There are many common concerns among European risk managers and a number of different ones, as Lee Coppack discovered when she spoke to the president of the Federation of European Risk Management Associations and practitioners from Germany and France.

Hugh Loader is president of the Federation of European Risk Management Associations (FERMA). He is also risk manager for Tetra Laval in the UK.

A topical issue of concern that he draws out is that of double dipping. The practice of insurance brokers of taking a commission or fee for handling the affairs of individual clients and also receiving a commission from insurers based on the total amount of business provided is strongly exercising UK risk managers' minds. It was a major topic of debate at their annual AIRMIC conference in March. However, according to Mr Loader, this concern is not isolated to UK risk managers but applies "throughout Europe and, indeed, the US as well."

The globalisation of industry brings with it the need for the risk manager, he says, to understand the different cultures that they come across. Those cultures may range from situations where there is no insurance and the state is expected to provide, to a "Don't worry; it's insured" attitude with, perhaps, a lack of experience with the high deductibles which would make for a more realistic appreciation of risk.

In Europe, however, the risk manager is decreasingly an insurance buyer and increasingly part of an organisation's team for managing all sorts of consequential risks. Among the areas which Mr Loader feels come under the heading of holistic risk management are employee benefits with particular reference to life and pensions. There is also, he says, an interface with environmental areas, pollution and credit.

Clearly in a soft insurance market, insurers find fewer risks uninsurable, but Mr Loader suggests that they may still try to exclude year 2000 exposures. He adds: "The message I am getting from our members is that an easier approach to multi-year contracts would be welcome."

Finally, asked what he sees as the benefits of the European single market, Mr Loader replies: "I think the benefits of the single market in insurance very much depend on the choice of insurer that an individual company has chosen as its major carrier and the basis on which its programmes are structured. The single market may benefit one company, but the next company may have a programme in place where the single market has made no difference at all to its structure or implementation."

FERMA will from next year host its own biannual risk management forum, but with support from RIMS in the United States continuing in the background. The event will also move from Monte Carlo where it has been held for some years. The 1999 forum will be held in Berlin from 23-27 October.


Automatically and without warning, electric blinds descend to blank completely the windows in Eberhard Knebel's office at BMW in Munich. A few minutes later they rise, just as mysteriously. It is an effective demonstration of risk management in the widest sense; the blinds hide from unauthorised eyes a demonstration of a new car in development stage.

The tall figure and bow tie of Herr Knebel, managing director of BMW subsidiary Bavaria Wirtschaftsagentur, is a distinctive one at European RIMS meetings. He is one of the few German risk managers to take a high profile among the French and British who make up the vast majority of actual risk managers attending and he has not been afraid to express some trenchant views about insurance companies.

Today, he says that few insurers have kept up with their clients in global development. They are still largely medium sized companies bound to national if not regional boundaries. "Insurers are behind manufacturing companies by about five years. They need to have more centres of trans-national excellence; they still have a long way to go in organising their activities so they do not just look at the geographical area."

His concerns as the risk manager involve issues like these which stem from the fact that BMW is a prestigious international marque operating corporate insurance in more than 29 countries. Some of them will be familiar to risk managers in other multi-national enterprises; others are more specific to a company with its head office in Germany.

One of the major facts of the German risk manager's life is the 15% premium tax which the federal government imposes. It raises, says Herr Knebel, a substantial amount of money for the federal government - an estimated 1.7% of all tax revenues. Of concern to risk managers in Germany is the tendency to converge insurance premiums tax rates with those of the local VAT rate, which recently went up to 16%. That could give a real boost to self-insurance in Germany. Says Herr Knebel: "At that price risk transfer becomes a luxury article which we are not prepared to pay to the tax authorities."

The company's policy toward risk finance has developed organically over the 26 years of its existence. The reference to the company's captives is an area where BMW has been among the most innovative companies in Germany. Out of only 42 German owned captives, according to Corinne Ramming, editor of the 1998 Captive Insurance Company Directory (see page 87), three belong to BMW. Three other German car manufacturers, Porsche, Volkswagen and Daimler Benz, now also have captives. Says Herr Knebel: "We have always been known as innovative. A major step was the foundation of the captives to finance risk at corporate levels rather than in business units. Most companies are still on the ground floor."

A difference he sees between German companies and anglo-saxons is that in Germany the risk manager is also likely to be responsible for employee benefits, which are usually the realm of human resources in anglo-saxon companies. "We do the whole of insurance, so we do traditional property/casualty, motor, marine and employee benefits under the firm's insurance purchasing in terms of security, strategy and use of the company's captives." In addition to these risks, BMW also includes customer credit life risks, customer motor risks and even customer warranty risks.

