Educating upwards

AL: How and why did you become a risk manager?

Peter Den Dekker: I became a bartender after leaving school and after two years decided to get a ‘serious’ job and ended up working at a health insurance company. I was not interested at all but there were a lot of young people working there so I decided to do it. It was a good choice because not long after that I met large brokers handling large company health insurance programmes and after a while decided that I ought to do some insurance courses. It was not easy and took three to four years because I went up the highest level. After two years I decided to become a broker.

AL: Why did you choose that route?

PDD: Because it was more interesting. I wanted to learn more because otherwise I would only know health insurance and wanted to touch more types of insurance. So I joined the insurance department of an investment bank where I worked for four years.

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After that I ended up as a property underwriter at the insurance bourse and learned a lot for a year, but I wanted to get out and not be stuck behind a desk and then Dutch broker Hudig-Langeveldt (subsequently acquired by Aon) approached me. The job was back in the Hague where I was born and raised and I got a company car and was able to go out and meet clients which I liked very much. After two to three years the chance arose to go to a foreign country which I had always wanted to do and was very exciting. So in 1993 I took my family out to Curaçao, in the Caribbean (one of the five islands that form the Netherlands Antilles) about which I knew nothing.

AL: What did you do and learn there?

PDD: It was an amazing experience and I learned a lot, particularly handling hurricane Luis claims in 1995. I worked for three months trying to get the customers paid for those sometimes complicated losses. It was difficult to find insurance capacity at the time for the area and being a part of the Kingdom of the Netherlands it was mainly Dutch capacity. I was due to do a trip for the week to visit local risks and the hurricane came along. I decided to proceed with the trip and was the first civilian to arrive in St Martin (one of the Netherlands Antilles islands that is actually shared with France) following the hurricane. I went with a loss adjuster and had never seen anything like it. It was like a war zone. That is where I learned how important it is to be there for the customer. I remember going to visit a local water plant for which I had arranged the insurance and all that remained was part of the office and the manager was there. He ran to me when I arrived and embraced me because I was the first sign of life. Also in that area I handled every type of insurance you can imagine, the clients were very diverse and I experienced the airline and aerospace industry for the first time which was very interesting.

AL: So how did you make the move into risk management and come back to Europe?

PDD: After the hurricane I went to look at one of the customers’ factories. It was Hagemeyer (the historic Dutch trading house and cheese distributor, that is now a worldwide distribution company focused on techno-electrical goods) that had a small business in St Martin. I remember standing outside and I was looking at the office and there was a big container of cheese behind me. I took a call from the risk manager of Hagemeyer in the Netherlands and told him everything seemed to be OK. But then when I turned around the container was gone! It turned out that the power was down and they had decided to distribute the cheese to the poor rather than let it go off. In the end there was no other country to go for me at Aon so I had to go home. I went back to the Netherlands with Aon for three months and then was contacted by Hagemeyer because they were looking for a successor to the risk manager that I knew. I was not sure if I would like being a risk manager, partly because I thought it would be like stepping out of the business into a more general role. Risk managers in those days were usually grey-haired, well-respected individuals and I thought maybe I was too young. But this turned out to be untrue and it was the best move I made. I found myself right in the middle of the market and I have loved it since then.

AL: What do you like about being a risk manager?

PDD: I do a challenging job and it is not always easy because you have to fight the perception of the board that you are just the guy who buys insurance. Typically they ask you about the acquisition after it has been made and try to solve problems afterwards. This happened a couple of times but after a while they learned and now we are involved in acquisitions because it is so important to be part of the team rather than arrive afterwards to pick up the pieces. This is something that all risk managers have to explain to the board. You are not just about buying insurance policies but financing of risks to ensure continuity. Once you start talking in these terms the CFO starts to listen because you are speaking his language. So you have to learn to profile yourself much more in the company.

AL: Is this a competitive challenge and, if so, with whom are you competing?

PDD: You compete with treasury, audit, legal and others. They are all typical headquarters functions and everyone in the company knows what they do. But as the insurance manager you do not fit into this and you are lonely and nobody really knows what you are doing. The image of insurance is very poor and no one really wants to enter the industry. For me insurance is associated with the man who sold life insurance to my parents in the evening. The industry does not do a great job selling itself and explaining how important it is for the wider economy.

AL: How do you change this poor perception?

PDD: This is part of what we are trying to achieve in Brussels with FERMA. We have to explain to the European Commission that insurance is not just about personal lines and that commercial business is different and you need different skills for this business. Maybe the industrial insurance market needs to sit down together and talk about how it can promote the business. I try to explain to Brussels that without insurance nothing moves. We have seen this after a big disaster like 9/11 when it was clear that if there was no airline insurance no aircraft would take off. This is why it is so important that Brussels and the regulators understand that while they are trying to improve the prudent regulations it will have a direct impact on the real economy. This is not a short-term business. It can take 10 years to develop a product and let it fly in the real economy and this requires investment in product development. What you do not want is regulations that impose real uncertainty on the insurance industry. We are now looking to finance risks in 2013 and 2014 so what happens now, that will affect the availability of capacity such as Solvency II, matters. It is good that FERMA is now talking to the European Commission about this and it is listening because it is much wider than just personal lines. They need to understand that if you are not able to finance risk properly then the banks will pull the finance.

