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Insurance Day Global Markets incorporating Alternative Insurance Capital, The ReReport and World Insurance Report

On the ground in Iraq William Wakeham, the chief executive of specialist broking company AAIB, talks to RASAAD JAMIEabout the specific insurance and risk-management requirements of businesses operating in some of the most dangerous locations around the world ANGLO ARAB Insurance Brokers (AAIB) hastheuniquedistinctionofbeingtheonly international insurance intermediary to be registered and licensed to operate in Iraq. Significantly, the firm maintains offices in the cities of Baghdad, Basra and Erbil. Iraq, despite all the talk about the reduction in the number of violent attacks over the past year or so, is still an extremely dangerous place. Indeed, Peter Worby, the manager of AAIB’s Baghdad office, narrowly survived a bomb attack only three weeks before Insurance Day’s interview with William Wakeham, the firm’s chief executive. Wakeham, along with a number of people who work with him, has had similar close shaves over the past seven years. In Iraq, AAIB personnel go about their business wearing bulletproof vests. They travel from one appointment to the next in armour-plated vehicles and are often accompanied by a detail of armed security guards. “This is our daily reality. There are basic rules one follows, including not setting patterns and all the other things one does. But we are gradually seeing an improvement and we are very optimistic the political situation will improve,” he says.

Capable If anybody is qualified to operate in this kind of environment, Wakeham is. He served as an officer in the British military before visiting Iraq for the first time in 2004 at the invitation of an old army friend who owned a security company. The experience prompted him to embark on a new career in insurance, which soon evolved into setting up AAIB in 2005 and selling personal accident and health cover to security companies and their clients in Iraq. “I learned very early on the first thing companies think about when they go into high-risk places is their people, which fitted perfectly with my background,” he explains. For the record, Erbil (which is featured much less heavily in international news broadcasts than Baghdad and Basra) is the third-largest city in Iraq and the capital of Iraqi Kurdistan. But this being Iraq, the population of Erbil, which has a relatively more stable security environment than other cities, is now the fastest growing in the country as more people move there in search of safety and jobs. Around 80% of AAIB’s business, which now includes professional and general liability, kidnap and ransom (K&R), aviation, cargo, construction and engineering and political risk insurance, is placed in the Lloyd’s market and the rest in either the London companies’ market or with regional players in the Gulf.

Licence According to Wakeham, it took two years of negotiating Iraqi government procedures before AAIB became the first

foreign insurance entity to be granted a licence in October 2009. By then AAIB, which is also registered in Jordan, had been doing business in the country for slightly more than four years. However, he is the first to admit it was not strictly necessary to be registered and licensed to operate in Iraq as an insurance broker. Certainly not since 2005, when a new insurance law was drafted by the Allies, in which there is no requirement for local placement of insured risks: a state of affairs Wakeham describes as disastrous for the local insurance industry. “If you think the Rebuild Iraq effort has cost the Allies in the region of $3trn since 2003, that is an awful lot of insurance premium that has been lost to the country. Now, one can understand why that happened, given the security situation and everything else. But the Iraqi insurance industry desperately needs that law to change,” he explains. He is hopeful at some point in the near future local placement of insured risks will be mandatory. It is, he notes, one of the priorities for the Iraqi Ministry of Finance. “It is down to the Iraqi legal system to create the law. Now, of course, there are enormous problems: they don’t have a proper government – they had the elections at the beginning of the year and they still have not agreed who is going to be the prime minister. So things like drafting legislation for the insurance sector, for the banking sector, all come lower down the order of priorities.”

local placement. “We are in Iraq for the long haul and we want to put something back into the economy. We are employing local talent and we look forward for the day when the market gets back on its feet.” Here, Wakeham is referring to the fact Iraqi insurance expertise was once the strongest in the Middle East. Indeed, in 1979 the Iraqi market’s cessions to Munich Re were the highest anywhere in the region. “Of course, with the sanctions under

Saddam, there has been a lack of exposure to international markets. Highcalibre people were leaving Iraq to manage insurance companies in the Gulf and even in Europe. The industry has never recovered from that,” he explains. Sadly, many of those individuals are now reaching retirement age and without the international exposure enjoyed by their predecessors, the next generation of Iraqis often consider insurance a dead-end career choice.

As a private company, AAIB is not required to make public its accounts and Wakeham himself is reluctant to talk about precise figures. But he says AAIB’s growth has more than doubled year on year over the past three years and the company was on course to repeat the performance again in 2010. Certainly, for those willing to brave the environment, there is no shortage of opportunities. Iraq has the world’s thirdhighest proven oil reserves. It is widely believed the reserves are probably much bigger than that. As things stand, Iraq is looking to quadruple its oil production by 2017. When Wakeham first arrived in the country in 2004, he was immediately aware of the presence of some very large US corporations operating under the auspices of the Rebuild Iraq initiative. For Wakeham, with his army background, it was a question of how long “one had to sit through the horrible times”, he says. AAIB operates on the basis that the local market should be involved whenever possible. But ultimately the decision is down to the client. “We will often say, ‘this is the situation legally, but you need to think about the future and about contributing to the redevelopment of Iraq’. And the client then makes an informed decision on that basis.”