Commercial insurance has been liberalised in Germany since 1991 but the spread of BMW's insurance is a result of its globalisation, not liberalisation. Today, 60% of its global premium volume is written by non-German companies. The company carries 15% on its own largely by means of reinsurances through its captives.

There is a strong element of central control in BMW's insurance purchasing arrangements, to ensure local insurances fit into the strategic plan and meet the company's security and rating criteria. "It is a strategic decision how to finance risk, what you insure, with whom and with which deductible. These things should be globally, strategically centralised. All the rest has to be done locally. No one in BMW closes insurance without our involvement." says Herr Knebel.

He draws a contrast between the amount of outsourcing in Germany and the greater tendency in anglo-saxon countries. Germany companies, for instance, still practically all have a captive broker; BMW does. He admits that as the company becomes more global it is outsourcing more; it is a question of resources. "With globalisation, we have to outsource more, as it is absolutely impossible with the relatively restricted number of people to cover the whole world." Outside Europe the company does use external brokers. The principle is - if it is more than two hours flight travel from head office, then they use a broker.

However, Herr Knebel is a risk manager, not an insurance buyer and his thoughts would not be a surprise coming from an American or British colleague. Contrasted to the centralised insurance function, his view is that: "In a global company, everyone is a risk manager. We regard ourselves as a pro-active moderator of risk for the whole company."

For example, it takes 15,000 parts to make a BMW and 75% of those come from outside suppliers, so managing the risks of business interruption is an exercise in awareness throughout the company of the inter-dependencies involved. "The real challenge for the future is to apply the same rules to these suppliers," says Herr Knebel. "We need to increase our co-operation with them."

Herr Knebel would certainly find common ground with risk managers in other global companies over the issue of reputational risk, because of the value of the marque. Recognition of this is the first step in avoiding it. The way a global firm behaves abroad can damage its reputation at home and in other prime markets. BMW, he says, is very sensitive to environmental exposures and cultural nuances of other countries where they operate. "Increasingly a firm's ability to make a profit depends on its image," he says. "Therefore, its sensitivity to loss of reputation grows."


Alain Lemaire, is director of risk management for Nestlé in France. Earlier this year he took over as president of the French risk management association, L'AMRAE.

LC. What do you think are the most pressing concerns of French risk managers in particular? How do they, within your knowledge, contrast to those of risk managers in other parts of Europe?

AL: It seems to me that the emerging risks which at present preoccupy us are the same as elsewhere. One is the vulnerability of corporate reputation as a result of the globalisation of communications. Because of global communications, an event which occurs in one part of the world can affect the worldwide image of an organisation.

Technological risks are a concern, particularly because the European directive on defective products can effectively make enterprises liable for development risk. This means they have to pay for the long term consequences of a product which seemed entirely inoffensive when launched but scientific advances later show damaged consumers' health. Examples that come to mind are asbestos and thalidomide in the past and the transmission of the HIV virus through contaminated blood more recently.

Another issue for us is the cost of health care and pensions.

LC. What are the risk management implications of increasing globalisation of industry? To what extent do insurers respond to those pressures?

AL. What seems most important to me at the moment is this:

* Large capacity international insurance companies with substantial geographical resources to offer to the client.

* Brokers with a presence, whether by correpondents or subsidiaries, throughout the countries where we have operations.

* Increasingly large capacity.

It is to these demands which all parts of the market are trying to respond, since it is at this level which they are competing.

LC: What sort of risks are currently uninsurable where French risk managers would like to see the insurance industry becoming more flexible/innovative?

AL: We are looking toward alternative risk transfer methods for risks like pollution or natural catastrophes outside France. Insurers are trying to come up with what are called alternative solutions, either by themselves or in partnership with banks. The problem arises when we have to deal with emerging risks for which insurers have neither experience nor statistics. They still need to develop their technical methods of assessing and pricing these new risks.

LC: What benefit - if any - has there been from the European single market in insurance?

AL: Transparency of costs is the main advantage which we see in a single market with a single currency. The single market should also lead to a simplification of European insurance programmes thanks to harmonisation of regulation. However, the single market for insurance does touch the problem of different insurance premium tax rates from one European country to another.

LC. To what extent are French risk managers interested in using captives and for what risks?

AL: A captive is useful where an organisation has risks which are either uninsurable or inadequately covered on the commercial market, either because of a shortage of capacity or excessive premium rates. Through a captive, some of the profits made by the insurance account can be returned to the parent company when the results are good and premiums cannot be otherwise reduced. To my mind other reasons, particularly tax, simply do not justify the creation of a captive.

Lee Coppack is co-editor of Global Reinsurance and edits the publication's annual international risk edition which will be published in the autumn. E-mail: