No time for ostriches-Adrian Ladbury

Sensible, expert and grown-up communication between the risk managers and their brokers, insurers and other advisers that does not ignore local wrinkles in the search for the perfect, centrally managed, structure is essential in the modern fluid international insurance programmes environment, argued a group of leading German risk and insurance experts interviewed by IPN in the lead up to the annual DVS symposium earlier this month.

Hans-Jürgen Allerdissen, Managing Director at Deutsche Verkehrs-Assekuranz- Vermittlungs, the insurance arm of the German railway operator, said that the group’s international expansion is certainly a critical issue for him. “We are active in more than 80 countries. We have grown considerably and far in excess of the normal railway operations with our logistic subsidiaries Arriva and Schenker. For this reason we have to rework and retrofit our international insurance programmes,” he explained.

Gregor Köhler, President of Pallas Versicherung, the insurance arm of German chemicals giant Bayer said that compliance is a ‘fascinating issue’ and is inevitably discussed whenever one looks at international programmes nowadays.

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He pointed out that this is not a new topic for him or for Bayer but did say that the stakes had been raised by national regulators in recent times. “We have been working for decades with international insurance programmes. What is new is that regulators have become stricter, but since we’ve been adhering to local rules for much longer this does not affect us. We think it is very important to respect local regulations. They are mirrored in our international programmes. That’s why we feel that we are very well prepared,” he said.

Africa and the Middle East are regions that are showing impressive growth currently and offer great potential growth as Europe falters. Not surprisingly, many leading European companies are keen to tap the rich potential rewards.

Mr Köhler said that, despite the wider regional differences when companies expand to such regions, risk managers still have to apply the tried and tested principles of good basic risk and insurance management.

“We have already been working in South Africa for decades, so that is a mature market for us. Like other companies, we don’t produce within Africa that much. Our major activity is to sell there and therefore we have corresponding risks. In principle, there is no fundamental difference to other countries in the way we deal with these risks. At first, we look into what the local law says. Then, we establish local protection which has to be in line with the local regulations and with the international insurance programmes we have in place,” he said.

Mr Köhler added that the Middle East is a ‘special case’ because of the recent embargoes brought against certain countries which Bayer had to implement within its policies. This again stresses the importance of the ground up approach and not allowing oneself to be fooled into ignoring local complications in the search for a seamless, head office-driven strategy.

“To make it very clear: If there is an embargo we do follow this and our insurance policies will pay respect to this. And if we cannot grant coverage into such countries through our international programmes, then we have to obtain cover locally on site. In some cases, in this context our local exposures are not significant. For this reason, we are not affected so much, if we don’t get the normal standard cover,” he said.

Alexander Mahnke, head of Siemens Financial Services, said that Siemens is already a very global company and has been active in countries outside the European Union and the United States for some time.

He said that he certainly believes that finance and insurance markets tend to be more regulated nowadays in order to ‘protect’ local insurance markets from foreign insurers.

“This means that the organisation and implementation of international insurance programmes, including the ‘right’ purchase of local policies, will continue to be of importance,” said Mr Mahnke.

“A number of years ago, we became one of the first companies to look at ‘compliant’ international insurance programmes and will continue to do so. I think that this will remain one of the most important topics in our market for many years to come,” added Mr Mahnke.

The insurance manager said that one of the main problems in the Middle East is protectionism and political instability. He said that to help cope with this, Siemens’ offices in the region work with external consultants such as brokers.

So what do the brokers think about this critical area for their customers?

Mathias Pahl, CEO of Willis Germany, said that in his view the subject of global programmes has not really changed much over the years. “When I started in the industry the buzz word was ‘captives’ at the time and multi-line and multi-territory policies were all the fashion.

Back then we also had freedom of services in Europe which offered a more seamless and consistent way of arranging coverage across the continent,” he commented.

But Mr Pahl did concede that many clients currently say they like a ‘local’ policy. This is because it makes the claims easier to manage and ensures they do not break the law and can ‘play it safe’, particularly in the liability market.

“But the underlying principles have not really changed. You need a good network to service the client abroad and to ensure that the highest standards are consistently met and this needs to be centrally coordinated to offer consistency,” he said.

