European risk and corporate governance solutions NEWS & ANALYSIS » War in Libya » Japan’s nuclear crisis » Middle-East predictions » Fresh fears for Hungary www.strategic-risk.eu [ April 2011 ] Issue 69 €25 VIEWPOINTS [ PEOPLE ] Electrolux’s Lennart Edström, former Merchant Navy officer, on learning risk lessons from the sea RISKS [ THREATS ] In an increasingly complex environment business disruption is occurring with alarming frequency. How do you choose the right supply chain protection? GOVERNANCE [ COMPLIANCE ] Regulators have a tendency to run risk managers ragged. What are the biggest hurdles and how can you vault over them? THEORY & PRACTICE [ INSIGHT ] The businesses that perform best are the ones that seize the opportunities presented by risk How the media exploits potential dangers and tilts the public’s perception of risk Special Report Is the tide about to turn on the D&O insurance market? Risk Atlas Climate change offenders won’t bear the brunt of its impact or costs Whistleblowing An open culture can help you net more black swans THE SUM OF ALL FEARS
Transcript
European risk and corporate governance solutions
NEWS & ANALYSIS » War in Libya » Japan’s nuclear crisis » Middle-East predictions » Fresh fears for Hungary
www.strategic-risk.eu
[ April 2011 ]
Issue 69 €25
VIEWPOINTS[ PEOPLE ] Electrolux’s Lennart Edström, former Merchant
Navy offi cer, on learning risk lessons from the sea
RISKS[ THREATS ] In an increasingly complex environment
business disruption is occurring with alarming frequency.
How do you choose the right supply chain protection?
GOVERNANCE[ COMPLIANCE ] Regulators have a tendency to run risk
managers ragged. What are the biggest hurdles and how
can you vault over them?
THEORY & PRACTICE[ INSIGHT ] The businesses that perform best are the ones
that seize the opportunities presented by risk
How the media exploits potential dangers and tilts the public’s perception of risk
Special ReportIs the tide about to
turn on the D&O
insurance market?
Risk AtlasClimate change
off enders won’t
bear the brunt of its
impact or costs
WhistleblowingAn open culture
can help you net
more black swans
THE SUM OFALL FEARS
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 1
A THIRD WAR HAS BROKEN OUT IN THE MIDDLE EAST TO ADD TO
the horrors of Afghanistan and Iraq. The diff erence between this war and the
last is that this time the liberal interventionists have the support of a UN Security
Council resolution. That international consensus emerged because everyone wants
stability in the Middle East, particularly in key oil-producing regions such as Libya.
Civil unrest has swept across North Africa and the Middle East, bringing to an end
the autocratic regimes of Zine El Abidine Ben Ali in Tunisia and Hosni Mubarak in
Egypt. The media’s obsession with Libya is partly down to the violence but also the
eccentricities of Colonel Muammar Gaddafi . It may be that this is distracting attention
away from more serious threats to regional stability, such as violence in the Yemen.
The mass media is drawn to disaster, and the earthquake/tsunami/nuclear crisis in
Japan easily shunted Libya off the front pages. A 9.0 quake so powerful it actually made
the earth spin a little faster crippled Japan’s Fukushima Daaichi plant and triggered a
potential nuclear disaster. Truly objective opinion is hard to fi nd when it comes to
nuclear meltdown, an archetypal risk that is embedded in our psyche. It appears to be
the case that certain safety measures were overlooked at Japan’s Fukushima Daiichi
plant, such as situating the diesel generators for the plant’s critical cooling systems on
the ground fl oor where they could get fl ooded and shut down. By and large, nuclear
power is extremely safe. But it’s unlikely that the wider public will be left with that same
sentiment after weeks of being told we are on the verge of nuclear meltdown.
