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1,000 attend forum in Monte Carlo; key industry players wage a philosophical war.

"It is suggested that the roles played by insurers, reinsurers and brokers are becoming increasingly blurred," said W.R. White-Cooper, deputy chairman of Sedgwick James Ltd. in London during the conference's opening session. "But are insurers now capable of performing risk control functions and providing direct service to industrial clients? Although reinsurers deal directly with clients via captive organizations, can they really eliminate the direct writing insurers?"

According to many conference participants, reinsurers are being squeezed as insurers retain more risk, forcing reinsurers to look for other ways to generate revenue. That includes creating or buying interests in primary carriers, as well as offering an array of loss control, claims management and other services directly to insureds.

But, according to Mr. White-Cooper, neither reinsurers nor insurers are effective in these areas. To dispense with the adventurous reinsurer, he quoted an article in May's International Insurance Report: "'Reinsurers seem only too willing to play the accommodating mistress, entering into all sorts of ruses to justify the relationship: setting up their own direct dealing insurance subsidiaries, encouraging the formation of captives and providing both the captive management and the captive reinsurance program, developing risk management services organizations to draw the buyer into the net.'"

Reinsurers throughout the conference, including one of Mr. White-Cooper's fellow panelists, took issue with such remarks. Hans-Kaspar Zulaf, senior vice president of Swiss Reinsurance Co. in Zurich, who participated in a reinsurers' roundtable discussion later in the conference, said, based on specialized know-how and experience, reinsurers are in a good position to help multinationals finance as well as manage their largest risks.

"We would like to become a partner of the leading insurance groups," Mr. Zulaf said, adding that reinsurers should also be involved with brokers during negotiations. Finally, he cautioned, "We want to bring capacity to the front where it is needed and where we are able to control it."

Insurers, too, as many are aware, have been entering the loss control business in record numbers. Contending that the business is in the brokers' domain, Mr. White-Cooper explained that insurers should not be providing such services because of conflicts-of-interest. "Independence and objectivity are essential in areas like claims and risk control," he said. "It hardly needs spelling out, but obviously, a risk control surveyor employed by an insurer owes his primary duty to his employer and, irrespective of how many Chinese walls may in theory be erected, is unlikely to recommend a course of action diametrically opposed to the interests of his masters."

Mr. White-Cooper explained that brokers, who should be called "independent risk advisers and insurance intermediaries" to clarify their role, are in the best position to offer risk management consulting services to clients. "Because these consultancy services can be provided piecemeal, or unbundled, I see no conflict with any client's in-house functions as the services can be purchased to complement a client's own resources and requirements," he said. Furthermore, because intermediaries are increasingly being paid on a fee basis, he said, they can be impartial whether or not they provide broking services to their clients.

However, several conference speakers disagreed with Mr. White-Cooper. For instance, fellow panelist Jean Peyrelevade, president-general director of the giant Groupe UAP in Paris, said insurers can better understand how to control losses because they generate substantial loss data. "We won't leave brokers with the monopoly in that sector of the market," Mr. Peyrelevade insisted.

The Market Itself

Conference panelists also expressed various views on the future of the commercial insurance marketplace, particularly for large industrial risks. Despite predicting that the alternative marketplace will "consume" at least 50 percent of premiums, Mr. White-Cooper said "the insurance market will be the preferred vehicle for transfer of risk, even for the largest industrial concerns." However, he cautioned that the number of insurers likely to be able to respond to the needs of large corporations will contract, particularly in the European Community "where the ratio of insurers to population is unusually high."

"Many insurers currently operating in Europe are likely to have no effective future role within the insurance programs of such major client organizations because of merger or acquisition or by refocusing within narrow specialties," Mr. White-Cooper said. There will be only five insurers operating in Europe with the capabilities of servicing multinationals, he added. Later, Mr. Zulaf disputed that number, saying there will be between 20 and 30 such insurers.

In any event, the reduction in major insurers will inhibit competition, adversely affecting the interests of industrial concerns, according to Mr. White-Cooper. Therefore, he said, these clients will, more than ever, require the advice of professional and unbiased intermediaries.

However, Mr. Peyrelevade and fellow panelist Walter Diehl, chairman of Swiss Re, contended that large corporations have trouble buying coverage because insurers underwrite their risks for the notoriety, not for the profits. Mr. Peyrelevade explained that insurers and brokers fight for large industrial risks in Europe for the publicity and prestige" associated with such accounts because the premiums only represent 5 percent to 10 percent of worldwide insurance revenue.

And, as he and Mr. Diehl noted, European industrial risks are not profitable. In fact, the reason insurers have been able to underwrite such prestigious yet unprofitable business is because past losses have been offset by profits generated by other lines. However, according to Mr. Diehl: "It will no longer be possible for the insurance industry to offset losses suffered by industrial insurance against the profit from personal lines or other classes of business because of tougher competition and falling profit margins in personal lines business within the EC." If the risks cannot be reduced through loss control, he said, insurers will be forced to raise premiums and deductibles, bringing more large risks into the alternative marketplace.

Already, UAP has taken a step in this direction. According to Mr. Peyrelevade, his company will not underwrite business at a loss. "I hope that other companies won't cross-subsidize. UAP won't," he said. "If our competitors continue to do so, they will go under."
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Article Details
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Title Annotation:Risk Management Forum
Author:Schussel, Mark L.
Publication:Risk Management
Article Type:Panel Discussion
Date:Dec 1, 1991
Previous Article:Even experts make mistakes.
Next Article:Are risk managers bureaucrats or team players?

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