiums in many incidents
rife with bankruptcies. But in the UK,         will lead to frictional erosion of margin           by non FI related claims.                    but they are being held up by
abundant capacity for most buyers              for primary players, while excess players             ‘As such, we are seeing attempts to        competition in the market.’

Conclusions from AIG’s seminar                                director of the SFO – who was speaking at the                      changing environment. He also said that it was
At AIG UK’s 12th annual corporate governance                  conference – felt that disgruntled employees who had               important that shareholders seriously consider more
seminar, respondents to an ‘on the spot’ survey said          lost their jobs were increasingly likely to blow the               on-going engagement with the companies in which
that they believe investigations by official bodies will be   whistle on their former employers                                  they invest.
the most significant driver of D&O claims in the                 Seventy percent of respondents also said that                      Despite the recession, conference attendees
coming year.                                                  corporate governance was more important today than                 were clear that the amount spent on D&O
   Increasing shareholder action and the sharply rising       it was a year ago. Sir Geoffrey Owen, Senior Fellow at             cover had not fallen victim to corporate belt
level of insolvencies were seen as the next most              the Department of Management, London School of                     tightening. The vast majority, 84%, of respondents
significant. Least worrying to the respondents were           Economics spoke about the challenges to corporate                  said that the amount they spent on D&O insurance
actions from staff claiming discrimination, despite the       governance after the credit crisis and the sort of fresh           had increased, or at least remained the same in the last
fact that Robert Wardle, partner at DLA Piper and ex          thinking that boards should apply in this rapidly                  two years.

Willis notes resistance to                     downturn or with highly leveraged                   ‘Owing to the economic downturn, we             In addition to the survey results,
rate increases                                 balance sheets, and some may even be                are experiencing an increased level of       the latest Willis Index D&O
The commercial sector continues to             seeing slight increases in premium. This            scrutiny and underwriting analysis,          newsletter features a commentary by
resist the sharp rate increases for D&O        compares with double-digit percentage               meaning that is essential for renewal        Jane Hickman and Ben Rose of
insurance seen in the financial                premium increases levied on financial               negotiations to begin early in order to      Hickman & Rose solicitors on how
institutions sector, with the average          institutions during the second quarter,             deliver timely renewals. Despite this,       directors and officers are under
premium for commercial business                as the fallout from the credit crisis               policy coverage remains broad and the        increased risk due to tougher action by
falling 5% in the second quarter,              continues.                                          wealth of information now being              prosecuting agencies against those
according to a new survey from Willis             Based on feedback from the London                requested of clients should be given         deemed ‘fraudulent’ or ‘reckless’.
Group Holdings.                                market, Willis expects the commercial               particular attention and the specifics       Hickman and Rose argue that the
   The 5% reduction is for commercial          sector will see continued small                     thoroughly analysed. When it comes to        increasingly litigious climate makes it
clients with strong risk profiles.             reductions over the next three months.              renewal business, we would urge that all     crucial for senior employees and
Reductions are smaller for those more             Julian Martin, executive director of             forms of no claims declaration should        directors to carry their own properly
directly impacted by the financial             Willis FINEX Global, commented,                     be avoided.’                                 tailored D&O policy.

PUBLISHED BY Strategic RISK                     SPONSORED BY                                                                                              OCTOBER 5 2009 FERMA DAILY        5
                                                FERMA DAILY NEWS

EL – don’t be lulled
into a false state
of security
Environmental risk ranked lower as a          for operators that cause environmental
concern in Europe than any other              damage, regardless of how that damage
region in Aon’s Global Risk                   is caused. The fact that environmental
Management Survey 2009 – despite the          risk ranked 32nd as a concern in the
introduction of the EU Environmental          survey is worrying because risk
Liability Directive (ELD). The global         managers are seemingly lulled into a
insurance broker and risk adviser is          false sense of security, believing they    security arrangements for the riskiest       seen a higher take up for environmental
warning European firms at this                have no exposure or their pollution        operators in industries such as chemical     liability insurance. We’re encouraging
conference to wake up to the reality that     strategies are under control.              production and waste management.             European risk managers to adopt a
this legislation could see companies held        ‘This ignores exposure to the impact    Spain has set the precedent and the          similar strategy in protecting against
liable for unprecedented costs for clean      an unpredictable one-off event on the      Czech Republic – FERMA’s host country        uninsured environmental damage.’
up and restoration of environmental           environment could have on the balance      this year – is set to follow in 2012.
damage.                                       sheet. It’s about preparing for the low      Dr Johnson added: ‘Risk managers           Region                 Environmental
   Simon Johnson, Aon’s environmental         frequency, high severity event by having   need to review the ELD and their                                    risk ranking
director for UK and EMEA, says: ‘There        insurance in place that covers all the     operations in relation to their insurance    APAC                   15th
is a common misconception that the            risks, While there is a minimum legal      programmes as there will be gaps. US         Latin America          16th
ELD is just about ongoing operational         transposition of the ELD, some             companies with European subsidiaries         Middle East & Africa   21st
pollution issues. The reality is the ELD      countries have taken this further by       are becoming increasingly aware of their     North America          22nd
significantly increases liability in the EU   introducing compulsory financial           potential exposures and in turn we’ve        Europe                 32nd