This issue, we explore the problems with risk portrayed in the media and our
emotional reactions to it. We also explain the factors that infl uence a person’s perception
of risk and look at ways to manage this. We may never be able to protect ourselves
100%, particularly when faced with forces so powerful they can shift the world on its
axis, but a rational rather than emotional response can save lives, time and money. SR
[CONTACT THE EDITOR] Email [email protected] or follow me at twitter.com/StrategicRISK
01_Leader_SRApr11.indd 1 25/03/2011 17:18
CONTENTS [ APRIL 2011 ]
2 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
Risks
[ THREATS ][ OPPORTUNITIES ][ MANAGEMENT ]
21 COVER STORY: Alarmed and dangerous
Everyday life is not nearly as perilous
as the media encourages us to believe.
How can risk professionals respond to
irrational fears of potential danger?
24 RISK ATLAS: The next 10 catastrophes
Mapping the countries most vulnerable
to the eff ects of climate change, despite
producing the lowest emissions
26 RISK FINANCING: Chain reactions
Supply chain risks are high on the agenda
following recent natural disasters. What
types of cover are insurers able to provide?
Governance
[ ETHICS ][ COMPLIANCE ][ REPORTING ]
29 How to stay nimble amid the hurdles
When regulators say ‘jump’, risk managers
must comply. We list the rising number of
issues on which fi rms must toe the line
Theory & Practice
[ INSIGHT ][ CASE STUDIES ][ BEST PRACTICE ]
32 When chance really could be a fi ne thing
High-rollers look risk in the eye and make
it work for them. We suggest fi ve ways to
ensure the gamble pays off
33 Speak up now to prevent whistleblowing
How do you get people to trust in an open
culture, where business concerns are
communicated more freely?
34 How to spot a con man; lessons
in leadership
Tips to avoid being duped; plus Marks &
Spencer’s John Windsor on showing your
worth even when times are good
News & Analysis
[ THE LATEST BUSINESS ROUND-UP ]
4 The Best of the Web
The biggest stories online, including
fears over Gaddafi ’s plans, Middle East
expropriation and Chevron’s €5.7bn fi ne
6 Risk Indicator
The dominos le� standing in the Middle
East as others have toppled; and the
dizzying cost of the Japan earthquake
and tsunami
8-10 News Analysis
Flood-aff ected Australian fi rms are
showing us how business interruption is
done; the Hungarian toxic sludge plant
continues to pollute
12 News Feature
There are fears that global governance
is breaking down, as relations between
China and the USA fracture. Is the ‘every
state for themselves’ mentality on the rise?
Viewpoints
[ PEOPLE ][ OPINION ][ COMMUNITY ]
15 Here be dragons
Electrolux head of risk Lennart Edström got
his fi rst taste for risk, and how to manage it,
from his days in the Merchant Navy
17 Gulf rises to complex new challenges
GCC countries are upping their eff orts when
it comes to risk management techniques
18 Libya is not a blueprint for upheaval
Richard Fenning of Control Risks answers
questions on the Middle East situation,
China’s growing power and the rhetoric
of globalisation
40 Headspace
Ferma president Peter den Dekker shares
his stories of bungee jumping, bartending
and breaking the ice … literally
1512
Sea of troubles: the
economic crisis has led
to rising protectionism
as countries fi ght to
stay afl oat
Lennart Edström: the
Electrolux head of risk
learnt you can’t hide
from risk during his time
in the Merchant Navy
SPECIAL REPORT
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Rates for D&O insurance
have dropped yet again
36Those who can, D&O
New laws in Germany
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need of cover
38Buying local
Companies need to
think globally as well as
addressing local risks
TOUGH DECISIONS.
Go ahead and make the
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Europe: www.chartisinsurance.com/BusinessGuard
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NEWS MATRIX [ THE LATEST BUSINESS ROUND-UP ]
4 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
Top 10 essential online stories
01
06
05
01 WAR IN LIBYA
Gaddafi prepares for ground battlesOn 18 March, following weeks of violence
between civilian protesters and government
forces, an international military coalition
launched a bombing campaign against forces
loyal to Libyan leader Muammar Gaddafi .
US, British and French military jets and
cruise missiles targeted command and
control structures in Tripoli, air bases and
defences as well as military units.
So far the coalition has ruled out a
full-scale ground invasion. But the lightly
armed rebels are unlikely to be able to defeat
Gaddafi ’s well-equipped and well-trained
army without further off ensive support,
according to some observers.
