Ralf Oelssner: I propose that we look now at D&O.
Hans Jörg Schill: That can be dealt with fairly easily. If it comes to a claim, the insurers point to an exclusion, if not to a violation of the pre-contractual duty to disclosure. If that does not come in, then it was intentional.
D&O is in principle an insurance under the motto, private individuals have to be protected when it comes to a catastrophe. That is of course very important for our big industrial risks. It is of course clear that this also covers the financial interests of the company. But whenever people who had a case talk about this, it is the same thing: exclusion, violation of duty of disclosure, intention. Therefore we have to be prepared that we have to go into the field with a whole lot of lawyers when it comes to D&O losses.
Hans-Jürgen Allerdissen: In Germany we have the special situation that we insure internal claims. Internationally, D&O is organised a bit differently. That leads to a completely absurd situation for the insurer, who at first wants to refuse the claim, that’s how we know the insurers. He first has to say, intention or deliberate breach of the norms by that particular organ of the company which is in the line of fire. Then he will say next, here there was a deliberate breach of the norm, or there was intention. If that cannot be proved, then he must say the opposite, that no, the man did not even act negligently, he has nothing to reproach himself with. This contradictory behaviour comes with the construction of the German D&O policies. It is a particular difficulty and can lead to farcical situations.
Herbert Fromme: D&O insurers have in recent months certainly paid out one or other claims, but have not paid others. There were high payments for DaimlerChrysler, a payment with VW and also with WestLB. So it appears that insurers do not always get away with their triad of reasons for refusal.
Ralf Oelssner: The question is, Mr Fromme, how the settlements you mentioned were reached. The English organisation AIRMIC, the equivalent to DVS, has a new theme in the meantime. They discuss the willingness of insurers to pay justified claims, note not claims but justified claims. That one has to check and catalogue that at all was the thing that struck me most this year. With the three claims you mentioned, compensation was paid because there was an incredible amount of pressure, which we here cannot possibly imagine. That is not compensation according to the policy.
Herbert Fromme: Well, why do you buy the rubbish, if they are not going to pay?
Ralf Oelssner: Because basically we trusted insurers.
Günter Dröse: You can turn that round in a completely different direction. When will the German lawmakers understand that changes to the rules governing joint stock companies are needed? Many politicians who talk about globalisation, do not understand when it comes to the content. Otherwise they would see that German companies can only acquire good top personnel when they have the same choices as their foreign competitors. Every person asks, before he even applies, how is my liability covered? Then if in Germany he is told, you can forget it, you are left out in the rain. So the law has to be changed so there is the possibility of a deed of release. As long as that does not happen, it will continue to be a drama.
Hans-Jürgen Allerdissen: I want to look a bit in the direction of the lawmakers. We are at present experiencing the discussion in the Cromme Commission about managers’ salaries. There is one particular matter, that settlements made when a contract is cancelled before it runs out should also be limited. But no-one in politics considers also limiting at least the internal liability of the managers. Why is that not being done in parallel? Then we get into a completely different discussion, and then one can perhaps find sensible solutions. And I am only talking about internal claims.As far as the actual D&O cover is concerned: we decide very carefully which market we approach when we buy D&O. In particular against the background of regulation in the cases you mentioned. You have to ask yourself whether there are differences between the markets in the way they handle D&O claims, and I believe I can see these.
Herbert Fromme: Are the proposals now being made, such as the introduction of a direct claim of the company against the insurer, any help? Or is that marketeering?
Hans Jörg Schill: No, in my view that is not marketeering, but it is very important.
Herbert Fromme: Mr Faden, will Allianz also offer that in future?
Wolfgang Faden: I cannot at the moment say what the developments will be like. But to come back to claims handling,
I think I can only speak for German insurers. It is not true that German insurers are suspected generally of not acting correctly, no matter in which sector, and thereby also in the interests of the client. The insurer tries to give fair compensation, based on the contract. That is easier with property/casualty, but more difficult with business interruption. It seems to me that the case with D&O is even more difficult. But I resist the fact that the suspicions are continually being supported that, particularly in the D&O sector, insurers are more inclined not to regulate correctly.
Herbert Fromme: The gentlemen are firmly convinced that it is so, it is not a suspicion.
Wolfgang Faden: Why should that be particularly in D&O?
Hans Jörg Schill: The Germany chief of a big insurance company told me that for 95% of D&O clients he has to have a combined ratio of 0% in order to cover the remaining claims volume. And that could indicate why claims handling is so bad with D&O.
Wolfgang Faden: That is also true of other sectors in the market.
Günter Dröse: I have a suspicion. There are relatively few providers of D&O, it is not like cover for chemical risks where you can buy ?2.5bn or ?5bn. But if the worldwide capacity is small, where does it actually come from? There are just a few reinsurers who are certainly extremely exposed. My suspicion is that the driving force is the reinsurers, when it comes to the way a primary insurer treats claims.
Ralf Oelssner: Precisely that. Perhaps one more hint: a D&O insurer active in Germany told me that he wished he did not have to insure D&O any more. The reason is the specific claims handling for D&O cases. If he has one of them, he can pack away all other lines for that customer, the account is then ruined. There has to be something in the specific claims handling of D&O losses.
Günter Dröse: Where do the many court cases come from? They come on the one hand from insolvency procedures. If the insolvency receiver comes in and sees that there is a D&O policy in force, then he says, hey, let's sue the insurer. Then there is the question of how the market in Germany develops. As it does in America? Or as in England, where nothing will be paid. I know this from colleagues in the banking sector, they often had such cases, but nothing was ever paid out.