Misaligned and fragmented risk functions
threaten performance
        inety-six percent of organisations believe they     plan to commit more resources to risk management           have different views on the severity or importance of
        have an opportunity to improve their risk man-      over the next 12-24 months.                                certain risks.”
        agement functions. And nearly half say commit-         Kennard explains, ‘Recent events have forced a
ting additional resources to risk management could          maturing of risk management and many companies             An improved future
create a competitive advantage, according to Ernst &        can take pride in the progress they have made.             The survey demonstrated that companies want
Young’s Future of Risk survey, which examined organi-       However, now is not the time to become complacent –        improved risk coverage while decreasing costs and
sations’ attitudes toward risk management.                  leading organisations recognise that the continuing        improving value. They also aspire to have their risk and
   The survey of more than 500 senior executives,           opportunity to improve their risk assessments,             control activities aligned and coordinated. The key to
predominately those at the C-suite and board level,         enhance monitoring, reduce costs, and better integrate     making this possible lies between the risk and control
reveals the downturn is heightening awareness among         information technology.’                                   functions and the business units. This includes having
companies of the need to manage risk more effectively.                                                                 an aligned mandate and scope, coordinated
   Paul Kennard, UK and Ireland head of risk at Ernst &     Lack of coordination is a threat                           infrastructure and people, consistent methods and
Young, says, ‘Although many organisations have              The survey also revealed that the number of risk           practices and common information and technology.
boosted the size and reach of their risk management         management functions has increased to keep up with            Survey respondents clearly recognise that risk
functions, this does not always equate to an increase in    compliance requirements. However, the coverage and         management provides significant benefits to their
effectiveness. In fact, too few organisations can claim     focus of these multiple risks functions has become         organisations beyond better identification and
that shared reporting, data exchange and coordination       increasingly difficult to manage, and is compounded by     understanding of key risks. Most respondents also
consistently occurs among their various risk                a lack of alignment.                                       report benefits from improved business performance
management functions. In the end, this only leaves the         Seventy-three percent of respondents indicated they     (99%), protection of business value (98%), better
organisation more vulnerable to the threat of risk.’        have seven or more risk functions. Furthermore, 67%        decision making (98%) and improved compliance with
                                                            have overlapping coverage with two or more risk            regulations (98%).
More needs to be done                                       functions. Fifty percent of those surveyed reported           Kennard concludes ‘Leading companies are creating a
Despite improvements in risk management over the            gaps in coverage.                                          competitive advantage by using the economic downturn
past several years, organisations should continue to           Kennard says, “Risk management functions within         as an opportunity to make practical yet valuable
challenge their approach - especially now when most         an organisation often exist in silos that are              improvements to the way risk is managed. More than
will be asked to do more with the same or limited           disconnected from one another and the wider business       ever, organisations need to have a comprehensive and
additional resources. While only two percent plan to        strategy. As a result, risks identified in one area may    coordinated risk management approach with strong
decrease investments in risk management, almost two-        not be communicated or recognised by another.              executive oversight and board of director governance.
thirds (61%) of survey respondents said they do not         Moreover, different areas within an organisation may       The opportunity to make those changes is now.’

6     FERMA DAILY OCTOBER 5 2009                                                                              SPONSORED BY                  PUBLISHED BY Strategic RISK
                                                                                                 FERMA DAILY VIEWPOINT

Cutting Costs Doesn’t
Mean Killing Innovation
Today’s tough economic circumstances offer some opportunities, suggests J Michael Barrett

    t has become commonplace to               well positioned to absorb the impacts of                                                  While Work-Out was designed to
    observe that the world economy is in      change, to adjust to new dynamics, and                                                 eliminate unnecessary processes
    a period of unprecedented flux, that      to come out stronger by adapting to                                                    primarily within manufacturing, the
the predictability of bygone eras has         new economic realities.                                                                same concept of taking ‘work out’ also
been replaced with something border-             But if there is light at the end of the                                             applies to current products and services
ing on chaos, and that yesterday’s mar-       tunnel, what should global executives                                                  organisations. The key variation on the
ketplace realities are no longer adequate     be doing now to be optimally                                                           theme that can lead to success for
predictors of tomorrow’s economic             positioned for the inevitable return to                                                today’s uncertainty is to combine Work-
drivers. Though much change is indeed         economic growth, if not economic                                                       Out with Work-Inn, or work
afoot, however, it is important not to        resurgence?                                                                            innovation, which is focused on
overstate the current climate of uncer-          The primary objective for today’s                                                   combining efficiency gains with
tainty and unpredictability, nor to over-     global senior management is to identify                                                investments in specific areas ripe for
react to it. While this crisis continues to   ways not merely to cut costs across the                                                innovation. Work-Inn mirrors Work-
claim many of yesterday’s most venera-        board, cutting overhead and lowering                                                   Out and can be conducted
ble firms, those firms that judiciously       capabilities evenly across all operating                                               simultaneously or in parallel but, while
steer away from being over-burdened by        areas, but rather to strategically trim                                                the latter focuses on a firm’s internal
yesterday’s cost centres and instead          away overhead from non-productive                                                      drivers and processes that can be
invest now in tomorrow’s centres of           areas and shape the organization in the                                                improved or shed, Work-Inn is more
economic growth will emerge as tomor-         direction of future growth. This is a time                                             concerned with understanding and
row’s leaders.                                of change, and therefore peril, but it is                                              mapping exogenous trends and drivers
   The fundamental truth is that we are       also one of numerous golden                  This is a time                            for the future economy as a whole.
experiencing much more than a typical         opportunities for those who can                                                           By identifying these key drivers and
downturn which will result in a return        identify and rapidly capitalise on           of change, and                            then looking inward and applying a
to the old tenets of business as usual.       emergent realities. Leaders who can                                                    focused three month innovation cycle to
There will be a new normal, one that is       foresee the direction of the new paths       therefore peril, but                      developing new capabilities and
predicated on such lasting trends as the      ahead will be well served in terms of                                                  strengthening current ones, firms can
impact of a truly global workforce, mass      taking market share from others who          it is also one of                         ensure they are making the most of this
diffusion of technology, and increased        are less adept at using this period of                                                 downturn by optimally orientating
regulatory oversight throughout the           change to cut certain costs while            numerous golden                           themselves to achieve success within the
capital markets of the developed world.       simultaneously shoring up capabilities                                                 future marketplace.
Risk will be more warily watched and          in areas ripe for future growth.             opportunities for                            In the end, cutting overhead and
productivity will again regain                                                                                                       streamlining operations will always be
importance as the underlying creator of       Improvement approach                         those who can                             painful. But through creative and
economic gains.                               One useful tool for managing the risks                                                 focused use of tools such as Work-Inn
   And yes, the economic dislocation          surrounding an uncertain future is           identify and rapidly                      organisations can at least create virtue
will be painful as jobs are lost, careers     derived from the proven process                                                        out of vice by ensuring today’s targeted
are disrupted, and entire industries          improvement approach called Work-            capitalise on                             overhead reductions leave the company
painfully transform into new and more         Out. Pioneered under General Electric’s                                                better positioned for pursuing
effective means of production. But in         Jack Welch, the Work-Out process is          emergent realities                        tomorrow’s profits.
the longer term the global economy will       predicated on short three month
prove itself resilient. The world’s private   business improvement project cycles          objectives in concrete, rapidly-          J Michael Barrett is an entrepreneur, resiliency
sector will bounce back, as it has done       that include a broad array of the            implementable ways. The twin goals of     management consultant, and former director
so many times before, because                 workforce in developing targeted,            buy-in and measurable success are thus    of strategy and resources for the White House
capitalism is ultimately an effective         measurable objectives then                   combined with the ultimate objective of   Homeland Security Council, email:
means of rewarding those firms that are       brainstorming how to meet those              reshaping current operations.             mbarrett@diligentinnovations.com,