Exclusive Analysis said that for the
purpose of propaganda and as a defensive
strategy Gaddafi will most likely try to force
rebels and coalition forces to battle him
around key oil infrastructure or inside urban
areas. This will increase the risk of civilian
casualties and damage to oil infrastructure.
“It is highly likely that Gaddafi is
prepared to infl ict damage on infrastructure
or force rebels to fi ght him around key
infrastructure in order to blame the coalition
for the damage,” said Exclusive Analysis.
web. goo.gl/tFChg
03 ECONOMY
Activity picks up but risks escalate
02 CIVIL UNREST
Expect Middle East expropriation, experts warnCorporate asset expropriations are “relatively certain” in the
Middle East in the near future because of the popular uprisings
in the region, experts have warned.
“The ownership of businesses associated with the previous
elites will be challenged,” said Exclusive Analysis in a special
update on the situation. “Contract risks will be greatest where
land was seized from poorly compensated ordinary people.”
Harm to assets is also likely wherever there is fi ghting
between loyalists and pro-coup militants, the update added.
web. goo.gl/VNqht
04 BRIBERY
22 charged under US bribery lawsTwenty-two executives and military industry workers have
been accused of engaging in schemes to bribe foreign
government offi cials to obtain and retain business in Africa.
The allegations of Foreign Corrupt Practices Act violations
stem from an FBI undercover operation, where an agent posed as
a representative of a fi ctitious African minister of defence.
UK police executed seven search warrants in connection
with the same investigation. “The fi ght to erase foreign bribery
from the corporate playbook will not be won overnight, but
these actions are a turning point. From now on, would-be FCPA
violators should stop and ponder whether the person they are
trying to bribe might really be a federal agent,” said assistant
attorney-general Lanny Breuer.
“Companies should prosper through honest business
practices, not the practice of backroom deals and bribery,”
added FBI criminal investigative division assistant director
Kevin Perkins.
The accused could spend a maximum of 20 years in prison.
web. goo.gl/c6Vc2
Companies should be aware that their risk
profi les are likely to change for the worse as
activity picks up, researchers have said.
Businesses are exposed to heightened
risk in areas ranging from workers’
compensation and wage claims and lawsuits
arising from employee errors, according to a
new report by Advisen.
“Greater activity naturally means more
claims,” said Dave Bradford, Advisen’s
executive vice-president and the author of
the report. “For example, more trucks driving
more miles inevitably results in more
accidents. But, more importantly, risk profi les
can change disproportionately in many areas
as business activity increases.”
web. goo.gl/PnO3H
02
0304
07
Re
ute
rs
Re
ute
rs
09
1008
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 5
05 TSUNAMI
Japan tragedy could lead to price hike
‘You may well see as a consequence of the Mid-East revolutions that a much more pluralistic engaged society emerger, where a lot more creative entrepreneurial talent is unleashed’ Richard Fenning, Control Risks’ chief executive
Online Contents
Most read storiesThe fi ve riskiest nuclear power plants
web. goo.gl/t2L5jMiddle East heads water security risk list
web. goo.gl/PZtngYemen crisis deepens
web. goo.gl/ukaQnWar in Libya
web. goo.gl/tFChg
Online analysisIs the Japanese nuclear crisis being
overhyped? The unravelling “nuclear
crisis” (as most of the mass media terms
it) is a classic example of how the media
can become obsessed by risk and cause
even more problems in the process.
web. goo.gl/DQl35
Bribery Act delay Just because the British government has
decided to delay the implementation of
the Bribery Act (again) that is no reason
for companies to take their eyes off the
ball. Risk managers from across Europe
say that anti-bribery programmes are
still a top corporate governance concern.
web. goo.gl/J0c7L
07 INTERNATIONAL RISKS
Global power vacuum seen as top threat
Eurasia Group has unveiled
its list of top 10 global risks.
Number one on the list is
the global governance
breakdown, or the “G-zero”.
In the a� ermath of the
fi nancial crisis and economic
downturn, global co-operation
on anything from the
economy to the environment
is hard to come by.
