Risk managers confront global challenges at Monte Carlo conference.
As the business community changes, so does the risk management field. Today, as the European Community gears up to face the challenges of 1992, risk management once again is in a state of flux. Indeed, these changes may have been the inspiration for more than 1,000 people to attend the fifth RIMS/AEAI (Association Europeenne des Assures de l'Industrie) Risk Management Forum on October 15-18 in Monte Carlo.
The slate of conference seminars on how to deal with 1992 from a risk management perspective shows that the field is now adapting to business changes throughout Europe. In addition, the more than 22 U.S. and European companies which exhibited their products and services also reflected the changing, global nature of risk management.
Sessions were designed to keep risk managers up-to-date on a wide range of issues, including the development of a European-wide insurance contract. There were also sessions on subjects of concern to risk managers no matter where they are located in the world, such as pollution liability, mergers and acquisitions, multinational risk management practices, managing financial and political risks and AIDS. And a session on the risk management process under way at Euro Disneyland, Europe's largest construction project thus far this century, dealt with the serious topic of an owner-controlled insurance program with typical Disney flair.
Richard Hackenburg, a former RIMS president and executive vice president of Corroon & Black in Boston, MA, opened the conference with a keynote address, reflecting on the speed of changes that have taken place within the global economy. He said that in the last speech he gave in Monte Carlo in 1985, he discussed risk management in the 1990s, when the topics were the globalization of economies, instantaneous communication and movement toward risk adversity. "One only needs to survey the topics on our agenda this week to see these forces of change at work," he continued. "Change is a global phenomenon now, as nation after nation accepts more and more the concepts of freedom in self government and in the marketplace."
Among the topics on the agenda this year, he said, are the events put into motion by the 1957 Treaty of Rome, or 1992, and he cited movements to bring about economic and polticial reforms in Poland, China and the Soviet Union. He then urged the audience to "consider the heights the modern risk manager must reach in the new world of global economies, global technology and global culture. It is the obligation of every risk manager to understand fully these changes, both economic and cultural, that will allow us to succeed in the future."
Events risk managers are likely to face in the 21st century, he said, include manned exploration of the solar system, robotics and artificial intelligence, utilization of alternative energy sources, a more demanding educational system, cures for today's diseases and a cleaner environment.
To meet these challenges, Mr. Hackenburg said, risk managers should take a leading role by being educated not only in insurance and traditional risk financing methods but in general business principles and practices. He also said that cultural differences in global communities should be taken into account.
The conference's main sessions focused on 1992 and the changing European economic profile it will bring. "1992 will come and go just like any other year, but the change has already started," said David Ovenden, group insurance manager for the Wellcome Foundation in London, as moderator of the opening session on 1992. "Europe will challenge the United States, Japan and the newly emerging economies of the Far East as a revitalized and powerful economic entity," he said.
Mostly, attendees sought to grasp hold of all the changes that 1992 will bring to those involved in insurance and risk management. In one French-only session called "European Insurance Contract Moves Ahead: Avoiding Pitfalls," panelists grappled with the concept of having one insurance contract for use throughout the community. The premise universally agreed upon was that this undertaking would be difficult considering the differing circumstances and legal environments of each of the European Community member countries.
"When you're faced with an insurer, whether it be German, French or Spanish, you have the same problems regarding the buyer of insurance in each of the countries. But since the contradictions of the different legislation for all intents and purposes are irrevocable, it is essential to take a more philosophical and practical approach," said Paris-based lawyer Jacques Raffin.
Mr. Raffin said the contract could work providing it pertains to larger, global risks since the smaller risks would be more comfortably underwritten by a local company. "If there is a consensus, and the contract is clear and establishes a certain number of general clauses that according to law cannot be changed by any party, then nothing should prevent this contract from working," he said.
Indeed, in most sessions, panelists put forth a picture of a larger, more competitive European insurance community, with a smaller number of companies vying for larger more complex risks from European industrials. Consequently, risk management would be playing a larger role across the continent, especially in the areas of loss control and alternative financing.
Mr. Ovenden said he does not only envision lower insurance rates and greater capacity, but an increase in the use of captives and risk management techniques.
"The new emphasis for corporate clients after 1992 begins to look increasingly at management of risk rather than the purchase of conventional insurance," said Michael J. Barrett, chief executive officer of Alexander Stenhouse Europe Ltd. in London. One example of this is the changing role of the broker. "As the shape of the client changes and his needs become more global, the commercial insurance market will not be able to dominate as it is does in many countries," Mr. Barrett said. "The driving force will be the insured, who will rely more on self-insurance and captives, which in turn will drive the insurance market. Brokers must demonstrate their ability to assist this process just as much or even more so than to negotiate with traditional underwriters." He said one of the changes that smaller brokers would undergo was a move to more specialized insurance products, such as political risk or environmental impairment.