                                              MOST           Brokers fail to                  Jordanian arrested over                    Connect with other risk
                                              READ           combat bribery risk              Dallas bomb plot                             managers online.
                                              ONLINE         UK GDP drops less                Ferma president sets                      Search for StrategicRISK
                                                             than expected                    out manifesto                                 on Linkedin.com

PUBLISHED BY Strategic RISK                   SPONSORED BY                                                                                       OCTOBER 5 2009 FERMA DAILY             7
                                      FERMA DAILY CASE STUDY

Crisis in Prague
One of the exhibitors at this year’s Forum has a long-established relationship with our host city.
Damage restoration company Belfor has been here before in less happy circumstances.

    n 2002 the city of Prague suffered from the worst        whole technology works on the principle of what is
    flooding it had experienced in the past 100 years.       called ‘triple point’. In essence, water from the frozen
    These floods affected all sorts of buildings ranging     state is transformed into gas (sublimation).
from private houses to large companies, hotels,                 The hot air chamber works on the basis of extremely
archives, libraries, museums, galleries and other            dry and hot air being pumped into a closed chamber,
cultural and scientific institutions.                        with wet documents being spread on perforated racks.
   Once the water fell it was impossible to begin            This extremely hot air absorbs the moisture from the
rescue works immediately at many places around               documents before being sucked back into the system
Prague. Numerous areas were closed and guarded by            and dried again.
the police for safety reasons, such as disturbed                The paper drying plant in Jirny is the biggest and
foundations of buildings, and fear of thefts and looting.    most modern facility of this kind in Europe. It can be
As a result, it wasn’t possible to begin rescue work         used to dry and restore not only documents or books
immediately, the preferred approach. Instead, as             from archives of all kinds, but also documents from
anticipated, moulds and fungi appeared on the backs of       courts, universities, banks, insurance companies,
books and other records within one and two days,             museums, private sector etc. Sometimes all that’s
exacerbated by the fact that the weather was hot             needed is a sprinkler failure to result in the need to dry
and humid.                                                   and restore important documents.
   In order to prevent further damage and to give time          Back to year 2002. Some of Prague’s top range hotels
in order to determine how to proceed, it was decided in      such as the Hilton, Intercontinental and Four Seasons
accordance with international recommendations that           were all flooded. Belfor mobilised a 500 strong team to
the vast majority of wet documents should be, after          deal with the aftermath. As well as local Czech Belfor
cleaning with water, put into polyethylene bags,             employees, at the general managers’ behest, over 100
labelled and fast frozen to approximately –20°C to           hotel staff including chefs, butchers and housekeepers       Among the institutions and records which suffered
–25°C. The amount of frozen documents was over               all helped in the clean up under Belfor’s supervision.       most in August 2002 were:
2000 m3. These frozen documents were stored in high          The hotels’ own subcontracted cleaners were also             • Archive of Architecture and Construction Industry of
capacity freezers until 2005.                                enlisted although it was a different type of cleaning          the National Museum of Technology (unique plans
   In 2005, Belfor Czechia s.r.o won the tender for the      than they were used to!                                        drawn on tracing paper and paper-made models)
drying of over 1200m3. With its unique and modern               Initially Belfor had to ensure that the hotels were       • the Central Military Archives (documents from the
paper drying plant in Jirny just outside of Prague, it was   mud free. This was going to be difficult but there was         Second World War)
capable of tackling a project of this size. In the           an innovative solution. The hotels’ own fire hoses were      • the records office of the Municipal Court in Prague
following three years it dried 939 m3 of paper in the        used to disperse the mud and wash it out of the                (court records)
vacuum chamber and 253 m3 in the hot air chamber. In         buildings. The force of the water from the flood meant       • the records office of the Ministry of Agriculture of
layman’s terms, this represents over 16 million A4 size      that the contents of each room had been severely               the Czech Republic
pages. The overall amount of vapourised water was            disrupted and in some cases blocked access to rooms.         • Municipal Library in Prague (manuscripts and rare
well over 160,000 litres.                                    Because many items were hygiene critical and had been
                                                                                                                          • Archives of the Academy of Sciences of the Czech
   When coping with a major crisis like this the             left in the mud for some time, Belfor had to advise the
                                                                                                                            Republic (librarian items, diplomas, photographs)
vacuum chamber can work non-stop for                         hotel on what had to be disposed of. This included all
                                                                                                                          • the National Library in Prague (editions from
approximately three to four weeks. After this period a       kitchen equipment: pots, pans, crockery, worktops,
                                                                                                                            19th century).
full batch of documents (over eight tons) is dry. The        ovens, fridges, and the fully functional laundry – all
                                                                                                   FERMA DAILY PROFILE

                                                               Meet Jana Bicanova, chairman, Association of Insurance
                                                               and Risk Management Experts of the Czech Republic

sheets, towels,tablecloths, napkins, industrial washing              ana Bicanova started working for the Czech office
machines, tumble dryers (these were so large a crane                 of the major European broker Sedgwick (now
was used to remove the machines out of a side                        part of Marsh) in 1992 when the firm decided to
window).                                                       establish a presence in the Czech Republic. She was
   Following the mud removal the whole area had to be          responsible for a wide range of activities and then
disinfected to neutralise any bacteria, making it as safe      focused on new business development which, she says,
an environment as possible in which to work. Then the          ‘enabled me to learn about and understand insurance
deep cleaning took place, and all affected areas were          and broking related aspects.’
pressure washed with water and sanitised with specially           ‘We worked with major companies in the Czech
formulated chemicals.                                          Republic and I was involved in tenders, coordination of
   After this the building contractors were allowed in to      programme design and coordination of Sedgwick’s
start replacing tiles, walls, ceilings and doors. On           local and external resources,’ she explains.
Belfor‘s advice all toilets and washbasins were removed,          After four years with Sedgwick, Bicanova was
pressure washed and dipped in chemicals before being           approached by SPT Telecom, the state
re-installed.                                                  telecommunications company, which she joined in           association has been working to support the
   When this was complete the whole area had be                1996. Her work started with setting up a risk             conference organisers as much as we can.’
sanitised again in case there had been any cross               management and insurance department. She has
contamination. The final stage of cleaning involved            remained with the company, now privatised and called      Growing interest
hand scrubbing affected areas where hygiene is critical        Telefónica O2 Czech Republic, a.s., since then.           Risk management is developing rapidly in the Czech
including kitchens and toilets as well as anywhere the            Currently, Bicanova is the corporate insurance         Republic. Bicanova cites a survey conducted earlier this
public had access to.                                          supervisor ; she also has a coordination role as the      year by the consulting company RPIC-ViP on the state
   After cleaning, the drying had to be carried out and        company has a subsidiary in Slovakia, and helps to        of risk management in the Czech Republic. ‘There were
this was on an unprecedented scale. A technician was           deal with insurance issues for that Slovakian             89 respondents and the results were quite interesting.
employed full time to monitor the drying process. This         subsidiary.                                                  ‘Seventy one per cent of those participating said that
was particularly important in the congress hall and               As chairman of the Czech risk management               they did apply risk management. Out of the 29% that
foyer which was lined, floor to ceiling, with cherry           association, Bicanova acts on behalf of the association   didn’t manage their risks, 22% of them were
wood. This had been stripped ready for replacement so          and represents it externally. ‘But I think once again,    considering introducing risk management in the
the walls had to be dried to a certain level to be sure that   when we formed the association a couple of years ago,     future, so only seven per cent of the companies
the new wood did not warp and bend.                            that my main role was a “start up” one. Before then       surveyed did not profess an interest in risk
   Belfor agreed these three stages of intensive cleaning      Czech risk and insurance managers had been holding        management.
and the drying process with advisors to the Prague             informal meetings and forming the association was a          ‘I think Czech companies have done quite a lot in the
government. They were responsible for granting                 natural development.’                                     field of risk management. The FERMA Forum should
permits to work and overseeing the clean up                       Now Bicanova focuses on the association’s work in      provide us with new ideas and approaches that our
throughout the city. With strict instructions from the         providing assistance and a networking opportunity for     members will be able to build on. It’s a very important
government to ensure work was completed to the                 its members. ‘We have about five seminars and             event for the risk management and insurance market in
highest level, they granted the Hilton hotel their health      workshops each year and, in addition, there is the same   the Czech Republic. The programme is full of very
and hygiene certificate at their first attempt. This           number of less formal meetings for insurance and risk     interesting topics. Also, the Forum is a great opportunity
allowed them to re-open to guests only six weeks after         managers.’                                                to share thoughts and experiences with fellow risk and
the flooding, the first hotel in the area to do so.               She is looking forward to the FERMA Forum. ‘The        insurance managers,’ concludes Bicanova.

