Insurers and brokers—up for the challenge?–Austria

Klaus Grothe of Andritz said simply: “Yes we have problems. The insurance process is not meeting our needs. The cover comes in more and more lines. But we are completely dissatisfied with the approach of the insurers on the topic of sanctions for example. It is not clear what is insured or what is not,” he said, referring to recent complications about coverage caused by sanctions applied by the EU on trade with certain Middle Eastern territories. XL’s Michael Kleiter-Bingel rightly pointed out that the sanctions emanate from various political and trade institutions, affect everyone and are ‘out of the hands’ of the insurers.hideMr Grothe persisted, however, by pointing out that also in Europe references to EU sanctions crop up, Norwegian sanctions and the like. “This is ‘mission impossible’ for business to check what is on the list. This really annoys me because of the impact on liability insurance,” he said. “We have had sanctions trying to stop people doing business with certain parties but liability insurance is designed to indemnify and defend you against unjustified claims. Libya is a good example because we have seen sanctions come up and so insurance cover becomes void for any claims coming out of Libya. Gadaffi goes and the sanctions have gone. “An insurance policy should never be a moving target in terms of liability, this can never be justified. What if you deliver a product into Libya and it harms an individual, a person loses a limb or a person cannot work because of an incident with your equipment? What if, during the sanctions period, he goes to Italy and sues you through the European court. Does the policy respond? If not, this is completely the wrong way of exaggerating the intent of sanctions with primary insureds. “Sanctions have been around for decades and the sanction bodies realise that they cannot execute them on smaller companies because these companies really want to do business. They realise that trade is based on finance, therefore the focus is on finance, the banks, insurers and all the people that are working in that area. But if you focus on the people that are facilitating that business that is prohibited then it ends up with the lawyers and leads to great uncertainty,” continued Mr Grothe. Olaf Köhler of Austrian state railways pointed out that this topic is not relevant to all and particularly ÖBB because it does not operate in these countries. Mr Grothe pointed out, however, that sanctions could be a problem for risk managers for a company such as Mr Köhler’s if US customers become involved and he facilitates insurance cover or they themselves are involved in sanctions against countries such as Iran, Syria or the Sudan. “It could be a problem if you are on the receiving end of a sanctioned company or person or if you are involved in logistics. If you facilitate the transport of oil from Libya to mainland Europe by ship and then take it by rail then you take the risk. It is your locomotive that is carrying the goods,” he said. Mr Cerny at A1 Telekom Austria pointed out that this takes the discussion back to the question of global programmes and the need for really bespoke solutions. “I am quite happy with how we are setting up risk management for all our buildings and technical equipment. One of the biggest problems that we have is potential for disruption of service. This is one of the biggest risks and will also impact our solution for our network and for foreign subsidiaries. We are fairly centrally located and our international operations are centralised. For that we had quite a good response from the insurance market and we discussed it well beforehand. But it really is a sole solution and needs to be bespoke,” he said. Mr Grothe commented that this is where electronic platforms such as Inex24 do not really help the risk manager who has to deal with complex cross-border risks. Mr Kleiter-Bingel of XL said that whether an international broker is involved or not it is important that insurers address risk managers’ needs and the specifics of their organisational structure. He said that they need to be flexible to respond to particular needs in countries where they operate independently or as part of the programme. Once again, as in every Risk Frontiers discussion on this key subject, the topic returned to the need for more and better information about the underlying risks. “Insurers don’t have a problem with discussing solutions but risks like supply chain and CBI are not new, however they have intensified. It can be very difficult to craft a solution based on the limited information that is often available. We can only insure what we understand or else it is just a bet, we make calculated decisions,” said Mr Kleiter-Bingel. The insurer said that XL for one is making ‘huge efforts’ to comprehend clients at a deeper level. It has integrated risk engineering into P&C underwriting and it engages clients directly which often helps clarify misperceptions of risks. “In many cases we are just beginning the data collection process with client—a great starting point. The right solutions can only be revealed together. As the DVS normally states at its annual conference, we need to cooperate better,” he said. Mr Grothe pointed out, however, that