Marsh signs agreement to help avoid overpricing of Iraqi risks

Under the terms of the agreement Marsh and AAIB, the only international broker to be licensed and registered to operate in Iraq, will cooperate on insurance coverage, risk management and claims handling in the territory as economic activity continues to grow. It remains difficult for underwriters, in the unique risk context of Iraq, to get close enough to risks to fully understand them and price accordingly, said Simon Boxall, Managing Director at Marsh's Global Energy Practice. This is pushing up the price for Iraqi risks, and Marsh and AAIB hope their collaboration will help to redress this situation. “Getting risk engineers out on site to survey exposures is extremely tough...and when underwriters deal with a risk they do not understand they write the risk accordingly and price for that ignorance. “We see our role as changing that whole dynamic. Very much taking the veils from around the risk so that the underwriter can see exactly what the risk is in order to create a good competitive market for that risk and therefore reduce the cost of risk transfer to our clients,” said Mr Boxall.hideHe hopes the newly announced collaboration will help to avoid the situation where clients are paying two or three times the traditional rate for a given risk in Iraq just because it is poorly understood, he added, and that it will eliminate the excuse that the risk is poorly understood. “In order to do that you need a good presence on the ground and AAIB have been in Iraq for six years and understands the environment,” he argued. Brokerage AAIB specialises in providing high-risk and non standard insurance solutions for Iraq, Afghanistan and other emerging markets in the Middle East and Africa. It is headquartered in Amman, Jordan with an office in the UK as well as three offices in Baghdad, Basra and Erbil in Iraq. “If risk needs to be clearly understood by underwriters we are very much at the front line passing information back into London and adding value in both directions ... a fundamental of this relationship is that information is king,” said William Wakeham, Founder and CEO of AAIB. Iraq is attracting huge foreign investment, as well as investment from Iraqis' and their diaspora from around the world reinvesting in their country, the brokers said. Economic activity is picking up with the government planning to increase oil production dramatically over the next few years. The international insurance market remains cautious to Iraq risks, but is beginning to wake up to the opportunities on offer, said Mr Boxall. “The huge foreign investment that is there now will be followed by the [international] insurance market there is no question about it,” he added. “Typically they say we do not understand the risks, it is difficult to see what is going on on the ground and we do not know about security risk and the current regulatory situation. This holds them back from supplying capacity to Iraq risks. My view is that will change quite quickly when we are able to open things up and make it a bit more transparent for everyone.” For buyers also the regulatory environment and problems with compliance in Iraq are big issues. “We feel those rules will be defined and there will be a more obvious regulatory environment in the near future. And I think that is extremely important. What clients want to see is a very solid regulatory environment and compliance is a massive issue. I talk to clients about Iraq and they say one thing we want to ensure is compliance with local regulations,” explained the Marsh broker. To ensure compliance both brokers advised clients to buy coverage through the local marketplace. “What we are finding is the larger clients are not prepared to risk on jurisdictional issues and compliance and therefore, as a default position, they wish to insure through the local market,” said Mr Wakeham of AAIB. Currently the international investment communities insurance cover is being written either in the regional market, in the Middle East, or the international market, the brokers agreed. Very little is staying in Iraq, a situation which both parties said they want, and expect, to change over time. The insurance market in Iraq comprises of three state companies and 18 private companies. “Mostly they are undercapitalised and unfortunately the ability within those companies varies considerably,” said Mr Wakeham.

Marsh signs agreement to help avoid overpricing of Iraqi risks

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