Around the Exhibition
Surviving with AGCS                                                                                              New launches from Aon
Allianz Global Corporate Solutions has adopted ‘Different views, different risks –                               Aon is using the occasion of the Forum        • a crystal ball report – based on
We help you put it all together’ as the theme for its stand here at the Forum.                                   to launch a range of new products and           FERMA’s theme of ‘the future of
   Generic issues which the insurer believes are key in the market right now are:                                services. These include:                        risk management’, Aon predicts the
• financial downturn and financial stability                                                                     • its global risk management survey –           world of risk management in 10
• how to maintain underwriting discipline in tougher markets                                                        the top 10 risks keeping European            years time
• the increasing importance of directors’ and officers’ liability throughout Europe                                 risk managers awake at night               • Aon’s ‘Client Promise’ including the
• managing international insurance programmes.                                                                   • an enterprise risk management                 Global Risk Insight Platform that
   Tina Rocholl, the company’s head of marketing, will be attending the                                             survey - how successfully is ERM             tracks all of Aon’s placements
AGCS stand throughout the Forum while experts from all the insurer’s                                                being implemented across                     globally, from submission to quotes
business areas will be present on a rotating schedule. If there’s a particular area                                 organisations and geographically to          and binding.
you want to discuss, let Tina know so that she can arrange a meeting with the                                       create business value?                       The broker also invites you to relax
appropriate person.                                                                                              • a risk technology survey - what are         and meet in Aon’s ClientWorld café and
   AGCS’ ‘coolest’ giveaway is its survival kit, a handsomely packaged carrier                                      the benefits of using technology for       meeting space at the Corinthia Hotel
containing bandages, a sewing kit, refreshment wipes and other aids the global                                      risk managers and what is the return       Prague, available during exhibition
traveller needs in the field.                                                                                       on investment?                             hours.

Crawford rebrands its European                                                                                   Finance Malta gets it done
claims management                                                                                                                                                       Finance Malta has taken its

                                                                                                                                                                        exhibition stand theme for this
Corporate Claims Solutions, Crawford                                importantly Crawford views the TPA                                                                  conference as ‘The culture of
& Company’s UK third party                                          market and understands how its drivers                                                              getting things done’. It is
administrator (TPA) service, recently                               differ from those in the traditional loss                                                           highlighting the key features in
launched the Broadspire brand in the                                adjusting arena.                                                                                    Malta’s captive insurance
UK. It is now rolling out the Broadspire                               With a network of offices covering 25                                                            framework, namely: EU
brand across Europe, launching its new                              countries and totalling over 150 staff,                                                             passporting; PCC legislation,
European brand at this conference.                                  Broadspire offers local claims expertise                                                            insurance management
   Broadspire will use Crawford’s                                   and administrative services for motor,                                                              expertise; company
existing European claims management                                 liability, property, medical and travel                                                             redomiciliation, and IFRS
operations. Over the next year, the                                 claims to both insurers and self-insured                                                            reporting standards.
company will be gradually re-branding                               entities. It will have its own European         It expects its discussions with risk managers to particularly focus on concerns
its local TPA operations under this new                             website (www.broadspire.eu) and its          related to the current financial crisis – counterparty risk, credit and solvency risk,
name, working with each country to                                  own marketing collateral.                    financial stability issues and the like.
prepare a local launch of the Broadspire                               The new European brand takes its             It also sees one of the key issues in the market as being the implementation of
brand and emulate the success that it                               name from Crawford’s US TPA                  Solvency II and the need to ensure that captive insurance companies in Europe are
has had in the UK. The change is                                    Broadspire which has been a leader in        fairly and proportionately treated when it comes to balancing solvency risks with the
designed to demonstrate how                                         this area in the US for many years.          workload that needs to be done to meet the regulation. The Malta Financial Services
                                                                                                                 Authority has been engaged in this debate during the last few months and has had
                                                                                                                 discussions both within CEIOPS and with industry bodies such as FERMA, ECIROA
Guernsey Finance capitalises                                                                                     and the CEA on this issue. The discussions are aimed at finding solutions aimed at
                                                                                                                 managing solvency risk within captives in the most effective and cost-efficient
on ‘recovery’    Guernsey Finance’s presence here is part                                                        manner. Another hot issue, says the Authority, is the move from offshore to onshore
                                                                    of the ramping up of promotion of its        domiciles being considered by many captives in the wake of the financial crisis.
                                           Guernsey Tourist Board

                                                                    finance industry in a bid to capitalise on      Malta Finance promises some interesting and useful give-aways but says that risk
                                                                    what it believes to be slowly emerging       managers will have to visit its stand to discover what these are!
                                                                    global economic recovery.
                                                                       Peter Niven, chief executive of
                                                                    Guernsey Finance, said: ‘The economic
                                                                                                                 CNA keeps you in the picture
                                                                    downturn has impacted on the business        CNA Europe is inviting delegates to its      Nyssens, commercial underwriting
                                                                    flows that we have seen coming through       stand (35) to discuss products and           manager, financial lines, continental
                                                                    our usual pipelines but importantly          services with its senior European            Europe, Steve O’Gorman, European
                                                                    during this difficult time we have been      experts. As well as property and             marine manager, Paul Dowling, director
                                                                    keeping in very close contact with all       casualty considerations, possible topics     of renewable energy and construction,
                                                                    our key introducers of business to show      for discussion include marine, financial     and Jacob Ingerslev, European
                                                                    we are with them through thick and           lines, renewable energy, technology,         technology manager.
                                                                    thin. Now, in the final few months of the    group personal accident and travel,             Keeping you in the picture in more
                                                                    year, we are stepping up our activity        claims and risk control.                     ways than one, CNA is inviting visitors
                                                                    levels once again to ensure that we are in      Attending CNA’s stand during the          to enter their business cards in its prize
                                                                    pole position to capitalise on the slowly    Forum are Dominique Depondt, general         draw and have the chance of winning a
                                                                    emerging global economic recovery.’          manager, continental Europe, Francoise       digital camera.

