What are the key concerns of European risk managers? Sue Copeman talked to four of the national risk management associations

Germany, Portugal, Russia and the UK all have national risk management associations who are members of FERMA, but they are in other respects quite different in terms of corporate culture and the extent to which they have embraced risk management.

A German perspective

As in other member states of the European Union, Germany has seen some major legal developments as a result of implementation of EU directives.

On 1 May last year, the new German Equipment and Product Safety Act (GPSG) came into force. The country has also seen the first tranche of legislation on environmental liability. Both have implications for risk management.

In addition, says DVS president Ralf Oellsner, there have been changes in corporate governance. UMAG, a new law on corporate integrity and the modernisation of shareholders' rights (Gesetz zur Unternehmensintegritat und Modernisierung des Anfechtungsrechts), is scheduled to come into effect later this year. "This gives shareholders more rights to take action against management," explains Oellsner. "Basically, it is a tightening of organisational procedures, and increases the potential liability of management."

On the subject of insurance, Oellsner says that, following the period between 2001 and 2003 when premium rates remained relatively stable, a slide started. "Rates have not stabilised, and those that are still sliding relate to property, motor and also certain types of liability."

He believes that most companies can get the cover they require, although those operating in the pharmaceutical sector may be experiencing problems.

The lack of availability of terrorism insurance and, to a certain extent, product recall cover is also causing concern, and the number of exclusions is generally creeping up. Although some German companies have formed new captives, the use of captives is low compared, for example, with Sweden.

Oellsner will not be drawn on the subject of whether the number of risk managers in Germany is increasing or on whether their roles are changing.

He firmly takes the view that in a large company every manager is a risk manager. "My company has a staff of 90,000. Pilots are risk managers; so are technical experts and operational people. Everyone in a managerial function is a risk manager, and the chief risk officer is the top risk manager."

Oellsner sees the current key risk concerns of Germany companies as terrorism, the price of fuel, paralysing regulation and the cost of labour.

UK - trust and teamwork

Peter Berring was appointed chairman of the UK risk management association AIRMIC in June. His theme for his year in office is 'trust and teamwork'.

"There is a need to re-establish and generate the real trust that is required for the insurance market and the risk management processes."

Berring believes that the association's main challenge during the year is to help its members deal with the issues that have arisen from the Spitzer investigation and surrounding areas. "This will involve working with all the insurance community and the FSA (Financial Services Association).

It is important that we do not get dragged down by the Spitzer revelations but keep moving forward.

"The other key element is to help the market manage its way through what I see as, not a softening market, but recent corrective pricing from insurers to establish a stable marketplace. A stable market is very important for our members."

He says that risk management has definitely risen up the UK corporate agenda and continues to rise, with most companies focusing on corporate governance as well. Have risk managers moved forward at the same pace?

"Well, they have to. If they don't, then risk management will fall down and off the agenda."

Berring considers that risk managers have a very difficult role in explaining risk processes, the costs involved in them and the benefits that derive from them.

"Not all risk management processes are easy to implement quickly, because risk management is effectively about culture change, which does not take place overnight. It takes faith and tenacity. This is probably easier for someone in the risk management function to understand than for someone outside, so there is a lot of pressure on risk managers to explain the delivery of these processes. It is important that the board is aware of risk profiles, the way in which each risk evolves and the processes for managing and mitigating those profiles - and that information should come from the risk manager. Internal audit makes sure compliance aspects are in place. You need a risk management survey and audit process to complement internal audit and to show that the processes are appropriate for the risk profiles.

"The risk manager continues to deliver benefits to his organisation on the basis that he or she optimises the cost of the risk. The risk profiles continue to change - they evolve, as the business itself evolves, very dynamically. Risk managers must understand these changes and work with the business to make sure that it is capable of dealing with the new risk profiles. The risk manager also has to maintain the optimum price structure for the insurance processes behind the balance sheet as well as the management processes to minimise, eliminate and mitigate loss.

