Antonio Eduardo Negreiros Fernandes, Membro da Direccao - Secretario Apogeris (Associacao Portuguesa de Gestao de Riscos e seguros):
Portugal is at an early stage of development in terms of risk management when compared to the other countries whose associations are part of FERMA. In most Portuguese companies at present there is not yet a function called 'risk management' nor an appointed risk manager. Most organisations are only just beginning to understand the concept and perceive the need. Normally, it is the financial manager who is responsible for buying insurance, and who will also take responsibility for dealing with the risk.
Therefore much of our focus is on promoting a national corporate risk management culture rather than on specific risk areas. Initiatives towards this include:
- increasing the number of members of our association
- developing awareness of risk management as a field of expertise and knowledge
- providing training sessions and lectures in the areas of risk management
- developing risk management literature and issuing periodical news and information in the Portuguese language
- promoting ways to increase risk management knowledge and expertise
- establishing cooperation with other organisations with common interests, such as insurance and reinsurance companies, brokerage firms, consultants and loss adjusters.
We are, however, just beginning to establish special interest groups.
These are still in their infancy so it is not possible to present any results. However, the areas of interest that we have established so far are:
- educational programmes in risk management
- insurance for natural catastrophes with government financing and regulation.
For the future, we foresee an increasing awareness in terms of the risk management discipline and a better understanding of the need to improve insurance programmes. As a second horizon we envisage that organisations will invest more in terms of prevention and protection of their assets and business.
Marie-Gemma d'Equae, President, Belrim:
There are a number of topics related to insurance that are key concerns for Belgian risk managers, such as the disappearance of coverage in different lines of insurance, including liability and property, the increase in deductibles and the growth in the number of exclusions.
For example, because of the effects of September 11, we see that a lot of companies have lost coverage for terrorism. We are also seeing more exclusions in respect of e-risks, while insurers have made it clear that they do not wish to be involved in paying high frequency claims. Many smaller Belgian companies have problems in getting the coverage they need at an affordable price and we are trying to help find some solutions.
Pierre Cambier, Risk Manager of the Glaverbel Group, who is involved in Belrim's study of the impact of implementing the International Accounting Standards (IAS) and held an afternoon exchange on this in March:
There are several IAS provisions which will affect the risk management community and the risk manager's job on a day to day basis and at several levels.
First, IAS 37 establishes the principle that a provision should be recognised only where there is an existing liability resulting from a past event.
Although this does not apply to insurance company policy liabilities, it will relate to non-policy related liabilities and will affect the way in which insurance companies' accounting is done - which will have a knock-on effect on their ratings. Similarly, most large groups in Belgium have captive insurers that will also need to take on board the new accounting standards with, for example, catastrophe reserves no longer being accepted.
And risk managers need to consider the way that their parent companies account for provisions for risk.
IAS 19 prescribes the accounting and disclosure for employee benefits, requiring the cost of providing employee benefits to be recognised in the period in which the benefit is earned rather than when it is paid.
Pension and employee benefits liabilities are often underfunded in companies' accounts so risk managers need to assess the new regime and how it will affect the balance sheet and profit and loss of the parent company.
Carl Leeman, Chief Risk Officer, Katoen Natie Group, who is involved in Belrim's project relating to provisions for future liabilities:
Companies are not permitted to make provisions for damages that have not occurred and to treat that deductible as a cost in their accounts. We commissioned Deloitte & Touche to look at accounting systems in Europe and other countries and their study showed that all take this same approach. You cannot make provisions for things that have not happened or if you make them you cannot deduct them from your profit.
We would like companies to be able to adopt the same rules as insurers in respect of provisions so that we can make provisions for damages that have not occurred or in order to finance high retentions. With insurers limiting the amount of cover they provide, companies' own risks are increasing and captives are only really a solution for larger companies.
We are putting together a number of proposals which will benefit all businesses, allowing them to make provisions against losses and enjoy the same fiscal benefits as insurers, but also committing investment, specified as a percentage of the provision, in loss prevention. The proposals will have a number of rules in terms of which lines of business can be dealt with in this way, the percentages for investment in loss prevention, and audit by an independent organisation. We believe the scheme could have significant benefits since it would provide an incentive for risk management and should result in fewer losses. However, there is still a long way to go.