10     FERMA DAILY OCTOBER 5 2009                                                                                                     SPONSORED BY                  PUBLISHED BY Strategic RISK
                                                                                                     FERMA DAILY AROUND THE EXHIBITION

Wells Fargo competes with                                                                     Innovative solutions from XL
the ‘big boys’                                                                                XL Insurance’s main topic at the Forum          underwriters are available for individual
Wells Fargo Global Broker Network is           Deanna Hyndley, its COO Grahame                is ‘innovative solutions for complex            presentations at ‘XL Place’, its meeting
expecting to be challenged by visitors to      Weatherley and a variety of                    business risks’. Specifically, it is focusing   and presentation area in the Holiday Inn
its stand on how it can compete with           international members of the                   on risk prevention measures in the areas        next to the conference centre. Here
the well known large major brokers.            network look forward to meeting you            of marine risk engineering (supply chain        some of its underwriters will be holding
Well, the network is now one of the            and to explaining how the network can          risks) and product recalls in the food          presentations on topics such as the
largest broking organisations in the           bring an alternative view to your global       and beverage industry, as well as risk          exposures to a company’s supply chain,
world, with more than 11,000 team              insurance and risk management needs.           solutions that respond to specific              how to mitigate product recall risks and
members and local coverage in over 135            Visitors to Wells Fargo’s booth             exposures to regulatory changes,                the impact of the European
countries. So Wells Fargo network’s            number 45 can also enjoy some popcorn          especially environmental insurance.             Environmental Liability directive as well
marketing and compliance manager               and walk away with a useful pen light.             As regard the key issues in the             as meeting clients and brokers.
                                                                                              market, on the operational side the                To make up for the lack of an exciting
                                                                                              insurer believes that loss prevention           give-away, XL is promising a ‘great
Willis reminds us of the challenges                                                           remains high on the agenda. The
                                                                                              changing needs and
                                                                                                                                              party’ tonight at the Lobkowicz Palace.

                                                                                                                                                                                          Czech Tourist Board
The theme of Willis’ stand is ‘the Willis gallery’. Its stand features a photo exhibition     expectations of risk
of world and major loss events. These include powerful images that capture the                managers as a result
challenges that today’s world is facing. The gallery includes photos of hurricane             of the current
damage, employment queues, aircraft crashes, etc – images that were also featured at          economic climate
the recent AIRMIC conference.                                                                 will also be an
Willis expects visitors to its stand to focus on some of the main questions and areas         important topic.
of discussion that risk managers have been concentrating on in the last year:                     XL’s stand is being
• Can and should we retain more risk during the recession so as to keep more cash             manned mainly by
    in our business?                                                                          senior underwriters
• Do we need to amend our counter party risk strategy and what is best practice?              from different lines
• Is the market going to soften or harden during the next 12 months?                          of business, as well as
    Providing answers are representatives from Willis business units and specialty areas.     its country
If you would like to talk to people about specific issues, tell John Carter from the Willis   managers. In
international management team who will be managing the stand and will arrange this.           addition, XL

PUBLISHED BY Strategic RISK                     SPONSORED BY                                                                                           OCTOBER 5 2009 FERMA DAILY   11
                                       FERMA DAILY WHAT’S ON

What’s on today – Monday 5 October
PLENARY SESSIONS                                                                          3 How to optimise a merger/acquisition or restructure a transaction in
                                                                                            today’s radically different market
09.00–09.30 Opening of the FERMA risk management Forum 2009                                 Submitted by BELRIM - Belgium
            Peter den Dekker, president of FERMA                                            Moderator: Marie-Gemma Dequae, board member of FERMA, Belgium
                                                                                            Speakers: Paul Schiavone, global head of mergers and acquisitions and private
09.30–10.30 KEYNOTE SPEAKER (ST)                                                            equity group and CUO management liability insurance, Zurich Global Corporate, UK;
            Global business economic outlook: managing the crisis                           Jean-François Vendenberghe, partner, Baker & McKenzie CVBA, Belgium
            Daniel Thorniley, senior vice-president, Economist Group
                                                                                          15.30–16.00 Coffee break and visit to exhibition
10.30–11.00 Coffee break and visit to the exhibition                                                  Sponsored by Wells Fargo Global Broker Network
            Sponsored by Wells Fargo Global Broker Network
                                                                                          16.00–17.00 WORKSHOPS
11.00–12.00 KEYNOTE SPEAKER (ST)
            The challenge of being a leader and a manager                                 4 Working with procurement for insurance tendering
            in a shifting climate                                                           Submitted by AIRMIC – UK
            Paul Bridle, leadership methodologist                                           Moderator: John Hurrell, chief executive, AIRMIC, UK
                                                                                            Speakers: Andrew Cornish, partner, Lockton, former chairman of AIRMIC, UK;
12.00–14.00 Buffet lunch open to all delegates                                              Paul Hopkin, technical director, AIRMIC, UK
            Sponsored by Lloyds
                                                                                          5 Health and safety for the future, risk trends
14.00–15.30 WORKSHOPS                                                                       Submitted by APOGERIS- Portugal
                                                                                            Moderator: António Fernandes, secretary-general, APOGERIS, Portugal
1 Emerging insurance markets: Brazil, India and China in the spotlight                      Speaker: Sandra Maria Dias, safety and health office, Sonae Sierra, Portugal
  Submitted by DVS/BfV – Germany
  Moderator: Harry Daugird, president, Komposit Risk Consultants, Germany                 6 ISO 31000: An incentive or a constraint for implementing risk management
  Speakers: Grant Elliott, chief executive officer, Aon Global Insurance Brokers Pvt.       in an organisation?
  Ltd, India; Max Thiermann, CEO, Allianz Seguros S.A, Brazil; Michaelle Zhou,              Submitted by ANRA – Italy
  vice president, Marsh Europe SA, UK                                                       Moderator: Marco Terzago, risk manager, SKF Industrie SpA, Italy
                                                                                            Speakers: Antonio Borghesi, professor of economics and management of the
2 Sustainable development: Long-term, future risks, risk trends                             enterprises, University of Verona, Italy; Alex Dali, managing partner, Atlascope
  Submitted by ASPAR CZ – Czech Republic, and RUSRISK – Russia                              sarl, France; Kevin W Knight, convenor/chairman, ISO working group on risk
  Moderator: Gert Cruywagen, director of risk, Tsogo Sun Group, South Africa                management, Australia
  Speakers: Tony Cabot, director of global programs, product development
  manager, Continental Europe and Asia, XL Insurance, Switzerland;
  Andrey Elokhin, head of risks analysing department, Lukoil, Russia;
  Petr Holecek, risk and environmental manager, Plzensky Prazdroj, a.s., Czech            ST – Plenary sessions are in English with simultaneous translation in Czech and German.
  Republic; Dr Cliff Warman, EMEA environmental practice leader, Marsh, UK                All workshops are in English