Edwin Meyer: The loss ratio for D&O in the USA went back strongly in 2005/2006, and this is at least partly attributed to the Sarbanes-Oxley factor.
Ralf Oelssner: The ratio in Europe, Mr Meyer, was published in the sector analysis report of the EU Commission.
Günter Schlicht: The combined ration in 2005 was 62%, that was ascertained by the report.
Herbert Fromme: That is good money. May I put another question in this connection. EPLI (employment practices liability insurance) and the German anti-discrimination law or Allgemeines Gleichbehandlungsgesetz. Is that a real theme for insurance, or a marketing bubble from the insurers?
Günter Droese. The offer to insure these risks was originally made in America. There it is more or less a must for large companies. The problem also exists in England, to a certain extent in Australia. It will come, the question is only to what extent, and every company will have to consider what precautions it takes.
Ralf Oelssner: I think that for quite a long time EPLI will not mean as much here as it does in the USA or Britain. But the AGG will surely also mean that there will be certain regional adjustments in EPLI cover. So far those claims which have appeared have had more the character of Abmahnvereine, dubious associations that make money by claiming to watch unfair practices and charge high legal fees for that. They try to utilise the law by encouraging people that they feel affected by the AGG.
Hans Jörg Schill: For us it is so, that all leading employees have been prepared through extensive training. So that we do not see this as such a huge theme.
Edwin Meyer: All that is of course looking at it from the German standpoint, and Mr Oelssner as chairman of DVS must surely also take a stand in this direction. With our company, 52 different nationalities now sit at one table during the management meetings. There it is my job as risk manager to make sure that our company does not suffer any losses from these risks, even if they are in different stages of development in different places. Here the question has to be put, whether a company really has to insure the risk. With this insurance, I am more concerned about the defensive character, the supporting character. For me the main ground is not the financial aspect, but the fact that I have someone who helps me to cope with such claims and also to regulate them. Perhaps one short tip with regard to D&O. So far it went without saying that when you live in Germany, it is said, your legal base is Germany. But here we must ask the question, does your place of jurisdiction have to be Germany? Or are there reasons for choosing another place of jurisdiction and to consider the advantages and disadvantages. At the moment we are in the process of consolidating a Dutch holding without production with a Luxembourg-based company with production. There Luxembourg as a place of jurisdiction is not necessarily prepared to regulate a ?500m D&O claim. Europe offers many possibilities, if one is ready to move one’s policies and one’s place of jurisdiction somewhere else.
Herbert Fromme: What would you suggest?
Edwin Meyer: No, I would suggest choosing the country where there is the most knowhow, and at the moment that is certainly Britain.
Hans-Jürgen Allerdissen: With regard to EPLI. The trend to an international operation has caught up with us, we are active in more than 90 countries. Where it is necessary, I think one should consider taking out EPLI cover. However, I think it is even more essential, also in Germany, to firmly put the theme into the minds of managers. That is the first step. In addition we are also active in third party business for other clients. I give them precisely the same advice. If you are generally based here, then you should first sort out your risk control.
Günter Dröse: The difference, though, is the deductible. Deductibles in the USA are much higher than those which we have here at present.
Edwin Meyer: One theme which I find important is disclosure with D&O. We have 330,000 employees in 60 countries, we have $190bn in insured investment volume. And then somebody expects us to find somebody to complete this questionnaire and sign it. You can only solve this problem by telling the insurers, that won’t work.
Ralf Oelssner: We are nearly at the end of our discussion. Perhaps we can just pass the question round regarding the subject of environmental liability. There are many models available. But they are individually not so well-known that one could discuss the deficiencies of these models. Do you see that differently, Günter?
Günter Schlicht: We could certainly say a few things with regard to the model of the Gesamtverband der Deutschen Versicherungswirtschaft. There are two basic observations. First, it is certainly a positive sign when an association is in a position to agree on a model policy before the law comes into force. The model does not satisfy all cover demands. But I have to say, realistically we could not expect that or we did not expect that. The model has its weaknesses, the model is cautious on a number of points, I will not list them all because we do not want to discuss them concretely now.
Hans Jörg Schill: Just one comment: losses of the insureds are excluded. That cover can be re-purchased. Isn’t that once again the usual method of the insurance industry?
Günter Schlicht: Yes, we can again see here the basic model that we have known for many years. The model is certainly not what clients would want as perfection. But now the challenge goes to the companies. The clients at the moment have to rely on qualified providers to come bit by bit nearer to the cover they need, whereby each part of the cover needs must also be thought through to the end.This is a new liability, of course the scope of liability is down on paper, but where the focal points are will only show over the next few years.
Hans-Jürgen Allerdissen: I would like to make three demands to the insurance industry in this connection. First, there will have to be discussions with the insurers about how far they will use intention as an objection when it comes to claims under the environmental laws. The second point is the question whether only accidental events can be insured – that is so in the GDV model – and this by far not enough from the insurers' side.
The third point, which has not surfaced in this discussion, is the question of how the D&O insurance copes with this. Here we are dealing with public-law demands, which can also be directed against the different organs of a company. The D&O policies have the usual exclusions. I can imagine, because here the environmental protection organisations can go to court without having suffered a direct loss themselves, that they might often sue these organs, particularly from the political point of view. Then the question arises: what do D&O insurers do in such a case?
RALF OELSSNER: Gentlemen, thank you very much indeed for your readiness to participate so freely in this discussion.