And the market is better equipped to deal with customers’ demands, claimed Mr Pahl. “The underlying risks remain the same, but what has changed is that the underwriters have a better understanding of the risks because they have better information which may partly be because there is more competition for this type of business,” he continued.

But the rise of interest and demand for effective international programmes is not just limited to western European, US and of course Asian companies that seek solutions for rising activity in so-called emerging regions such as the Middle East and Africa, and Latin America, according to experts interviewed in the run up to this year’s DVS Symposium.

Walter Schenk, member of executive board at Vienna-based broker GrECo, said that it has expanded recently in countries such as Poland, Austria and Serbia. He pointed out that in other countries in the Central and Eastern European (CEE) region its growth path has been affected by economic circumstances, not least in the Baltic countries, Hungary and Bulgaria.

“Foreign companies are reluctant to invest there. This has negative impacts on our business there,” he said.

But, according to Mr Schenk, the opposite is true for Poland. “We observe an initial demand for international programmes. We have some clients placing international programmes from Poland and investing on an international basis. For our company that means that we now accompany our clients from Poland at an international level. In the past, most of the programmes came from western countries, but this is now changing,” he said.

Christian Hinsch, CEO of German and international industrial insurance group HDI-Gerling spoke to CRE just as his company finally announced an IPO planned for this autumn that it said would provide funds for further international growth.

Mr Hinsch said that international programmes are an important recent growth area for this operation and this will continue. The demand for consistent cross-border coverage and service is one of the reasons why it continues to expand its reach in the CEE.

“For those customers that are acting internationally, that [the provision of cross-border coverage and services] is an important service. We are quite happy that we have the ability to provide that service. We are constantly working on the improvement in terms of quality but also in terms of units where we can offer our customers this service,” he said.

“This year HDI-Gerling Industrie has launched operations in India, Singapore and in Bahrain. We will continue on this route to add new units to service our customers,” added Mr Hinsch.

Achim Hillgraf, FM Global Head of Operations in Germany, said that international insurance programmes is also an important area for the group and it focuses a lot of resources on efforts to ensure it is able to deliver the right service for increasingly demanding risk managers.

Mr Hillgraf said FM has representatives on the ground in all the territories in which its members operate which is critical in today’s business environment.

But he said that the most important thing is to establish a ‘very direct’ relationship between the customers and FM’s specialist centrally-managed service unit. “It is not a profit centre with salespeople. We have an account manager who takes care of the risk transfer element of the global programme,” explained Mr Hillgraf during an interview carried out at the DVS Symposium.

On top of this, FM offers account manager engineers who take care of engineering elements and typically also a designated claims coordinator. This is all managed by the service unit whether it be in Latin America, Asia or Europe, which provides the risk manager with a ‘consistent’ and ‘easy to understand’ system, explained Mr Hillgraf.

“The Global Service Unit is effectively the watchdog which makes sure it works as it should do. If Malaysia introduces a cash before coverage system (which it has) and the payment has to be made before December 1 then the Global Service Unit makes sure that it is so that we are compliant whenever we do business for the client,” he explained.

This appraisal of the state of play in the global insurance programme marketplace expressed by Mr Hillgraf and the other experts based in Germany, interviewed in the lead up to and during the DVS Symposium, is very consistent with what has been stated by risk managers all over Europe for the annual CRE Risk Frontiers survey.

Risk and insurance managers in Germany, across Europe and worldwide are faced with increasingly complex risk exposures driven by the fast changing nature of the underlying risks their companies bear as they expand to new markets.

At the same time, the regulatory and fiscal rules that govern the way that risk managers are able to manage and transfer those risks further complicates the picture at a time when risk and insurance management budgets are being tightened not loosened.

The big international insurers, brokers and professional advisers that have committed the resources to play in this market have done so because this is a potentially high margin market that can lead to lucrative spin off benefits such as fat employee benefits premiums.

But they are just as aware as their customers that this is not a simple game to play.

This game demands a rare combination of central control, joined-up thinking and action, coupled with the ability to deliver coverage and service (not least claims), that actually works on the ground and keeps local managers on both sides of the fence happy…and keeps on top of the expense ratio at the same time. A walk in the park really.

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