AL: What exactly is the role of the insurance risk manager in this?

PDD: You have to think about how you deal with incalculable catastrophes such as the one faced by BP in the Gulf of Mexico. The role of the insurance risk manager in my view is actually as a centrepiece of operational risk management. He or she has to identify the risk, work out how it correlates and how to transfer it. We are the spiders in the middle of the web because we are involved in operational risk management that includes legal risk, physical risk, health and safety. The whole spectrum of risk. Therefore our job needs to be re-profiled. I am trying to ensure that CFOs and other board members understand that we are not just simple procurement guys and that we actually play a really critical role to identify, manage, control and transfer important risks, and are an integral part of overall risk management. The image of the risk manager is not always good on the board and I would like to start talking to CFOs and try to explain what important people we really are within companies.

AL: How do you do this?

PDD: Communication is critical. You have to be able to challenge the board about how they take risks. You cannot be a ‘yes man’ because you are there to challenge the board because you know better than them how to manage risk and at least offer alternatives. We need to therefore educate ourselves in this role and then we need to educate the board and say ‘listen, you have this goldmine in your company. Do you really value this function?’

AL: What role can the insurance industry play in this education effort?

PDD: I think it is better that my providers of capacity, the financiers of my company, are understood by the CFO and make direct contact with them. The CFOs talk to the banks and other financiers all the time but it is not comparable. We need to explain that this form of risk finance is actually much easier to work with and easier than going to the banks. Insurance capacity is also more relevant. I get loads of questions from my insurers about my business and the risks we take because they do not just give away their capacity. They want to know how we manage our risks. So you need risk managers who can gather the right information and understand it and not just present it. The question is: ‘How can you get the CFOs more interested?’ This is because they are the natural people on the board who are responsible for the insurance risk management department.

AL: How can risk managers achieve this? Does it require some kind of quantum leap or do you need to just keep knocking on the door?

PDD: The crisis has not helped because it has focused attention very much on cash. You have to get out of the box and literally leave the office and ask the boss to go with you. More generally you have to first agree on the qualifications and skills needed to literally raise the bar for this group of professionals. We can profile the profession with peers but what does this achieve if the board is still not aware of our existence? We need buy-in from the board and CFOs in particular. They need to realise what an important resource they have to hand. Education and training is an important part of that but profile is most important.

AL: It seems that one of the problems is that you have a problem of definition that needs to be solved before you can hope to move on. Are you insurance managers, risk managers or a bit of both?

PDD: When people started calling insurance managers risk managers and then CROs in charge of corporate governance and the like suddenly the insurance manager faced an identity crisis and asked ‘who am I?’ If you are an insurance manager then fine, call yourself an insurable risk manager. But if you are an enterprise risk manager please do not call yourself an insurance risk manager and remember that an insurable risk manager is not an insurance buyer because that is about procurement. About 80% of FERMA members are insurance related and pure risk managers make up the other 20%. So we have to educate enterprise risk managers about how to handle operational and insurance risk and educate the insurance managers how to manage enterprise risk and then build a profile and communicate with the board effectively. That is why FERMA really works on two fronts. I cannot say that we will lose risk management and stay as an insurance management group because there is so much in common. But there are also a lot of differences and we need to work with boards to make sure they understand this.

AL: How and where does the CRO fit into this?

PDD: There is a big misconception about the CRO role. The risk manager is a facilitator and needs to ensure the process is in place because the real decisions are taken in all departments of the company. The board can say yes or no but the real process has to be embedded in the company at all levels. The process has become more formalised because of external requirements and formalised reporting. Forty years ago we did a SWOT analysis and cost benefit so it really is nothing new. Now external parties need to be reassured that the board is in control of risk but risk management is not a new discipline. You need managers of risk, product managers for example who are dealing with everyday risk on the shop floor. These are the people who ensure that health and safety is adhered to, continuity of manufacturing and the management of suppliers. This is how risk is managed. The question is: ‘How do you consolidate this into a reasonable document?’

The risk manager does not have to say yes or no but ensure that everyone is aware of the risks and it is done on a consistent basis and the board is aware of the system that is used. This then fits in with the risk appetite chosen.

AL: What are the big unknowns that currently face risk and insurance managers?

PDD: The biggest uncertainty currently is how will the insurance market look after Solvency II. Emerging risks are still in my view insurable. Let’s first see what Solvency II will do and how much capacity is left for the long term, particularly for catastrophe risks. This is an emerging risk in itself because there is a question to what extent the insurance industry can respond to the needs of industry. More broadly there is more tangible risk and how this will be financed. There is still credit risk and how suppliers pay bills and how customers behave over the next two years. This really is the biggest uncertainty. For the CFO one of the biggest concerns is the availability of credit insurance and how you manage the risk of suppliers.