if an insured understands the risk completely he or she no longer has the need to buy insurance. “He buys it to cover the unknowns. If he understands it he may only want to buy catastrophe cover,” he said. Mr Kleiter-Bingel agreed but added that the key is to try and understand the risk, pointing out that the risk manager may understand the risks but still not know when, where or to what extent the exposure will hit. “Therefore you buy insurance. It is the negotiation process with insurers that often reveals to clients what portions of their overall risk can be mitigated internally and what can do harm in such a significant way that insurance is warranted,” he said. Supply chain risk has not surprisingly been a hot topic during this year’s survey and the need for more and more accurate information is critical to the continued and improved provision of insurance cover in this area. But do risk managers currently really understand their supply chain risks? Mr Grothe honestly said that he is 100% sure that, depending upon the business, risk managers have to confess they don’t understand it. “You can probably track your major components and high value parts. But, at the end of the day, if there is a little screw missing that represents a miniscule part of turnover it can be catastrophic,” he said. Mr Kleiter-Bingel said that understanding bottlenecks and how to address and manage them is a critical element of the risk evaluation process. “For example in Thailand, has this been done properly in the past? Where are the actual risks? If there is a common understanding of where the bottlenecks are it can be worked out how to best manage them. One answer is risk transfer but it is not the complete answer,” he said. Mr Grothe responded by saying that the question to ask is: ‘What is the right level?’ Moreover one has to ask whether this is carried out as a top down process, he said. “Then you need to ask whether you need to transfer the unknown known to an insurer or whether to manage it.” Mr Kleiter-Bingel said that an open risk partnership is the answer. He pointed out that XL has recently established an underwriting unit for large complex accounts that is designed to cover risks that are not yet readily insurable. But he added that to find a solution requires the involvement of the full spectrum of expertise that is available, such as engineering, finance, legal and actuarial. “This is not just innovation, it is bespoke innovation that can’t be reproduced from account to account because of the depth of analysis required,” he said. More generally on the topic of service Mr Grothe said that insurers and brokers simply need to listen to their clients and used his experience with travel and accident insurance to illustrate the point. “We are really dependent upon individuals. We had an experience recently with a global travel accident policy where you just had to conclude that the insurance industry is simply not mature. They don’t listen. In big global corporations business travel is not a risk to transfer, you have to take much higher deductibles,” he said. “But the global travel insurance industry does not seem capable of making tailormade policies and is really missing the needs of global corporations. It is the same with medical expenses. Everyone is looking for service to allocate those costs because it is about predictability. A repatriation could cost €50,000 and may kill the bonus of the managing director in that country so he does not want to afford that. This is now on the radar, that kind of experience must be paid for and we are just looking at this. It needs a lot more flexibility and openness. It does not need insurers trying to hook you into these deals with partner companies. The typical response is: ‘We have never done it like this before, we have never needed it before but I am the insurer and I know how to do it,’” added Mr Grothe. Mr Cerny said that the first step for the big insurers and brokers is to help bring the unknown unknown to the unknown known. “That is, identify where the coverage shortages are. Most insurers try to sell products and that is it. Risk management should identify where the products need to be sold and for what,” he said. But the obvious question is how the insurers pay for such investment that does not reap immediate and obvious rewards, particularly in a soft and competitive market. Mr Kleiter-Bingel said that client consultation and being a provider of real partnerships as opposed to a simple capacity provider is the aim. “The service commitment needs to be involved at all levels, from the underwriting process to local and global policy issuance, to claims handling and engineering and the like. It all needs to be seamless and smooth. Each of these service areas for risk management clients delivers individual value but they must flow together,” he said. Mr Cerny said that the problem is that cost reduction and the sales of the product is the key for insurers currently and not the provision of detailed advice to customers in this stressed environment, underlining a theme that has dominated all discussions in this year’s survey and is a real challenge for the insurers.

Insurers and brokers—up for the challenge?–Austria

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