Eurasia also thinks that
2011 will be a year of growing
uncertainty for Europe,
although it thinks the
eurozone will remain intact.
web. goo.gl/nB4CL
10 REGULATION
Ferma demands transparency rules for brokers
06 LIBYAN OIL
Italy worst hit by Libyan oil slowdown
The death toll from the magnitude 9.0 earthquake that struck
Japan on 11 March continues to rise, but offi cially at the time of
going to press the fi gure stood at 18,000. Economic loss estimates
rose to around $300bn (€212m) within days. The World Bank said
that Japan’s economy would take years to recover.
AIR Worldwide estimated initial insurance industry losses
in the range of $15bn-$35bn. Fitch said that, combined with other
catastrophe losses this year the disaster could be a catalyst for a
price hike.
web. goo.gl/VsHyR
Ferma has called for the revised European
Insurance Mediation Directive to include
binding standards of transparency for
brokers in their relationship with insurance
buyers, no matter what size the risk.
The European risk management
federation’s demands came in response to
the consultation on the IMD launched by the
Internal Market and Services Directorate
General of the European Commission.
In November 2010, Ferma and the
European Federation of Insurance
Intermediaries (BIPAR) signed a protocol
on the transparency of intermediation in
business insurance.
web. goo.gl/K4A8R
The war in Libya is seriously
aff ecting the country’s energy
production.
The countries most exposed
to a drop-off in Libyan oil
exports are Italy, France,
Austria, Portugal and Ireland,
according to political risk
consultant Stratfor.
Stratfor said that almost
a quarter (24%) of the oil that
Italy consumes comes from
Libya. The fi gure is slightly
lower for France (10%), Austria
(12%), Portugal (11%) and
Ireland (13%).
web. goo.gl/MKRYs
08 COMMERCIAL POLICIES
Corporate insurance ‘not fi t for purpose’
09 ENVIRONMENTAL DAMAGE
Chevron fi ned $8bn in Ecuador
Serious fl aws in the way corporate
insurance policies are arranged are
leaving companies dangerously exposed,
according to a study of commercial risk
by the specialist research fi rm Mactavish.
Based on consultations with over 600
UK companies, the research painted an
alarming picture of inadequate
disclosure, widespread legal ignorance,
managerial failures, deeply uncertain
policies and a lack of understanding of
how large claims are processed.
“Companies are exposing themselves
to signifi cant losses,” the study said.
web. goo.gl/RZqZU
Oil giant Chevron has been fi ned more than
$8bn (€5.7bn) by a court in Ecuador for
environmental damage.
The US company said it will fi ght on in
a suit that is seen as a global test case.
The case, which has spawned related
legal action in the US courts as well as
accusations of dirty tricks and bribery,
dates from drilling in the Andean
nation’s Amazon region during the 1970s
and 1980s.
A judge ordered Chevron to pay more
than $8bn to repair environmental damage
but the oil major believes it is unlikely ever
to pay.
Chevron said the ruling was
“unenforceable” and “illegitimate”. The
California-based company had revenue
of $198bn and net profi t of $19bn in 2010.
web. goo.gl/DZqNF
Re
ute
rs
Re
ute
rs
AlgeriaPopulation: 32m99% Sunni Muslim
There is a 55%
probability that the
existing political
system will remain
intact in Algeria,
according to
Exclusive Analysis.
LibyaPopulation: 6m97% Sunni MuslimIf Muammar
Gaddafi falls, there
could be more
opportunities in
the long term for
foreign investment.
Saudi ArabiaPopulation: 26m5% Shia Muslim95% Sunni MuslimPolitical instability
is possible, but it
plans to spend
$37bn to calm
social tensions.
YemenPopulation: 20m36% Shia Muslim63% Sunni Muslim The most likely
outcome in Yemen is
that a tribal coup
succeeds in ousting
President Saleh
from power.
OmanPopulation: 3m2% Shia Muslim21% Sunni MuslimOman’s economy is
set to grow more
slowly as a result
of recent social
unrest.