Prove your worth, share your experience
Help StrategicRISK in its search for risk management         on risk management and also, perhaps more                         Awards have steadily gained momentum and
excellence by telling us about your greatest                 importantly, the significant efforts that risk                    recognition since their inception. Our judges look
achievements this year!                                      management practitioners are making to come up with               forward to recognising and rewarding excellence in
   Risk management has come under the hammer in              innovative and effective solutions to add value to their          different aspects of risk management in 2010.
the last two years. Banks have failed, some major            organisations.                                                       We welcome your entries and your nominations of
companies have folded, but we don’t think it’s all doom        This year, more than ever before in the history of our          those of your peers that you consider have achieved
and gloom.                                                   awards, risk managers have been challenged as the                 outstanding success in one of the categories listed.
   We believe that coping with the recession and, in         recession continues. Like other corporate functions,                 Good luck with your entry or nomination for the
particular, associated budgetary restrictions, has put       they have been asked to reduce their costs and, at the            StrategicRISK Awards 2010.
risk managers on their mettle. Consequently, there will      same time, to achieve more. Their service and product
be some great stories coming out of 2009.                    suppliers too need to demonstrate real value for

   Despite the fact that European companies had been         money.
cutting costs and their risk management investments            In this difficult environment, risk management
had not escaped this cull, the entries for last year’s       practitioners have a considerable challenge. Those who
StrategicRISK European Risk Management Awards                have successfully met this deserve not just internal                             2010 EUROPEAN RISK MANAGEMENT AWARDS
increased over the previous year. Indeed, there has          praise but also wider appreciation of their
been a year on year increase since we introduced our         achievements.
awards in 2005, highlighting both the growth in focus          The StrategicRISK European Risk Management

12     FERMA DAILY OCTOBER 5 2009                                                                                   SPONSORED BY                            PUBLISHED BY Strategic RISK
                                       FERMA DAILY VIEWPOINT

Sue Copeman interviews Marie-Gemma Dequae, former FERMA president and now with the
Vlerick Leuven Gent Management School, and a risk manager with Partena group

You recently reached the end of a long period of

                                                                                                                       “ Itmanagementthat
                                                            still to be made.
being FERMA president – almost double the                      The question perhaps should be – do risk managers            is important
normal two year term. It’s been a period that has           have to change or do they have to work more in a team
seen some radical changes, most recently global             with other managers within the company?                    risk              and
recession and some major corporate failures.
Were there any changes in the way that European             In your term as president, what were your                  FERMA are more involved
companies view risk management during the                   highlights in respect of FERMA?
period as president?                                        The first important highlight was the change from a        in global management
In the last four years we’ve seen some problems with        somewhat internal global strategy to focusing on
companies introducing an enterprise risk management         cooperation with the national associations and looking     issues like finance
(ERM) approach in terms of the people who have been         at their needs. A visible highlight has to be our
involved. It was not necessarily the risk manager or        increased liaison with the EC in order to ensure that it   and performance
CRO who spearheaded this. The internal audit (IA)           implements good acceptable directives.
function was often closer to the board and to the audit
committee so it was often responsible for reporting on
risks to the board.
   That has not been a perfect solution as the current
                                                               FERMA is a European federation for risk
                                                            management but another highlight has been our focus
                                                            on working with other associations at a European level
                                                            that are also involved in risk management.
economic crisis demonstrates. In fact, I believe that one
result of this is that a lot of companies have been – and   Are there any areas where you felt frustrated              crisis where everybody is trying to minimise their own
still are - focusing more on short term risks and short     or disappointed?                                           share of the risks in contractual agreements. Also
term improvements/gains. If companies are really            One of the most difficult elements initially was to        getting coverage for liability risks in financial
looking to manage their key risks, they have to focus       motivate colleagues and other people to work together      institutions is becoming more difficult.
on the long term in order to capture all potential risks.   and adopt a real team approach within FERMA. It was           In addition, there may also be new emerging risks
I often say that risk management is a translation of        not easy to begin with but that has changed for the        due to variations in markets and products.
long-term into short term but it’s not always               better.                                                       It is important that these key risks are managed not
understood in that way.                                        I’m a bit disappointed when looking at the impact of    only in the risk management department but also in
   Internal audit departments tend to focus on internal     the crisis on some companies. There may be a refocus       other areas of the company. For example, the financial
risks instead of looking at the more global picture of      on insurance and less focus on real risk management        department needs to be managing the credit risk. In
the company and its external risks. Globalisation has       topics and may be some loss of context with global         this way the different divisions can work together to
resulted in many important changes for businesses.          management within the company. It is a paradox             embed risk management in the organisation’s culture.
These can involve strategy. For example, should a           because the crisis just calls for a broader and longer
business go into a new market or change its products,       term approach in risk management but we see a short        You’ve now taken on an academic role?
as well as issues such as climate change. These issues      term reaction of linear cost cutting which is a problem    How does this contrast with working for a
don’t get priority in the ERM approach used by some         in some companies.                                         major European corporation?
companies today.                                                                                                       My role is in fact to build a platform of risk
   There are also considerable variations in the way that   How would you like to see FERMA evolve?                    management within the different academic
major companies approach their global internal risk         I think it is important that risk management and           management departments and I see that as a perfect
management. I see ERM as an important global impact         FERMA are more involved in global management               extension of what I was doing when I worked at
approach that gives comfort to the board but it also has    issues like finance and performance management. In         Bekaert and also an extension of my former role as
to be the result of integrating the organisation’s          addition to the risk manager’s division, within human      president of FERMA. It’s a follow up role which focuses
operational risk management with more strategic and         resources we see that performance is linked with risk      on building for the future in a strategic manner.
other risks.                                                management. Also internal audit/internal control, are         When I was with Bekaert I was of course only
                                                            focused on reporting risks to the board. The Eighth        focusing on one company but now I’m looking at a
Have risk managers changed? Do you think                    European directive on statutory audit asks for better      broader risk environment which focuses on all
their role and responsibilities are different now           monitoring of these three disciplines. I think it is       companies. The goal is to identify the variations of risk
to what they were when you first became                     important for FERMA to continue working with other         management in all companies. I’m looking at research
FERMA president?                                            associations in these areas so that risk management is     studies based on a multidisciplinary approach and
Risk management has changed. It has become an               also integrated in the other disciplines.                  bringing the results of these to companies and their
important element of board management. It is more                                                                      risk managers. I want to listen to all partners in the risk
focused now than three or four years ago. It is             What do you see as the key risks for European              management approach – insurers, brokers, risk
important that risk managers change and we see that in      companies in the next two years?                           managers, other colleagues. It is focusing on the
some companies.                                             Credit risk has to be one as a result of the financial     changes we see in the economic environment as well as
   Looking at the situation in Belgium, there are           crisis. This has a considerable impact on global supply    the business internal management environment and
perhaps 35-45 % of companies where risk managers            chain risks. These will also become more important if      learning how risk management has to evolve.
and risk management have changed to the ERM                 cost cutting means that procurement is only focused
approach and have also been involved more in global         on one supplier. What happens if you lose that             Sue Copeman, editor of StrategicRISK, interviewed Marie
risk mapping – producing risk registers so that they        supplier?                                                  Gemma Dequae, former president of FERMA who remains a
can manage priority risks. But there’s a lot of progress       There are also heightened liability risks due to the    board member of the association

