Today’s European risk manager

A new report based on a pioneering study of 150 risk and insurance managers at major companies across Europe, conducted by StrategicRISK in association with AIRMIC, is launched at this week’s AIRMIC conference in Edinburgh

The study – based on extensive, detailed online questionnaire responses from 73 risk managers in UK businesses and 77 from the rest of Europe – delves deeply into the realities of professional life for today’s risk manager, including the powers, frustrations and challenges of the role; relationships with the board and business units; risk financing responsibilities; the struggle to make ERM a reality; and companies’ key vulnerabilities.

Equally important are the ratings and frank comments risk managers give for the service providers with which they do business. These result in a clear set of performance benchmarking data and rankings for Europe’s leading firms of ERM consultants, brokers and insurers.

Does service quality – as risk and insurance managers perceive it – actually matter? How strong is the link between poor service and lost business? We asked respondents: ‘To what extent does the quality of a broker or insurer’s service – as opposed to factors such as pricing and brand reputation – actually influence your company's decision on which broker or insurer to use?’

With insurers, 28% say service quality was a very heavy influence and 49% quite a heavy one – while 23% say it matters only moderately, or hardly at all. Overall, the quality of an insurer’s service certainly matters with risk managers. But premium levels, financial stability and quality of cover will also, necessarily, be key factors.

To what extent does the quality of a insurer's service - as opposed to factors such as pricing, specialist expertise and 'brand' reputation - actually influence your company's decision on which insurer to use? Number Percent

Very heavily 33 28%

Quite heavily 59 49%

To a moderate extent 22 18%

Hardly at all 6 5%

Total 120 100%

Where brokers are concerned, however, service quality is clearly vital. Given a range of options, 59% say brokers’ service counted very heavily, another 27% quite heavily. Only 14%– scarcely one in seven – say it counted moderately or hardly at all. By comparison with insurers, it seems, brokers have little to offer but their service.

To what extent does the quality of a broker’s service - as opposed to factors such as pricing, specialist expertise and 'brand' reputation - actually influence your company's decision on which insurer to use? Number Percent

Very heavily 73 59%

Quite heavily 33 27%

To a moderate extent 14 11%

Hardly at all 4 3%

Total 124 100%

And service providers should be under no illusions here. When it comes to hiring and firing decisions, risk and insurance managers have clout. Seventy per cent of our risk manager respondents claim complete authority or the major influence over which insurer to use, while 78% say the same where brokers are concerned.

In each of the following areas, how much influence do you feel you have on which company is selected? Brokers Insurers Claims Consultants Captive Managers RM Consultants RM Software Providers

Complete authority 60 53 45 36 46 37

Major influence 46 42 42 34 55 46

Moderate influence 8 22 17 8 21 19

Minor influence 10 9 9 8 7 13

No influence at all 11 10 10 13 3 7

135 136 123 99 132 122

Not applicable 15 14 27 51 18 28

Total 150 150 150 150 150 150

Brokers Insurers Claims Consultants Captive Managers RM Consultants RM Software Providers

Complete authority 44% 39% 37% 36% 35% 30%

Major influence 34% 31% 34% 34% 42% 38%

Moderate influence 6% 16% 14% 8% 16% 16%

Minor influence 7% 7% 7% 8% 5% 11%

No influence at all 8% 7% 8% 13% 2% 6%

We’ve established that service performance matters to risk managers – and that risk managers’ views on hiring and firing certainly ought to matter to service providers. How, then, do Europe’s risk managers rate the many outfits that compete for their budget?

Lessons for ERM consultants

Respondents were asked: ‘In the past 18 months, has your company used any of the following to advise on ERM: Accenture; Deloittes; Ernst & Young; KPMG; Oliver Wyman; Protiviti; PWC? If so, how do you rate their performance?’

Of our 150 respondents, 28 UK and 36 continental risk managers had used such consultants. Of these 64, 36 had used two or more.

For each firm they had used, respondents had a choice of five ratings: ‘excellent’, ‘good’, ‘satisfactory’, ‘mediocre’ and ‘poor’. To each of these ratings we assigned five, three, one, minus one and minus three points, respectively. Each ERM consultant’s total points score was divided by the number of respondents rating it, to give an average per firm.

The result? Marsh-owned Oliver Wyman came out top, with an average rating of 2.80 – albeit on only ten ratings. In second place, on 2.49, was Deloittes, whose 35 ratings appear to make it the largest ERM consultant in the market. Scores for PWC, KPMG, Ernst & Young and Protiviti were all fairly comparable. But Accenture, rated by 16 respondents, lagged a way behind with an average score of 0.50. While three risk managers rate Accenture good and six satisfactory, seven rated it mediocre.

Note – Billie, Production have this chart ready-made, c/w labelled lozenges, if you want it. Otherwise, draw them in with reference to table and the chart in the hard copy version.

