COMMENT
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NEWS Association News
Consolidate to innovate
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AILURE TO INNOVATE IS ONE OF THE biggest risks faced by all companies in the modern global economy and this applies to the insurance market as much as the corporate sector that it serves. This has been a consistent theme in our discussions with risk managers all over Europe and more recently worldwide during our annual Risk Frontiers survey and events. It clearly will not go away as the world becomes more transparent, faster, more complex and globally interdependent by the day. The need for innovation presents risk managers with particular challenges because one of their key goals is to point out where potential problems may lie as their organisations seek to grow. This is why risk managers are often regarded as harbingers of doom or naysayers. But, as broker Willis stressed at the end of last month, the goal to minimise risk is often one of the most dangerous paths in management and can result in a failure to innovate. Gerard Tellis, director of the Center for Global Innovation and Neely Chair of American Enterprise at the University of Southern California, wrote in the fourth edition of Resilience, Willis’ risk management publication, that firms often fail when they are at the peak of success. “Success leads to complacency, arrogance and lack of change. Market leaders often think that the future is secure and assume a false sense of security and assurance against risk,” stated Mr Tellis in a description of what he calls the ‘incumbent’s curse’. He pointed out that market-leading firms often shun risky innovations because of their high failure rate, while entrepreneurs embrace them because they have little to lose. This thinking applies to the insurance industry as much as the corporations that it serves, and if anything more so. When innovation crops up during our roundtable discussions with risk managers it is almost always in reference to the insurance sector and its apparent inability to innovate on their behalf, particularly with so-called emerging and fast-changing risks. The traditional structure of insurers along increasingly outdated lines of business, the need for indemnity triggers and desire for mountains of historic data before coming up with a probability of loss and therefore realistic price are all named as huge obstacles to the creation of innovative solutions. Then there is the simple problem of scale and the ability of the market to come up with significant slabs of risk transfer capacity that would really make a difference. Talk to any risk manager in the oil or pharmaceutical industry and you will find frustration over this problem. And finally there is the cross-border problem that keeps on cropping up in our market discussions. Risk and insurance managers at leading European and international corporations need coverage for operations and
risks across the world, in challenging legal, regulatory and fiscal environments that keep changing. They want and need partners in the risk transfer market that can keep up with this demand and offer top notch service— before and after the contract is signed—both on the ground and at head office level. The insurance market is of course aware of this need to innovate in many different ways. We are not just talking about new product design here. Innovation is badly needed in the way products and services are packaged and sold, the way that contracts work, the way that insurers actually organise their business and in the manner in which claims are agreed and settled. To some this change is not happening fast enough and, as Mike McGavick, CEO of XL, said three years ago at the DVS conference, the insurance industry is in danger of becoming irrelevant. Enter John Charman, the famously combative former ‘King of Lloyd’s’, founder of Axis Capital in Bermuda and now chairman and part owner of Endurance Specialty. Mr Charman is not known for mincing his words and seeking complex, subtle solutions to problems and challenges. He likes to pile in and sort things out. He agrees with the many risk managers that we have talked to over the last four years that insurers need to dramatically sharpen up their act internally and consolidate to offer bigger slabs of capacity to start eating into that uninsured gap. This is one of the key justifications for his proposed takeover of rival Bermuda insurers Aspen in a $3.2bn deal that would add Aspen’s $2.65bn of annual net written premiums to Endurance’s $2.66bn to create a global insurance and reinsurance group with some $5.3bn of premiums. This combination would of course lead to significant job cuts, particularly at management and back office level, and there is no guarantee that the combined operation would retain all the business. But surely it would make sense for such a deal to go ahead from a large corporate customer’s perspective if it increased risk appetite, extended global reach and cut the cost of transactions at the same time? This proposed deal is clearly riddled with complications and personal issues that will mask its fundamental rights and wrongs as the battle ensues. But the bottom line is surely that such deals need to happen across the global risk transfer sector if it is to truly step up and meet the needs of its increasingly frustrated large customers. I guess the key will be whether such deals can also work for investors. If they can work for both parties then perhaps we are about to enter an era of consolidation, as predicted by Mr Charman and others.
EDITORIAL DIRECTOR Adrian Ladbury aladbury@commercialriskeurope.com
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Ferma launches 2014 benchmark survey Ben Norris
bnorris@commercialriskeurope.com
[BRUSSELS]—FERMA LAUNCHED ITS 2014 RISK AND Insurance Management Benchmarking Survey late last month in partnership with its national association members in 20 European countries. The survey opened to risk and insurance managers across Europe on 22 April. Ferma is encouraging its members to take part in order to enable it to deliver the most in depth look at key issues facing the risk industry today. The latest biennial survey aims to be more quantitative and practical than previous editions and allow European risk managers to benchmark their activities against peers from across the continent. The survey will ask risk and insurance managers for their views on: n The most significant risks facing businesses today n The cost of risk, including insurance, risk consulting costs and broker remuneration n The relationships between risk management and other internal functions of the organisation n Risk management and corporate performance n The identification and insurability of emerging risks such as cyber risks, environmental liabilities and supply chain exposures n EU hot topics and their impacts for company governance and insurance markets. The results will form the basis of the first Ferma European Risk and Insurance Report to be published at the federation’s seminar in Brussels on 20 October, 2014. An independent research company, Toluna, will collect the responses and compile the results. Cristina Martinez, Ferma board member and head of the survey project group, said on this year’s benchmarking survey: “Our intention is to create a reference work for risk and insurance managers throughout Europe that will also provide a tangible basis for reporting to senior management on risk management. This seventh edition of the Ferma Benchmarking Survey will be more quantitative and practical than previous versions of the survey and provide more benchmarks for comparison, including with the results of surveys conducted by national associations.” Ferma president Julia Graham added: “Our members have activities in a number of European countries, so being able to benchmark themselves at European level will be invaluable.” She encouraged participation by Ferma members to ensure that the results are truly representative of the views of risk and insurance managers across Europe. Airmic chairman, Chris McGloin, said Ferma has worked with his and other member associations to ensure that the survey results will be a valuable tool for risk managers. “I have urged Airmic members to take part. The more responses we gather, the more useful the survey will be for us,” said Mr McGloin. According to Ferma vice president and Anra board member, Alessando De Felice, making the survey more quantitative will add to its practical uses. “This way, we will be able to produce results that will have a lasting value for individual risk managers as well as national associations that are part of Ferma. The evidence that the report will highlight will be a starting point for further analysis and will form a solid basis for future reports, to analyse how the situation evolves over time and in the different countries where risk managers operate,” he said. Ferma association members will receive an invitation to participate in the survey with a link to the questionnaire. Anyone that would like to take part but does not receive an invitation can contact Christel Jaumoulle at christel.jaumoulle@ferma.eu giving their first and last name, business title, company, country and email address. As well as its member associations, Ferma has worked extensively with five commercial partners to deliver the survey. These are AXA Corporate Solutions, EY, Marsh, XL Group and Zurich. The survey’s webpage can found at http://www.ferma.eu/about/publications/ benchmarking-surveys/benchmarking-survey-2014/
“T
HE LATEST biennial survey aims to be more quantitative and practical than previous editions and allow European risk managers to benchmark their activities against peers from across the continent....”
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