Local placement

Optimism Although the two main political parties are not in agreement at present, there is a widespread belief after Ramadan there will be renewed efforts at reconciliation. The expectation is once a new government, hopefully one that is relatively secular, is installed, Iraq will undergo a transformation for the better. “I think we will see that laws will change quite quickly. Iraqis are very aware that they are missing out, that they need to encourage foreign investment.” Meanwhile, to encourage local placement and to assist with the development of the local industry, AAIB organises an annual two-day workshop to which all Iraqi state-owned and private insurance companies and regulatory officials are invited every year. Last year, a number of Lloyd’s underwriters, claims handlers and trainers from the Gulf Insurance Institute participated in this workshop. Wakeham describes the brain drain – which began under Saddam Hussein and has resulted in a lack of experience in the market – as one of the biggest factors holding back the development of Iraq’s insurance industry. All AAIB can do at this stage, he notes, is to help and actively try to encourage


A worker at Nahran Omar oil refinery near Basra: Iraq is looking to quadruple its oil production by 2017


However, Wakeham says, most of the big multinationals are opting for local placement. “They want belt and braces. They will have the risk fronted locally and then 100% reinsured in the international markets. This is what we are finding now. The very big companies want to be compliant in advance of any change in the law or just in case the existing law is being misinterpreted.” The latter possibility, according to Wakeham, is not that farfetched. There are a number of grey areas. For example, he refers to art 13 and 14 in the 2005 insurance legislation: these note to practise insurance in Iraq a company has to be registered locally, but there is no mention anywhere in the legislation that insured risks should be placed in the local market. The latter consists of three state insurance companies and 11 private sector insurance companies at present. The state companies are the National Insurance Company (non-life), the Iraq Insurance Company (life) and the Iraq Reinsurance Company. Not surprisingly, AAIB’s main pitch to its clients is it is on the ground in Iraq. “We are there. We are the only foreign broker that is registered and has offices there. That is probably our biggest single selling point. If you were a London broker and you had a big client and they wanted to be compliant in Iraq, they would need somebody on the ground to help them. And that is where we come in. As an Iraqbased broker, we not only understand the



ID GLOBAL MARKETS risks but we experience them first hand. The market appreciates and respects that, which means we can demand the best rates and provide our clients with the most competitive terms,” Wakeham says.

Business Two of AAIB’s biggest classes of business are marine land transit (cargo) and accident and health insurance for companies operating in Iraq but increasingly the company is assisting clients seeking similar cover in Afghanistan, Lebanon, Nigeria, Sudan and the Democratic Republic of the Congo. Interestingly, the vast majority of inquiries from these other territories come from new rather than existing clients, according to Wakeham. “We started out looking at some of these territories because of existing clients. But people now come to us because we have the kind of products they need to go into these other high-risk markets. Typically, they say: ‘You specialise in these niche markets, can you help in country X, Y or Z?’ So it was a natural progression. We are in a space nobody else is occupying.” He calls Afghanistan a “challenging” market. He notes the fundamental difference between Iraq and Afghanistan is Afghanistan has an insurance law that requires local placement. “Now the problem is the lack of practitioners in the country. There are only two insurers in the market and one of them is a state company. We handle a lot of direct business placed from outside. So we will do it from the company’s home country if necessary. We can get business fronted locally when we need to inside Afghanistan. To my knowledge, I am the only insurance practitioner who goes down to Kandahar. And we have done quite a bit of business down there. Afghanistan is a good market for us, but we don’t ever lose sight of the fact our primary market is Iraq.” Cargo and accident and health business each account for about 30% of AAIB’s overall premium placements. The company is also placing a significant volume of general and professional liability and construction all risks business. Other classes of business include political risk and kidnap, ransom and extor-

tion insurance. “But virtually everything we do includes the need for some form of war and terrorism cover, tacked on to these policies,” Wakeham says.

Cost effective He describes AAIB’s flagship accident and health policy as suitable for all contractors working in high-risk locations anywhere in the world. “Companies buy it because it is a cost-effective form of providing insurance for their employees. And it is annually renewable with lump sum benefits. But the issue is, of course, where you have an oil company looking for subcontractors to do drilling work and, in terms of their contractual requirements, they need workmen’s compensation, they need employers’ liability and so on. The first thing that has to be explained to them is what the workmen’s compensation statutory limits are for Iraq – or rather what they are not. Because there aren’t actually any statutory limits. Now, again, this goes back to AAIB’s philosophy of having a local presence, somebody on the ground who actually understands what the requirements are so we can then help the client to better understand the legal framework.” AAIBtendsto providea comprehensive service to its clients. “When we get involved with an account, we are usually asked to do everything. We are usually asked to look at their accident and health provisions, sometimes their employment issues, their corporate social responsibility requirements and other insurance and risk-management needs for the country in which they are operating.”