How do you rate the performance or any ERM consultants you have used? Excellent Good Satisfactory Mediocre Poor Size in Market Average Score

Oliver Wyman 4 3 1 2 0 10 2.80

Deloittes 6 18 8 2 1 35 2.49

PWC 3 12 5 5 1 26 1.85

KPMG 2 9 6 3 1 21 1.76

Ernst & Young 4 9 10 7 0 30 1.67

Protiviti 3 2 1 5 0 11 1.55

Accenture 0 3 6 7 0 16 0.50

We then asked for any comments they might have on these consultants’ ERM advisory service. While some respondents clearly hold ERM consultants they have used in fairly high regard, many focus on their limitations. Companies need practical, flexible advice, but several respondents criticised their tendency to the theoretical. ‘Anyone can consult,’ said one UK risk manager. ‘What we need is advice and hard facts, which consultants aren’t willing to do.’

“Brokers, it seems, could improve their ability to listen.

As one risk manager remarks, ERM consultants are naturally tempted to ‘try to sell a standard one size fits all solution, to minimise the work involved and maximise profit.’ And corporate management needs to have a clear sense of the direction in which it wants to go before engaging them. Temporary visitors to an organisation, remote from both shop-floor and Board, consultants often fail, it seems, to make a lasting impression. ‘When they are gone, the issue fades away,’ said one Dutch risk manager, ‘because of the day-to-day, more specific, more sexy subjects people are working on.’

One UK-based operational risk consultant reckons that ERM consultants wrongly assumed that companies’ own risk functions ‘don't have the knowledge to develop the function, and not simply that we're short-handed.’ The result, he says, is that risk managers spend too much time with the basics and too little in progressing.

Some suggest that ERM consultants are conditioned by their own corporate background – consultants from audit companies, for example, seeing every risk primarily as a financial issue. ‘In general their approach is appropriate for SOX or SOX-like,” says a UK respondent. These supported accounting and auditing needs, he said, but were rather less helpful in applying risk management to the decision-making process. ‘I am still looking for a scientifically-founded risk mapping system,’ says one Belgian-based chief risk officer. ‘None of the above can supply this, despite what they say.’

Lessons for brokers

Top of the league come Locktons, rated by 17 respondents, with an average score of 2.65, followed closely by Jardine Lloyd Thompson and Heath Lambert. AON, Marsh and Willis were fourth to sixth, with virtually identical scores.

Risk and insurance managers rate HSBC and Gras Savoye, markedly lower, however. According to the average risk manager who has used the firm, Gras Savoye’s performance didn’t quite clear the ‘satisfactory’ bar.

How would you rate the European commercial brokers you have used in the past 12 months, for overall product and service quality? Excellent Good Satisfactory Mediocre Poor Total Average Score

Locktons 3 10 2 2 0 17 2.65

Jardine Lloyd Thompson 7 11 6 4 0 28 2.50

Heath Lambert 3 3 3 2 0 11 2.27

AON 12 36 22 9 4 83 2.04

Marsh 7 39 27 10 1 84 1.98

Willis 10 29 14 9 4 66 1.97

HSBC 0 6 3 2 2 13 1.00

Gras Savoye 2 2 10 5 1 20 0.90

Respondents were also asked to given separate best – and worst – brokers they had dealt with. Intriguingly, no broking firm seems to be delivering either a good or a bad service with complete consistency.

Risk managers in the bigger groups were particularly well-placed to compare and contrast. Some have a ‘horses for courses’ viewpoint, though several respondents give enthusiastic endorsements for their favoured firms – such as the one a UK-based head of risk assurance gives for Heath Lambert: ‘They know our business and seem able to develop the right balance between getting rapport with insurers and extracting maximum value from them. They'll drive over a cliff to ensure they don't disappoint the client. They're not as polished as the big guys, but far more attentive and accommodating.’

There are also the cynics. ‘Having gone through three major brokers in 20 months,’ says an insurance manager, ‘I would say there’s no differentiation once you get past the honeymoon period with a new broker – which used to be at least 12 months, but issues now seem to arise much earlier.’ Much probably depends on staff turnover.

But often, strong personal relationships seem to have bred genuine mutual understanding and a superior service. Like anyone else, risk managers appreciate business partners who are knowledgeable, enterprising, flexible, reliable, detail-minded and proactive – and Locktons, JLT and many others also attracted several warm comments on these points.

On the other hand, plenty of respondents complain about slovenly service, arrogance, poor international capacity and cohesion, a lack of initiative, or hard-to-reach contacts. Several also raise instances of particular brokers, as they see it, brazenly putting their own financial interests ahead of their client’s (‘don't care about what our concerns are, just focus on what could make money for them’; ‘still mired in the transactional mindset’). One group risk manager, for instance, describes how a large multinational broker, amongst its other sins, had ‘worked to insulate us from direct contact with the underwriter/ insurer and did their best to keep the broker, rather than the insured, in the driver’s seat.’ Judging by risk managers’ typical reactions – ‘so in many territories we sacked them’ – this is a very reliable way for a broker to kill a client relationship.

