Conference Times asked risk managers in major companies their views on risk and their perception of the insurance market
Robert Larcombe Senior Insurance and Risk Officer, Innogy [owns nPower and windfarms]
How has your view of risk and your role as risk manager changed over the past year?
Risks in certain areas of the business have increased over the year, especially terrorism following 9/11. We are very much aware of the heightened risks of terrorism to the business.
On the operational sides of the business our main concerns are catastrophic failure at a key power station, which may give rise to substantial material damage losses and probably even greater business interruption costs. The traders are in a position to mitigate any losses by trading out of any crises situation where insurers are aware of our trading risks.
The risk manager's role at Innogy has increased in line with the increase in size of the company, leading to the increase in size of the risk management department. The big responsibility and major change in the last year has been the development of business continuity.
What are the most difficult risks for you to place in the insurance market?
International projects, such as refurbishment and maintenance contracts, in some of the high-risk areas of the world.
Offshore wind farms are also hard to place, as there have not been many built, hence no experience for insurers to base their rates upon. I am hopeful that insurers will be convinced that the risks associated are not as great as they first feared.
Has alternative risk transfer (ART) become more important to you in the past year? What methods are you using orconsidering using?
We use the Innogy captive to a great extent. Consideration is always given to utilising this more and more given the problems encountered in the external market. Wherever possible contracts will be reviewed carefully with a view to reducing the risk to Innogy wherever possible.
Are you more concerned about insurer solvency than you were last year?
This is always a matter of primary concern so the onus is on the broker to ensure that AA security is used as much as possible. I do feel that the market is levelling out now, which should ensure the future stability of the major insurers, but the next two years are probably crucial.
Do you feel that the insurance market is able to meet your risk management needs?
We deal with risk management issues internally and look to our brokers to provide the necessary access to the insurance market.
Has your relationship with your insurers changed over the past year?
I feel that we have always had a good relationship with our insurers over the years, so there has not been any really change last year.
We tend to operate in very open manner and encourage direct contact with insurers and meet them, if that is the best way to deal with the issue at the time. We positively encourage surveys to be carried out at the power stations and benefit from observations made by the survey.
Do you feel insurers are doing enough to develop long-term relationships and long-term solutions with?
Yes, but it is something that needs to be kept on top of. I see no reason in developing ideas and then not following them through to fruition.
Does your company have a disaster recovery plan?
There is a disaster recovery plan in the process of being developed which is very much an on going process that needs to be constantly reviewed to match the changes in the business.
David Hertzell, risk manager Davies Arnold Cooper [solicitor]
How has your view of risk and your role as risk manager changed over the past year?
There is more risk about, it is more complicated and it is harder to pass it across to third parties, ie insurers. Risk is higher up people's agenda. It is harder work for risk managers.
What are the most difficult risks for you to place in the insurance market?
PI – because it is not a popular class
Has ART become more to you in the last year? What methods are you using/considering using?
We have a two-year deal that runs out this year. When it does ART will become more important. We have a captive and we will use it more aggressively.
Are you more concerned about insurer solvency than you were last year?
Yes. Investment returns have been lower which has an effect onprofitability, and there are issues surrounding legacy claims such as asbestos for the older insurers.
The fact that insurers are improving underwriting and becoming more profitable doesn't remove my concerns. I would expect this given the premium increases. But it doesn't remove the problem of the legacy claims.
Do you feel that the insurance market is able to meet your risk management needs?
Insurers are having a stab at it in ways they wouldn't have done four or five years ago. They are making an effort in terms of advice, but it is still at a passive stage – they are not coming to us and commenting.
Has your relationship with your insurers changed over the past year?
Not really changed
Do you feel insurers are doing enough to develop long-term relationships and long-term solutions with you?
They have pulled out of our market.
Does your company have a disaster recovery plan?
Yes. We have had a DRP for at least four years. It is reviewed annually.
Andy Bulgin Risk Manager, Coca-Cola HBC
How has your view of risk and your role as a risk manager changed over the past year?
Risk, and the consequences of failure to manage risk, has, I believe, become more apparent to the general public than ever before. This is not only as a result of 9/11, but also through the many corporate failures and frauds that have been publicised. This, in turn, has raised the importance of being seen to effectively manage risk and hence the role and visibility of the corporate risk manager both inside and outside a company.
What are the most difficult risks for you to place in the insurance market?
Those where there is either a limited insurance market, where claims are increasing exponentially, or both. Examples are product recall, and directors' & officers' liability
Has alternative risk transfer (ART) become more important to year in the last year? What methods are you using or considering using?
ART has increased in importance as a direct result of the inability to purchase cost-effective, catastrophe external insurance in the current market. I do not see, however, much evidence of the existence of successfully completed ART deals in the market. We do not at this moment use ART, but we are actively considering possibilities to reduce our reliance on the external insurance market.
Are you more concerned about insurer solvency than you were last year?
Yes, in light of the actual and possible failures of insurance companies in recent times.
Do you feel that the insurance market is able to meet your risk management needs?
I do not see the insurance market as a provider of risk management services, but as a place to purchase insurance. As a commodity supplier, the insurance market does not fully meet my needs because of capacity and pricing issues.
How has your relationship with your insurance companies changed over the past year?
I believe that my relationship with many of my insurers has improved over the last year. The need to provide a deeper level of information on our risk management activities has, I believe, allowed us to demonstrate to ourinsurers that we are managing risk effectively. Many of our insurers, in turn, have repaid this information sharing by believing our statements and offering effective products at appropriate levels of pricing.
Do you feel your insurers are doing enough to develop long-term relationships and long-term solutions with you?
See above
Does your company have a disaster recovery plan?
CCHBC has highly developed disaster recovery plans covering both incident management, crisis resolution and long term recovery. These plans have been shared in full with our insurers and accepted as valid. It is unlikely that in the current risk environment many companies can afford not to either have a fully developed plan, or to be making it a priority to produce one as soon as possible.