Nicholas Davenport, director of the London brokerage Willis Faber & Dumas, said that, in his view, the ultimate beneficiary of the single European Act is the consumer. He said the liberalization of cross-frontier trade will stimulate competition and remove the inefficiencies and restrictive practices of European industries. Said Mr. Davenport, "The effort to achieve economy of scale is one explanation for the feverish merger activity going on right now," referring to such examples as the new joint venture between France's largest insurer, UAP, and Kemper National Property & Casualty. "The other is market share. It's all very well having the lead in your own market with 15 percent, but in the European market it doesn't carry much weight."
Mr. Davenport also predicted that Europe would see fewer, larger companies in the future. "The biggest companies--those that are genuinely transnational and capable of servicing a multinational's needs will be few. The benefit to the insurance buyer is the capacity made available to him and pure price competition. For example, a German carrier, stretching the loyalty of its German clients, will do anything to beat off competition from other markets," he said.
Mr. Barrett also sees a benefit to consumers. In the face of increased competition, he said, insurers will be looking to reduce expense ratios. "Aggressive pricing of products and reappraisal of distribution networks in a new, free Europe should have a dramatic effect on the cost of insurance, impacting both insureds and brokers," he said.
Another speaker, Michael Painter, chief executive of the brokerage Bowring London Ltd., said this increased capacity and competitive markets will speed the development of risk management techniques. "There's the need to reduce insurance costs, ensure a measure of stability in premiums and minimize the problems presented to buyers by a volatile market," he explained.
Mr. Painter predicted that, as European companies will become larger and more complex, "The interest in risk analysis and loss control is likely to increase as a result of greater concentration of risk as industry consolidates in the European Community. Increasing use of technology and more complex operations will require greater risk management."
For example, Mr. Painter said, in North America, there are 400 companies engaged in the manufacture of farm tractors, while Europe has only 50 companies. With a larger market, he said, "Many of those industrial companies will grow larger, and therefore as a consequence, increase the magnitude of risk, calling for a modern approach to risk management."
Another change envisioned in the European Community is a heightened use of captive insurance companies. Mr. Painter, however, pointed out that whether or not a company decides to set up a captive depends largely on its philosophy, its approach to risk and the potential locations for the entity.
Already, European captive activity has increased. Mr. Painter listed several captive developments. For instance, Luxembourg now has 91 captives taking advantage of the 10-year tax deferment legislation. Ireland is promoting an International Financial Services Centre in Dublin and is offering a 10-percent tax rate until the year 2000. Denmark has a similar situation to Luxembourg and is attempting to attract non-European Community Scandinavian business. The Isle of Man, while not a full member of the European Community, has 64 captives.
All panelists agreed that it was the passage of the Freedom of Services Directive that has spurred a more competitive business environment in the European Community. "We still have a way to go before it becomes user-friendly and suitable to all clients," Mr. Painter said. "Its main value lies in its allowing cross-frontier insurance."
And they all disagreed with the United States' concern that Europeans are establishing protectionist measures for their products, and thereby, discriminating against American-made products and services. Mr. Davenport concluded by quoting Sir Geoffrey Howe, British deputy prime minister, when he said, "`If we build fortress Europe, its first prisoners will be ourselves.'"
PHOTO : The registration area for the RIMS/AEAI Risk Management Forum overlooks Monaco's harbor.
PHOTO : Sessions on timely risk management topics had more than enthusiastic audiences but lively
PHOTO : and animated speakers as well.
PHOTO : Standing-room only was available at one of the conference's many sessions devoted to
PHOTO : discussion of the changing European Economic Community.
PHOTO : RIMS President Ron Stasch (center), AEAI President Francois Settembrino of Belgium (left)
PHOTO : and AEAI Conference Co-Chairman Omer Leroy, also of Belgium, welcome conference attendees
PHOTO : at the opening session.
PHOTO : Richard Hackenburg of Corroon & Black pauses during the keynote address.
PHOTO : Hugh Loader of the United Kingdom, conference co-chairman for RIMS, makes a point.
PHOTO : Steve Schleisman (above left), president of UNAT, with Edward Hester of Zurich Insurance
PHOTO : Co. in London, and Michael J. Barrett, CEO of Alexander Stenhouse in London, confer on
PHOTO : changes brewing in the EEC. Jacques Raffin (left), a Paris lawyer, spoke at a French
PHOTO : session on an insurance contract for use throughout Europe.
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|Title Annotation:||Risk Management Forum, October 15-18, Monte Carlo|
|Author:||Oshins, Alice H.|
|Date:||Dec 1, 1989|
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