Michael Kleiter: If you go back to basics we take our client’s risk on our balance sheet and as risks become more global this affects us more even if you are taking the risks on a local basis. With the Chile earthquake we had claims from Austrian clients. Natural catastrophes seem to create bigger risks and rain, hail and flooding seem to be more extreme. The frequency has increased.

Heike Nicolussi: There is also the opportunity in this global economy to emerge positive from risks. We have factories in Austria and tried to keep all the employees during the financial crisis. In the meantime one of our competitors decided to pull out and closed its factory in China. Soon afterwards the market grew and we did very well and won new customers.

Rudolf Schiel: We had a similar situation with the Japanese earthquake and won some new business as a result because companies in Japan were not able to produce. We had never sold products in Japan before but because of the earthquake local producers could not supply customers so we won new business. Overall what has changed over the last five years? For me not a great deal. We were affected by the Chilean earthquake and we had not suffered a natural catastrophe loss over the last 20 years. We have been affected by events in the Middle East and lost clients there.

OK: Internationalisation is one of the main challenges for our company. The railway business is very old and traditional but we are also facing internationalisation which is a challenge. There are huge construction projects in this business currently. The Stuttgart 21 project has suffered some serious problems as people have protested against the cutting down of trees to make way for the new station. But again facing more risk because of bigger and more complex construction projects is not a new risk.

MK: The Stuttgart 21 case represents a cultural change that presents all companies with new challenges. People have a totally different view of the environment today than in the past and if you want to build a plant or a very big project then you need to be very careful about how information is disseminated and involve interest groups in the decision-making process. It is very different to the old days.

OK: Yes the contrast with our project to build the new train station in Vienna is dramatic as it is very well accepted.

MK: This is a real driver for business nowadays. If you want to build a new plant and the only option is a greenfield site then you should have a big problem. This is political risk that makes it more difficult for large companies to invest in their home countries and is one of the reasons why they go to countries where the building laws are easier, people work for less money and do not have such high concern for the environment and of course where the new customers live. It is a fact of modern business.

Andreas Beck: We have a problem with CO2 certificates here in Europe that we don’t have in China or Brazil and so are effectively forced to go into these countries.

AL: The risks may therefore not be new but the integrated nature of the economy must make it much more difficult to manage as a risk manager? How do you manage this without extra resources?

HN: We improved our internal network. We have regular meetings every three months which help to identify the risks and to build up knowledge about these risks. You can only gain real knowledge about these risks by having a worldwide network. It was very important for us to communicate with our local people in New Zealand after the earthquake in order to get a real feel for the nature of the loss. So it is good to have software systems but the most important thing is to have local people to collect the information.

RS: We nominate risk owners who are plant managers or business owners around the group. They have to identify the risks and report them and software is used as a back-up to this.

OK: I think the focus has to be on people. You need honest people who are able to take part in a frank discussion about their risks. You have to build a network of people within your group that you trust.

HN: And remember that software is only as good as the information that you put in. If it is bottom of the priority pile it is no good.

MK: We have our own very important risk management team and a CRO who acts on a global basis to understand how the risks are changing and this is very important to us. You need people on the ground to be fully aware of the contingency plans and know what to do when a catastrophe hits. Human capital is our greatest asset and we have to be ready to be up and running as quickly as possible after an event.

AL: How much of your corporate risk is actually insurable and are you worried that the level of insurable risk is falling? What must brokers and insurers do to tackle this supposed problem?

AB: There are some major threats that could endanger the result that are not insurable such as the price of raw materials which can have a great impact and can you hand over the risk of price increases to an insurer? If China suddenly decides to produce high quality steel we are out of the game and this is simply not insurable because it is entrepreneurial risk.

HN: We have always accepted that entrepreneurial risks are not really insurable and I think that the same risks that are insurable 5 to 10 years ago are the same as today. I don’t think you can generally say that we have lost coverage.

AB: You have to explain to the board what is insurable and what is not. This can be tricky. For example it is always difficult to explain why credit insurance is not available when it is needed most.

HN: Also remember the terror attacks on the US in 2001. Everyone suddenly found the need for terrorism insurance but now nobody really buys that coverage worldwide. So risk perception is important and it depends upon what is the hot topic. Who takes part in the German terror pool now?

MK: Take bird flu. No one thought about it before and then the scenario emerges and insurers are criticised because we cannot provide coverage immediately. In such cases companies have to reduce their risks or find alternative ways to manage the risks because the quantification of the risk can be impossible.

AL: Other roundtables have blamed the media for feeding the frenzy that lands risk managers and insurers with the problem once the board’s attention has been alerted to these ‘new’ risks. Is this fair?

MK: To an extent yes, journalists and the media in general do tend to feed fears. But the media is also an important support because it raises awareness of real risks. You need to find a balance and work out how to judge risks properly and have discussions in a sensible manner, not just look at nightmare scenarios.

AL: The DVS in Germany in particular advocates more group discussions about difficult risk areas. Would the Austrian market support such an approach, particularly for specific sectors such as oil and gas over risks like those presented by Deepwater Horizon?

