Ever expanding headaches–UK

Julia Graham, Chief Risk Officer at law firm DLA Piper said that the key to the management of risks related to rapid expansion is to understand emerging markets and the basic fact that each may offer different issues such as legal and regulatory environments. “As a supplier, understanding customer needs and that their assessment of risk may impact on a company who is a supplier, for example as regards information security compliance,” she added. Ian Thomson of GSK said that because the pharma industry is highly regulated, companies that operate within it always have to retain ‘significant discipline’ in which companies they choose to work with to source their products. This includes intermediates, raw materials and component parts, he said. “Whilst this remains an important part of what we do, I am becoming more interested these days in exposure to credit default and corporate ethics and compliance issues in the emerging markets,” he added.hideNicholas Bailey, Risk Manager with BBA Aviation and current chairman of Airmic also focused on the rules. He said that there are all sorts of cultural issues that are covered by the FCPA (US Foreign Corrupt Practices Act) and similar regulation. “Bribery and corruption are tricky areas because they are closely and seriously regulated in the UK and US now but are not such a big focus for governments in places like Asia and Russia where people seek to expand. So there are pitfalls when you are growing rapidly and your local people are very excited about the opportunities without properly assessing the corruption exposures,” he said. Joint ventures are one way of breaking into new markets but there are risks associated with that approach because the partners may not really understand each other’s business and this can lead to ‘real’ problems, said Mr Bailey. “Therefore you need to consider the risks. There are opportunities in Asia but for us there is still potential in the US therefore you don’t necessarily have to risk all by breaking into new markets but can seek to maximise existing markets and opportunities,” he said. Global programmes are a popular way of attempting to manage the insurable risks associated with expansion to new markets and it has become a hot topic in recent times as risk managers grapple with new, and often unclear, rules and regulations. This year’s survey asked if there have been any major changes to rules that affect cross-border risks and whether participants are more comfortable with the compliance of your global programmes today than last year. Naturally we also asked what further needs to be done to improve the way programmes are organised. Helen Hayden of Prudential has been at the head of the Airmic and Ferma effort to try and create a global database of the rules and regulations to at least create a base point in the discussion and deliver some clarity and consistency. She reported progress during the recent Airmic conference in Liverpool where the Risk Frontiers interviews took place. “There is good news because we have the backing of three of the biggest brokers. We put the RFP [request for proposals] out before Christmas and had 14 responses that came in three different categories—companies that offered almost the complete solution, companies that offered the platform but not the data and legal firms offering the data but not the platform. We have had to spend time working out the model and the structure which is the boring behind the scenes part but fundamental to the success of the project. It has taken us a long time to get to this position but I am confident that we will have something in place to assist risk managers,” she said. More generally Mr Bailey said that it is a simple fact that when companies expand into new territories the local managers and even headquarters just assume that the risk manager will be able to buy the same kind of coverage in that market as at home and just as easily. “But of course this is not the case and in some parts of the world you just cannot secure the coverage. You can find that companies go ahead with such expansion without any cover and have assets and liabilities in place that are not insured because local management got ahead of themselves before thinking of the liabilities. Therefore trying to grow the business organically is a challenge as it is trying to grow by M&A of course, as anyone who has worked in that environment will attest. Mr Bailey said that the database is an ‘excellent initiative’ and it would be ‘nice’ to have. “Whether we make it or not is a question because it is a highly complex area but the fact remains that we have individuals even within the same insurance companies who do not agree on how the rules apply in territories and whether it can be written from London or elsewhere,” he said. “At the end of the day London is the centre of the global insurance marketplace and we need to get a handle on this and provide the best possible solution for risk managers to retain our global dominance. At the very least we need to be able to say that we did the best that we possibly could,” continued Mr Bailey. He pointed out that tax authorities are making more enquiries and are keen to source more income. “They just want tax dollars and it is a potential opening for more tax revenue. The bottom line is that if you are a global corporation or even only have operations in one or two other territories you have to be as compliant as possible. No one is perfect and the rules are often confusing and unclear but the tax authorities are interested and so you have to do your utmost to be as compliant as possible. The proposed database will take us a long way along this journey,” he said. Mr Thomson at GSK said that he is ‘no less comfortable’ with the global programmes and compliance matter than he was 12 months ago and that risk managers still have specific country issues to address despite decades of focus upon the topic. “I strongly welcome the concept voiced again in recent times by Airmic and Ferma of persuading insurers to share their databases to establish common ground on national insurance regulations and taxes so we can all minimise our exposure to non-compliance events and fines,” he added. Julia Graham of DLA Piper said that the risk complexity increases as borders expand especially into some ‘less well charted’ jurisdictions. “My comfort level is similar to last year. I’ll state the obvious: The market should work together to pool knowledge, avoid duplication and ensure consistency in interpretation,” she said in a typically forthright manner.Nicola Harvey of Christie’s said that for most of its key locations the company operates worldwide it buys insurance coverage where it has the buildings and so does not need a global programme to deal with local coverage. But she said that she does still have problems in the US, Switzerland and France. “I just wish that the insurance industry would get their act together because it is so frustrating that there is disagreement and lack of clarity . The legislation is unclear and the authorities do not give clear answers,” she said, voicing a very common and persistent concern among risk managers all over Europe.

Ever expanding headaches–UK

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