Outlook Wakeham notes there has been a gradual but noticeable improvement in the security situation in Iraq. “After years of sanctions and war, Iraq is at an exciting point in its turbulent history. Once the result of the election is determined, I am sure Iraq will power full steam ahead with its plans to attract billions of dollars of investment to rebuild and expand infrastructure and facilitate economic growth,” he says. The improved security

environment is most notably reflected in the claims figures for AAIB’s cargo business, of which 90% is placed in the Lloyd’s market. The rest of the business is placed in other A-rated markets in Europe or the Gulf. AAIB’s cargo policies usually provide sea and land transit cover from a location anywhere in the world to either Iraq or Afghanistan. “We have seen the incidents come down from its peak in 2006/07, when one in five or 20% of all convoys was being attacked. The incidents of attack are now less than 0.2%, so [that is] a dramatic difference.” According to Wakeham, AAIB’s cargo broker, Iain Blake, has been leading this particular area of the market for the past two years. He describes the firm’s two cargo facilities as virtually unbeatable. “I have not come across anybody yet who has beaten our cargo rates,” he says. AAIB is intimately involved in the development of its cargo products. The firm engages with underwriters on the technical details of risks or claims, whether they come under the headings of war, insurgency or SRCC (strikes, riots, civil commotion). “That kind of detail is best verified by people who are on the ground. We operate in dangerous environments. We have a duty of care to our clients that goes beyond just selling them an insurance policy, so we are very involved in the wordings. This makes our clients feel comfortable they are covered and the underwriter feels comfortable about what he is covering.”

Real test In terms of the AAIB’s accident and health business, Wakeham explains, the real test of working in a market like Iraq is not in finding clients, as there are enough of them. “Product development is what counts and that includes claims handling, loss adjusting, linking up with partners like third-party administrators [TPAs] and response consultants. Through this, we have gained tremendous local knowledge and understanding about the markets we specialise in.” In this regard, AAIB was involved in the establishment of a separate assistance company, Alfaevac, in 2007. “It is not easy to respond

quickly to customers in a war zone. The TPAs named on the accidental death and dismemberment insurance policies we were selling out of Lloyd’s were not able to respond fast enough in emergencies. That’s why we helped establish Alfaevac and today it’s one of our biggest selling points,” he says. Similarly, to support its K&R insurance practice, AAIB has an exclusive arrangementwithTheMillbrookPartnership. Wakeham says Millbrook has greater K&R and extortion experience in Iraq than any other kidnap responder in the past three years. “Millbrook has a deep understanding of post-conflict countries and is the only risk-management and communication advisory firm to have been working in Iraq actively in recent years,” he explains. The launch of Alfaevac and the exclusive arrangement with Millbrook reflects Wakeham’s strong belief AAIB’s business is not just about the insurance policy, but also about the subsidiary services. “It is about the claims handling, it is about the loss adjuster, it is about the local fronting if you need it and it is about the TPA provider. Having this network of services in place, on the ground, is essential if you are going to do a proper job for your client.”

Opportunities Because the environment is now a little more secure in Iraq, AAIB is no longer just talking to security companies. Wakeham says more risk-averse companies are now arriving in Iraq because the opportunities are so great. In addition, the firm is extending its accident and health business beyond its original expatriate market. In response to the increase in regular business traffic, AAIB has launched an online Iraq travel insurance facility. Wakeham says it will be the first insurance facility to offer instant cover for travel to Iraq, including essential war and terrorism provisions as well as personal accident, medical expenses, evacuation and repatriation and baggage cover. “The policy is completely flexible, with varying levels of cover available, as well as options to add spe-

cial contingency insurance as required,” he explains. And it is not just companies and individuals doing business in Iraq AAIB hopes will take advantage of its new online travel cover. Religious tourism traffic to Iraq is growing fast with more and more pilgrims making the journey to many of the important religious sites in the country. “And while we will not see huge numbers of tourists flocking to Iraq for some time to come, more adventurous travellers are likely to take the opportunity to visit some of ancient sites,” he adds. In addition, there is an increased level business activity in local markets. “Over the past 12 months, we have seen inward Iraqi investment. We have seen more and more Iraqi money coming back into Iraq and that is a really encouraging sign. The reason I set AAIB up in Amman was not only because it is a convenient place to be when you do business in Iraq, it is also the place where many government ministers and Iraqi trading families are based. They used Amman as a safe annex to Baghdad. So what we are seeing now is a number of the bigger players are involved or are in the process of getting involved. They will not be necessarily be living in Iraq but they will be investing there. We are seeing this in the energy and construction sectors where all kinds of projects are on the go,” Wakeham says. However, he notes in terms of local Iraqi business buying insurance, most such purchases are driven by contractual requirements. “There is not really a culture of buying insurance yet, unless it is compulsory. But the great thing is, the culture is developing, albeit slowly.”

The aftermath of a car bombing in Iraq: despite all the talk about the reduction in the number of violent attacks over the last year or so, Iraq remains an extremely dangerous place to do business


AAIB William Wakeham Interview  

Interview with AAIB Managing Director William Wakeham

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