Berring believes that there is a place for CROs in the UK. He says that the title of CRO is beginning to emerge, and there are already people performing the role even if they have not yet been given the title.

He sees broker remuneration and contract certainty as two important issues for UK risk managers. "Transparency is extremely important in the entire process of the way in which brokers, who are the agents of the insured, are remunerated. I believe the way that brokers are now looking at different models and practices, demonstrates their willingness to make this as positive a process as possible. We have to see how these models develop. The best way to solve any conflict of interest is to make it clear that remuneration comes from one source, the principal, rather than from anyone else. I recognise there are instances where this is not easy to achieve.

"Contract certainty is a very important issue. We should be able to expect contracts to be issued in advance of renewals. Risk managers have as large a part to play in this as the insurance providers. I recognise that there are certain types of cover where the ability to generate the clauses for the insurance takes longer than expected. In that case it may be essential to wait for the appropriate clauses to be completed. But we should be operating on a similar basis to the rest of the modern business world as opposed to the world of the 1900s."

Portugal - increasing risk management awareness

Jose Manuel Dias da Fonseca is president of the Portuguese risk management association APOGERIS and chairman of the FERMA Risk Management Forum 2005.

He says that risk management is still relatively undeveloped in Portugal, with the risk management role mainly being carried out by chief financial officers and financial directors. "It is quite rare for a Portuguese company to have a chief risk officer - there are probably only four or five in the whole country. This is because we don't have many very large international companies - most are medium sized."

However, interest in risk management is growing. For example, the supervisory body of the stock exchange has made recommendations that require listed companies to establish risk control mechanisms. "Although this is not legally compulsory for every company at the moment, it shows we are influenced by international markets, in particular by those in other European countries," says Dias da Fonseca.

On the corporate governance side, things are moving, too, and the links between risk and governance and management are increasing, explains Dias da Fonseca. "Here again, we are following international trends, mainly European ones, and we will soon have similar levels of compliance across Europe. The Portuguese Institute for Corporate Governance has been created with one of its founding members being Antonio Borges, Vice-Chairman of Goldman Sachs International and Chairman of the European Corporate Governance Institute (ECGI). Borges will be one of our keynote speakers at the FERMA Forum in October."

As regards insurance, Dias da Fonseca says that the Portuguese market is 'very domestic', with most companies insuring with local insurers.

"The largest companies, which can access the international insurance markets, have seen a softening in premium rates for property cover although engineering cover shows some volatility." He also believes liability rates have probably stabilised.

While the largest companies are generally able to buy the cover they need, Dias da Fonseca says this is more problematic for smaller organisations, especially for potentially high claim lines such as terrorism and earthquake.

Almost all of Portugal is susceptible to earthquakes, although the southern part of the country faces the highest risk.

Insurance continues to be the preferred instrument for risk transfer within enterprises outside the financial sector. However, captive reinsurance companies are being used more frequently in structuring risk and insurance programmes. Corporations that have developed reinsurance captives include:

- Energias de Portugal, the electric utility company with a strong presence in the Spanish and Brazilian market
- Galpenergia, present in Portugal and in Spain
- the Sonae Group with a strong international operation in wood products, retail and shopping centres
- Cimpor, the major Portuguese cement company with assets in several countries worldwide.

Most Portuguese captives are domiciled in Luxembourg.

A number of factors have increased interest in risk management and insurance in Portugal. Dias da Fonseca explains: "One of the forces that has made us change our practices in insurance risk management is that the banks and other financial institutions are becoming more and more exigent about the existence of adequate insurance cover when they loan money to companies. That is a very important driver, because sometimes companies do not really understand the importance of covering themselves."

He believes that the key issue for most Portuguese companies is the cost of insurance. "The Portuguese economy is currently depressed, and growth rates are low. In these conditions price becomes important. There's also a cultural issue. Some businesses tend to focus more on the short term than the long term, and in the short term price is very important.