A corporate insurance manager in Austria sums up the reality of brokers’ service as many experience it: ‘No broker is perfect and they all have to deal with the same issues: lack of transparency and a lack of understanding of the client’s business.’ Those, it seems, are the key challenges for brokers.

Lessons for insurers

Our 150 respondents were offered a list of 33 European commercial insurers and asked to rate the overall product and service quality of those they had done business with in the past 12 months.

Looking at the results for the 12 most commonly-rated insurers – all those with at least 30 ratings – there is remarkably little to choose between the service leaders in risk managers’ overall ratings. FM Global come out top (bear in mind they don’t write liability business), but Allianz, Zurich, ACE European Group and Mitsui Sumitomo are all a mere hair’s breadth behind.

Virtually all leading insurers came out closer to ‘good’ than ‘satisfactory’ as far as average ratings were concerned. It should be noted that RSA and Swiss Re, the lowest-scoring insurers on the chart, perform markedly better than many smaller insurers not featured there.

Billie – this new chart needs to be drawn from scratch. Take great care when naming the 12 lozenges here. Refer carefully to the table below, and check and re-check before it goes to print. PJ

How would you rate the European commercial insurers you have used in the past 12 months, for overall product and service quality? (Twelve most-used insurers only) Ratings Average Score

FM Global 33 2.45

Allianz Global Corporate & Specialty/ Risk Transfer 63 2.43

Zurich 75 2.41

ACE European Group 75 2.39

AIG Europe 96 2.31

XL Insurance Company 55 2.31

Lloyd's 40 2.25

QBE Insurance 32 2.25

AXA Corporate Solutions Assurance 49 2.22

Chubb Insurance Company 47 2.11

Swiss Reinsurance Company 37 1.97

Royal & Sun Alliance 48 1.96

Respondents’ positive comments on insurers focus on expertise, responsive service, competent and conscientious staff, a client-centred approach, flexibility and a hunger – and capacity – for business. For some respondents, a good international network counts heavily. At least a dozen highlight the importance of efficiency and fair-mindedness in claims.

So what traits distinguish the insurers that risk managers don’t like? The key points are pretty much the inverse – and again, respondents don’t hesitate to name and scourge the worst performers. Several highlight short staffing, inflexibility, slow documentation and a miser’s approach to claims, all of which make such insurers hard to do business with. ‘We had to fight and nearly start a court procedure to get them to pay fully a claim it was obvious they had to pay,’ says one Benelux respondent.

Often, these seem to be symptoms of short-term financial targets and, as risk and insurance managers perceive it, an almost insulting indifference to the real needs of their business, or to any long-term relationship.

The way forward

What service innovations do risk managers want to see? Some brokers, it seems, are failing to acquaint their clients with the full range of specialist skills they possess. In one way or another, communication is a near-constant strand through risk managers’ responses. Several want to see more proactivity, especially from brokers, on emerging risks, trends and legal changes round the world. Others demand insurers ‘get beyond the ‘60s’ and use web technology to share, say, benchmarking and loss data or to let them track claims – above all, to enable busy risk managers to find all their data in one place. ‘Have an online system in place which is really easy to use,’ says one head of corporate insurance, ‘without restrictions and with real-time value.’

Transparency – both on underwriting methodology and on claims – is another common demand. People want to get inside the mysterious black boxes of underwriting to see how they work. One group insurance and risk manager says he’d like to see insurers rather than brokers providing risk modelling data. ‘This would give us an insight into their thought process and lead to a more open and transparent renewal process.’ They’d like to be able to compare different insurers’ policies and claims performance meaningfully, too. “I want to pay premiums only to insurers who will pay if a claim materialises,” said one chemicals industry respondent. Where claims are concerned, insureds expect to be treated as valued clients, not opponents.

Several want an ‘evergreen’ approach to policies, with stable long-term pricing and near-automatic renewals to free them from the annual renewals process. They want insurers to become less fixated on risk-finance and take more account of their clients’ risk management activities.

Brokers, it seems, could improve their ability to listen – and then use their expertise to make useful suggestions. But the sort of proactive relationship management people enjoy seems a scare commodity. ‘Proactivity is fast disappearing,’ says one respondent, ‘as people seem to be buried under a growing workload.’ Quite a few comments imply a lingering suspicion of conflicts of interest among brokers. Some clients clearly wish they had more confidence that their brokers were unambiguously on their side.

Time and time again, respondents mentioned insurers’ and brokers’ process management. It seems to be the key to using time more efficiently – and thus solving many of the issues highlighted above. ‘Process management in the industry is generally poor,’ says one group insurance manager. ‘Nailing this would make working life so much better.’

For information on the three specialised, fully-detailed business insight editions of ‘Today’s European Risk Manager’ available to insurers, ERM consultants and brokers, please contact Peter Joy on 0207-618-3481 or email peter.joy@newsquestspecialistmedia.com