New risks, new transfer conundrums for Spanish buyers – Igrea

There was sharp focus on the US and Latin American markets and the implementation of multi-lines/multi-year programmes as risk managers, brokers and insurers met at the headquarters of Abengoa in Seville this week. International issues have been a feature lately of events organised by Igrea. Primarily because Spanish firms have been expanding their global footprint-as Spain's economy remains in the doldrums-and are learning new ways to do business in the process. They have met considerable challenges, even in other developed markets such as North America.hideAbengoa, the Spanish multinational specialising in innovative technology, which is developing several high profile energy projects in the US, is no exception, noted Rogelio Bautista, the firm's head of risk management and member of Igrea's board. He stressed how difficult it is for companies involved in tenders of large infrastructure projects to meet US requirements, such as the provision of guarantees in the form of performance bonds. These are not always possible to place in the current market, he said. In some tenders companies are asked to present their track records of losses in the US, which is not feasible for those that have just got into the market. In fact, even insurance companies may refuse to provide quotes to potential buyers without a verifiable insurance history in the country, noted Jaime Echanove, Business Development Manager at Willis in Dallas. The risk landscape in Northern America is also very different from Spain. Liability risks, for example, are much more of an issue on the other side of the Atlantic, Mr Echanove said. Companies were also warned that they should consider employment practices liability a major risk at their US operations, despite not being a particularly significant risk in Spain. Another difference highlighted by Mr Bautista is the fact that companies in Spain sometimes work directly with insurance firms rather than going though brokers. In the US, however, market practice necessitates they must work with an intermediary. "Without a broker, insurance companies do not even give you a quote," said Mr Bautista. He also explained that Abengoa has felt the need to hire a growing number of specialised risk advice services to help their US operations. Willis' Mr Echanove told Spanish buyers to expect stable rates for construction insurance in the US, an important activity for a number of Igrea members. He also said that regulatory factors are increasing the need for construction companies to include coverages such as workers' compensation and general liability in wrap-up policies that cover a number of different risks. For their part, US casualty rates have been on the rise, although moderately. D&O prices are also under pressure, as well as employment practice liabilities, said the broker. A point of concern for buyers in the US is the end of state support for the purchase of terrorism insurance, scheduled for 2014. According to Mr Echanove, tensions can already be found in the market and rates have been going up by as much as 10%. However, property rates for corporate buyers are unlikely to be much affected by the damages caused by hurricane Sandy, he added. An important effect of Sandy could be psychological rather than financial, according to Vicente Cancio, CEO of Zurich in Spain. He argued that the increasing intensity of catastrophic events could mean that, some years from now, insurance companies stop selling certain catastrophic coverages as investors decide they do not want their money exposed to such events in some parts of the world. The increased complexity of Spanish companies' international adventures imply that their insurance arrangements are not getting any easier. But Daniel San Millan, President of IGREA, said a multi-line, multi-year programme with significant levels of retention is a good option for corporates. However, this is the kind of initiative that remains underused in Spain and one that, for all its possibilities, could be hard for risk managers to sell within their organisations, he said. One of the reasons is that a multi-line, multi-year programme could require extensive use of a captive. But the captive's capital would have to be considerably enlarged in order to comply with tighter solvency rules whilst at the same time it takes higher levels of risks, explained Luis Basabe, Managing Director of Marsh in Spain. Multi-line, multi-year policies are also a hard sell in Spain because they represent a complete change in philosophical outlook, Mr San Millán said. "But it opens up a new world where the company can work with a focus on its own losses," he added.

New risks, new transfer conundrums for Spanish buyers – Igrea

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