MK: There could be two main barriers to this. First, the risk manager cannot be sure that the information they disclose during such a discussion will remain confidential. Second, risk managers could be naturally hesitant to talk to competitors. I wonder if oil or gas companies would need such discussions, or prefer to find solutions within their own groups, as they are big enough and have enough skilled people.

HN: I do not believe that risk managers of an oil company were not aware of the risks posed by things like Deepwater Horizon and I don’t think that risk managers do not try and raise awareness of such potential problems.

RS: I agree that sometimes it is difficult to raise awareness of such risks internally and it is useful to have external views from brokers, insurers and other advisers to help communicate with internal people.

MK: And remember the natural tendency is to assume that it never happens to me!

AL: More generally what could and should insurers and brokers do to improve the service they provide to you?

OK: They need to be more flexible and have a strong customer focus.

AB: The approach should not be sales-driven. We need tailor-made solutions. It still happens from time to time that completely the opposite occurs and a sales-driven approach is taken.

RS: It is important that they understand our business because that is the only way that they can really help us. It is necessary that brokers play an increasing role as risk management consultants rather than just acting as intermediaries. Insurance is not always the answer. There are other ways to reduce risk. This can be built in as part of the fee of the broker and also the insurers can get fees for risk engineering services and it is in their interest to help mitigate and reduce the risks.

HN: Currently I would say that up to seven insurers can deal with business the way we expect which is ok from a competitive standpoint. It is important that an insurer can understand our business in general and they need to transfer knowledge sometimes and not just standard products. It is not just the premium which should be considered.

OK: Never forget that the insurance industry remains a very traditional ‘Nasengeschaft’ or ‘people business’ in English I would guess.

AL: Do you think the insurers and brokers are doing enough to help you with global programmes? Are you worried about compliance?

RS: I feel compliant. Our insurers and brokers are doing the right thing but I also know of others that are pretending they can provide compliant solutions when they cannot. I have talked to smaller brokers about this and they have said that they can do it but I ask where is your office in China and they remain silent.

OK: You need to work with a broker and insurer that has an international network of its own rather than just a loose network.

HN: At the DVS Symposium last year there was a focus on D&O liability and a few months before and after people were asking how to be compliant in this line and there was no definite answer. This is a problem and people do not feel compliant in this area. You may have a contract in your home country that covers people working in many different countries but the big question is whether you can and need to have contracts locally with the same coverage. You are dealing with different legislation in different countries. A year on there does not appear to be a solution.

MK: If you have a master policy in Austria you can also issue local policies but in some countries you cannot use the master because it is non-admitted and so the master can’t be transferred. This can be discussed and the client needs to tell the insurer what is necessary from a local perspective. The question is what is the D&O policy covering—the individual or the company? In Turkey for example the individual has to pay income tax for the cover. So we have to create specific solutions for customers.

HN: But I have still not seen a solution.

RS: Is this because the market is not demanding a solution because it would only make it more costly?

AL: Again there seem to be more questions than answers in this area. What about Solvency II? Do you welcome the new rules and what impact will they have upon you, especially if you have a captive?

AB: We don’t run a captive therefore it is not that important to us. We are, however, going through the decision process of whether to form a captive or not and Solvency II will postpone this decision for two to three years.

RS: We run a captive and find Solvency II to be a good thing for insurers that are doing business with the public. But the captive is owned by its own parent company and we have to fulfil all the Solvency II rules and minimum standards. It is easier for a captive than a commercial insurance company but it costs money, takes time and includes a lot of work. Do we really need this if it is for captives that are only writing their own company’s business?

AB: From my point of view Solvency II goes totally against the principle of insurance companies that are gathering risk together. Sometimes lines of business work and sometimes others do not and the insurer hopes to make a profit in the aggregate. But Solvency II will just raise prices.

MK: On the other hand, the aim of Solvency II is to enhance the ability of insurance companies to fulfil their obligations in case an event occurs and is therefore directed towards the client’s advantage. Also the way it is organised means that operational risk has to be managed, which is a good thing.

AB: Yes it is for the client’s advantage in theory but it does create a hell of a lot of work. It does, however, aim to create greater transparency for clients and improve risk management standards across the board. Otherwise, just like credit ratings, it creates a standard to be in the market. Over time it may prove more effective just to deal with this not by enhancing solvency but to ask for a letter of credit from the parent company for the captive.

The participants

Commercial Risk Europe would like to formally thank the following individuals who took time to join our Austria roundtable and contribute towards our Risk Frontiers Survey:

Olaf Kohler, Risk and Insurance Manager, OBB, the Austrian Federal Railways group

Heike Nicolussi, Managing Director, Corporate Insurance Management, Zumtobel,bsupplier of integral lighting solutions

Rudolf Schiel, Head of Insurance, RHI, a global leader in customised refractory products

Andreas Beck, IVM in-house broker of Voest Alpine/Böhler Group, the Linz-based Austrian Steel group

Michael Kleiter, Regional Manager Austria & CEE at XL Insurance

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