Tuesday, 12 June 2012
Spreading the word–John Hurrell
The current climate of uncertainty and volatility is proving to be a critical time for risk managers, and a busy time for Airmic as it tries to raise the profile of the profession. Chief Executive John Hurrell talks to Stuart Collins.
Airmic Chief Executive John Hurrell
UK companies face an increasing array of complex risks, at a time when their resources are under pressure. Demand for risk management has never been greater, according to Mr Hurrell.
“This is the most critical time for risk and insurance managers in industry,” said Mr Hurrell.
“There has never been a time when so many organisations are having to move so fast to keep up with the pace of changes in technology, supply chains and geographical spread of business. Risk managers have to keep up with this fast pace of change and be as connected as possible with the board,” he said.
Making that connection between boardroom responsibilities and the role of risk managers is key for Airmic. The association is working to raise awareness of risk at board level, as well as promote the skills of risk managers.
“What we at Airmic are trying to do is establish connectivity between members and the boards of their companies—to re-emphasise the criticality of the board understanding of risk management and the effectiveness of insurance and risk management at the heart of strategy,” he said.
Airmic’s outgoing chairman Paul Taylor has championed the cause of getting risk management recognised as a profession. According to Mr Hurrell, Airmic is already discussing the matter with the Chartered Insurance Institute and other bodies.
The release of the Roads to Ruin report in 2011 proved to be one of Airmic’s most influential reports, and attracted the attention of many business organisations, such as those that represent directors, company secretaries, chief legal officers, among others, said Mr Hurrell.
Launched at last year’s annual conference, the report from Airmic and the Cass Business School identified seven types of underlying risk that lead to corporate failure. Airmic has worked with the Institute of Directors (IoD) on a follow-up project to produce a guide for the 40,000 members of the institute.
The new guide (see story on page 3), which will be published this month, will provide directors with an insight into their risk-related responsibilities, the resources at their disposal and some new ways to think about risk.
“The hope is that if we can get more ‘pull’ from board level it will give risk managers greater access to the board,” said Mr Hurrell.
The association is also working with the Cranfield School of Management on a best practice guide to help companies effectively manage the risks associated with the seven points of failure identified by the Roads to Ruin report. The output from this study will be available in 2013.
The growing interest in risk management by UK companies is reflected in demand for Airmic’s services, says Mr Hurrell.
Of the 40 courses run by Airmic’s Academy some 60% cover insurance-related matters while the balance focus on risk management. Interest in risk management courses has been growing in the last 12 months, he said.
Insurance is also more critical now than three to four years ago, said Mr Hurrell. “Companies would previously be able to turn to their bank if they had a problem, but now insurers are more likely to be their last line of defence,” he said.
But in recent years insurers have, in line with common business practice, adopted stricter interpretations of contracts, leading to concerns among some risk managers when it comes to making a large claim, said Mr Hurrell.
A tough approach to major claims may come as a surprise to risk managers that have not handled a major claim previously, or in recent years, he explained.
How an insurer responds to a major claim can mean the difference between survival and insolvency for some companies, said Mr Hurrell. Such claims are not a common occurrence in the life of a risk manager, so they may be unprepared for the experience, he explained.
The days of relying solely on the ‘good will’ of insurers for major claims are all but gone, with major claims only being paid when legally required, said Mr Hurrell.
A recent survey of Airmic members found that insurers failure to pay a major claim is the risk most likely to keep them awake at night.
Risk managers need to plan for a major claim in advance, anticipate problems and work with insurers and brokers to clarify their position upfront and to remove uncertainty, said Mr Hurrell. Airmic has also been working with insurers and other organisations to address industry practices that give rise to uncertainty in insurance contracts.
Following work by Airmic in 2011 to develop a clause for non-disclosure, the association has again teamed up with law firm Herbert Smith to tackle the problem of reservation of rights. In 2008 Airmic reached a voluntary agreement with major insures to introduce a 90-day cooling off period before insurers would invoke reservation of rights clauses in contracts.
However a sounding of Airmic members found that some insurers continue to use reservation of rights clauses to challenge claims in ways that risk managers regard as unjustified. Of the more than 100 Airmic members that responded to the poll, one third had experienced reservation of rights issues at least once in the past two years.
Airmic is expected to publish a model clause for insertion into insurance contracts later this year.
Airmic is also contributing to the Law Commission’s proposals to reform the Marine Insurance Act, the more than 100-year-old basis for insurance contract law in England. The proposals mirror Airmic’s work with the insurance market to improve the clarity of insurance policies, said Mr Hurrell.
Airmic has also been working on more positive developments in the insurance market, producing reports into insurance products for emerging and developing risks, such as those associated with cyber technology.
“The insurance market has made significant progress in developing cyber products, which are now broadly fit for purpose,” said Mr Hurrell. There is still a need to increase awareness among risk managers and increase the volume of cover purchased in order to reduce premium rates.”
Airmic plans to release a guide to cyber insurance at this week’s annual conference in Liverpool, as well as a study on insurance for mergers and acquisitions, a market that has also developed dramatically in recent years, said Mr Hurrell. A guide to the nascent insurance market for supply chains and non-damage business interruption is expected to be published later this year, he said.
While the issue of transparency of broker commissions recently re-emerged at the recent annual conference of the British Insurance Brokers Association (BIBA), Airmic members are largely content with the status quo, according to Mr Hurrell.
BIBA, which is primarily concerned with commercial insurance sold to small- to medium-sized businesses in the UK, warned that a review of European legislation could result in mandatory disclosure of broking commissions.
“Insurance companies and brokers are concerned with this issue in the SME market, but Airmic members believe that at the top end of the market, they enjoy a high level of transparency and that brokers are managing any conflicts of interest that they may have,” said Mr Hurrell.
Generally Airmic members are happy with the current broking business model, he said.