Gunter Schlicht, Managing Director, Deutscher Versicherungs-Schutzverband E.V.:
German law requires companies to organise their risk management.
This is generally done by a risk management committee under the auspices of the board, composed of people from different areas within the company such as audit, operations, legal and insurance. So the title 'risk manager' is not widely used.
Unlike some other European risk management associations, we do not have research groups as such, but we have a comparatively high number of staff, so we are able to deal with subjects of concern as they arise, discussing them with the insurance community and giving advice to our member companies.
Despite a recent slight softening in the insurance market, there are still some areas where German companies find it difficult to get good coverage at an affordable price. For example, this applies to D&O liability insurance for large risks. Companies may find it difficult to access sufficient capacity to respond to their needs.
Pharmaceutical and chemical risks continue to face difficulties in getting appropriate cover, particularly where insurers view them as poorly protected or unattractive.
In general I think we are about to see a shift in emphasis from price to quality issues. For many companies, after a high increase in insurance costs, premiums appear to have plateaued.
There is an ongoing discussion in Germany on the responsibilities of managers. Corporate governance is coming to the top of the agenda and we can expect the introduction of legislative measures soon. We are also aware of the need to evaluate the implications of the European directive on environmental liability.
Environmental Liability Directive
Progress on the European Commission's proposed directive on environmental liability is continuing, and the European Council adopted a common position last September with a view to introducing the directive. It will cover prevention and remediation of environmental damage. Key features include:
- a wide definition of environmental damage which includes biodiversity damage
- the 'polluter pays' principle
- strict liability (ie no fault or negligence required) for operators of certain types of installations
- exclusion of certain activities including those already regulated and subject to a member state's own liability regimes
- no retrospective application - the directive will focus on ongoing operational liability
- the power for individual member states to determine appropriate restoration levels
- the availability of both compliance with a permit and state of the art defences.
The European Council has also postponed the requirement for mandatory insurance of environmental liabilities to give member states and the insurance industry time to develop financial security instruments and markets for dealing with environmental impairment. This decision will be reviewed within five years from the directive's date of implementation.
StrategicRISK in association with ACE European Group will be holding four roundtable discussions for European risk managers in 2004. These will take place in Belgium, Germany, France and Spain and will focus on risk managers' particular areas of interest, both in the countries concerned and throughout Europe as a whole. Risk managers who would be interested in participating should contact: Suzanne Hirst, publisher, StrategicRISK, E-mail: Suzanne.Hirst@strategicrisk.eu
Gary Schmalzriedt, Chairman and Chief Executive Officer ACE Overseas General, writes:
The relationship between risk managers and insurers is currently under strain, with changes in both demand and criteria marking a challenging new phase in the cycle. The stability of an insurer - so essential in recent times - now appears to be shifting in favour of a demand for lower premiums, which leads to a misplaced belief that previously higher rates were opportunistic rather than essential. Adding to this feeling of dissatisfaction is the arguable sense that the increasing involvement of the risk manager in the business process is, ironically, leading to the perception that insurance programmes are of diminishing relevance. So where does the blame lie? Whoever the antagonist maybe, one thing is certain: the need for insurers and risk managers to both listen and understand each other's roles, views and needs has never been greater. Undoubtedly there is significant value to be gained by insurers and risk managers sharing their cumulative knowledge and experience of today's risk environment. We have much to learn from each other, particularly given the increasing range of factors shaping future risks. There is a need for much clearer definitions of the role and responsibilities of the risk manager, and businesses need to recognise their importance and how their role can help an organisation become more competitive and evolve its culture and approach to suit its appetite for risk. Insurers on the other hand must look to do more to understand the issues faced by risk managers. The challenge is to develop more relevant and responsive solutions to meet risk management needs.
And what about the broker? A vital piece of the insurance puzzle, the intermediary holds a unique and enviable position of influence, counselling both insurer and risk manager. With their privileged access to client needs and supplier capabilities, how far are they shaping the risk management agenda? The EUROfocus series promises to put all these challenges and influences under the spotlight. ACE is a firm believer that a broader knowledge and understanding is key to a productive relationship between the insurance and risk manager communities, and is delighted to join Strategic Risk as a partner in these events.