14     FERMA DAILY OCTOBER 5 2009                                                                              SPONSORED BY                  PUBLISHED BY Strategic RISK
                                               FERMA DAILY VIEWPOINT

                                             Ferma in the news
                                             Some of the highlights since FERMA’s last
                                             Forum in October 2007

                                             28 April 2008 Solvency II and Captives
                                             FERMA called on its member associations to play an active role in
                                             developing the detail of Europe’s new prudential regime for insurers,
                                             Solvency II, so that captive insurance companies are treated
                                             appropriately. FERMA said the national risk management associations
                                             and their members should take part in the official study on the
                                             quantitative implications of the Solvency II Framework Directive by the
                                             Committee of European Insurance and Occupational Pensions
                                             Supervisors (Ceiops).

                                             1 October 2008 Risk management maturing
                                             and diversifying
                                             Risk management is developing and maturing across Europe,
                                             according to the results of a pan-European survey jointly conducted by
                                             FERMA in collaboration with AXA Corporate Solutions and Ernst
                                             &Young. This fourth benchmarking survey showed both an overall
                                             increase in maturity and a wide diversity in risk management practices
                                             among respondents across Europe.

                                             1 October 2008 Rules and controls are not enough
                                             Rules and controls have diverted attention away from true risk
                                             management and helped created the conditions for the current crisis in
                                             financial markets. A broad, enterprise wide system of risk management
                                             would have been far more likely to prevent the collapse in credit which
                                             is now affecting all businesses, leading members of FERMA said at
                                             their seminar in Brussels.

                                             6 April 2009 Insurance BER renewal
                                             FERMA welcomed the European Commission Report in favour of
                                             renewal of the Insurance Block Exemption Regulation (BER). It said:
                                             ‘The legal certainty provided by the current BER has fostered
                                             cooperation among insurers to create competitive insurance markets
                                             with sufficient capacity to meet the needs of large international
                                             insurance programmes. A renewed BER in March 2010 will continue to
                                             achieve this fundamental objective by exempting joint calculations,
                                             tables and studies, and co-(re)insurance pools from EU competition

                                             23 April 2009 Cautious welcome for Solvency II
                                             FERMA welcomed the vote of the European Parliament approving the
                                             Solvency II Directive, the new supervisory regime for EU insurance
                                             companies. However, while it believes that Solvency II will improve
                                             security for corporate insurance buyers throughout the EU, it does
                                             have reservations on the impact Solvency II could have on the
                                             insurance market in general, once the provisions of the directive take
                                             effect. ‘New capital requirements could have an adverse effect on the
                                             price of insurance products and the availability of capacity, in particular
                                             for long-tail liability risks and catastrophic risks,’ said Dequae.

                                             17 August 2009 Concern about contingent
                                             FERMA expressed concern about a ruling in the US state of Illinois that
                                             allows brokers to resume taking contingent commissions. In Europe,
                                             FERMA has campaigned for a voluntary ban by brokers on accepting
                                             contingent commissions and for full transparency of compensation

PUBLISHED BY Strategic RISK   SPONSORED BY                                                 OCTOBER 5 2009 FERMA DAILY   15

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