"In future the role of the risk manager is of course going to be very important as our companies modernise and become more international. We will follow the European trend.

"Already risk management has become a hot topic in the Portuguese media. And I think that the FERMA Forum will also be very important in increasing awareness and helping to build a risk culture. This will be the largest risk management and insurance event ever held in Portugal and it will give exceptional visibility to the subject"

By mid-August, 40 Portuguese delegates had registered to attend the Forum, and Dias da Fonseca believes that this number could double by the time the event takes place. In total, more than 600 risk managers and other risk professionals from across Europe have registered to attend, and more than 40 companies are taking part in the exhibition.

"It is going to be a very important and well-attended meeting, with all the big global companies represented. And it will be an important step for risk management culture in Portugal," concludes Dias da Fonseca.

Russia -towards a risk management culture

The Russian Federation has introduced some new laws affecting companies' potential risk, says Tatiana Shemyakina on behalf of RusRisk, the national risk management association for Russia. These include issues relating to technical control, dangerous products and credit, and require companies to offset their potential liabilities by securitisation through hedging mechanisms in respect of commodities with a changing market asset value, structuring credit risks and implementing control systems.

Risk management is gaining ground in Russia. Shemyakina says that a RusRisk survey last year on the number of risk managers in big companies in Russia showed they had increased by 10% compared to 2003. Further, the survey showed that more than half the companies (60%) saw value in risk management training.

While insurance premium rates for both property and casualty business remain volatile, RusRisk members are able to access all the services and consultancy they need in order to assess risks and create a company-wide risk management system.

While premium rates are still volatile in property and liability areas, some Russian companies have established captive insurers.

Shemyakina explains, "One of the key tasks for Russian risk managers is to maximise their companies' value by achieving a long term, financially stable balance between risk management and profit levels. Increasingly, it is common practice for a company's budgeting procedure to include costs relating to identified future risks."

She believes that the importance of strategic risk management will enhance Russian companies' competitive edge. "In my view there are some initiatives, such as integration of risk management with strategic business planning and establishing strategic risk management as an important tool for the company's top management, which will ensure that risk management becomes embedded in the company's corporate culture.

Sue Copeman is editor, StrategicRISK


On 20-21 September, DVS, the German risk managers' association is holding its 8th annual Symposium. In the small town of Seeheim-Jugenheim, south of Frankfurt. Some 150 risk managers, insurers and brokers will meet in the Lufthansa Training Centre to discuss current market issues in industrial insurance. The one-and-a-half day programme promises some interesting debate.

After the opening of the conference by DVS president Ralf Oelssner, keynote speaker Wilhelm Zeller, CEO of Hannover Re, will give his view of what an ideal cedant client should be like. Christoph Kuppers, partner in Lovell's Dusseldorf office, will cover M&A related insurance matters, and Dirk Harbrucker, board member of Extremus, the German insurer covering damages from terrorist attacks, will report on the latest developments.

Special attention will be given to the Eastern European insurance markets.

Harry Daugird, ABB, will lead a panel of experts through the most important features of these emerging markets.

The brokers' business model one year after Spitzer is the promising title of a panel which will be chaired by Dr Stefan Sigulla of Siemens. He will discuss the relevant issues with Ralf Geck von Kaenel, CEO Willis Germany, Felix Hufeld, CEO of Marsh Germany and Dr Dankwart von Schultzendorff, CEO of AON Germany, as well as Stefan Bruckner, head of industrial insurance operations of Zurich Financial Services in Germany and Dr Jurgen Kurth, responsible for AXA CS on the German market.

On the second day, the impact of Solvency II and new accounting standards on international programmes will be analysed by Bernhard Fink, former CEO of GE operations in Germany, and Peter Hacker, JLT Risk Solutions.

Joachim Albers of Allianz Global Risks will give an overview of current trends in D&O insurance, and Dr Christian Hinsch, board member of Talanx and CEO of HDI Industrial Insurance will answer questions on innovation in industrial insurance.