TunisiaPopulation: 10m98% Sunni MuslimTunisia was the first
domino to fall, and
the revolution here
resonated with a
discontented
generation across
the Arab world.
EgyptPopulation: 76m90% Sunni MuslimThe regime of
Hosni Mubarak fell
on 11 February,
ending three
decades of
authoritarian rule.
BahrainPopulation: 0.678m70% Shia Muslim30% Sunni MuslimKing Abdullah has
made moves to
violently suppress
protesters. Saudi
Arabia has also
sent troops.
UAEPopulation: 3m16% Shia Muslim80% Sunni MuslimUnrest is unlikely
here, with living
standards on a par
leading Western
European nations.
QatarPopulation: 0.84m14% Shia Muslim86% Sunni MuslimOil-rich Qatar has
one of the highest
GDPs in the world,
making civil unrest
unlikely.
RISK INDICATOR [ VISUALISING DATA AND TRENDS ]
6 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
Jam
ie S
ne
dd
on
MIDDLE EAST
Waiting to see how the pieces fallMiddle East revolts won’t necessarily
lead to liberal economic reforms
A PUBLIC ACT OF SELF-IMMOLATION BY A YOUNG
Tunisian man will go down in history as the spark
that fi red up a regional revolution across the Middle East
and North Africa.
Comparisons have already been made with a string of
revolutions in Europe in 1848. Back then, as now, the
people revolted against a lack of political freedoms and
widespread poverty. Scholars of history, however, will be
quick to note that the 1848 experience shows that
overthrowing a government is just the fi rst step. Building
a sustainable political structure is the hard part.
Calm has not yet returned to the streets of Tunis,
despite the exile of Zine El Abidine Ben Ali. And big
uncertainties remain over the geo-political hues that will
emerge with the new order, particularly in Egypt.
Uncertainty makes life hard for businesses with assets in
the region and would-be investors. It is unlikely that the
new military regime, which replaced Egypt’s president
Hosni Mubarak, will push for more privatisations and
liberal economic reforms, according to Eurasia Group
Middle East and Africa lead analyst Hani Sabra. The
corruption associated with off ering up Egypt’s assets to
foreign investors was a major reason for the revolution in
the fi rst place, he says. But if the right political structure is
established, fresh opportunities could present themselves.
Europe’s leaders are clearly worried about the political
instability and uncertainty on the continent’s borders,
which is why they have committed military power to try
and resolve the civil war that has broken out in Libya.
It’s tempting to see Libya as the latest in a line of
dominoes about to be toppled by popular unrest. But the
truth is that every country in the region has its own
unique set of circumstances. No assessment of Middle East
politics is complete without an understanding of the two
branches of Islam, Sunni and Shi’ite, that defi ne major
aspects of everyday life and society.
You only have to look at the horrendous sectarian
violence in Iraq to see how bitterly and violently these
diff erences can manifest themselves. One of the
principal factors driving discontent in Bahrain, for
example, is the fact that a Sunni minority rules over a
restless Shi’ite majority.
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 7
THE BIG NUMBER
NUCLEAR SAFETY
Top fi ve[ NUCLEAR ACCIDENTS ]
OVERHEARD
“Soundbites”
1 Chernobyl, Ukraine,
26 April 1986 – level 7
Considered the worst nuclear plant
accident in history, it is the only one
classifi ed as a level 7 event on the
international nuclear event scale
2 Kryshtym, Russia,
29 September 1957 – level 6
Large amounts of radioactive
material were released following
an explosion at a waste tank
3 Windscale (now Sellafi eld), UK,
10 October 1957 – level 5
A fi re in the reactor core resulted in
the release of radioactive material.
It is the worst nuclear accident in
British history
4 Three Mile Island, US,
28 March 1979 – level 5
Accident causing severe damage to
the reactor core. No new reactors
were built in the US for 30 years
5 Goiania, Brazil,
13 September 1987 – level 5
Radiation contamination resulted
in four deaths
Source: various media
‘A plant in Hungary burnt down, it
was built up again and it burnt
down again a year later’
Lennart Edström Electrolux
>> see Viewpoints pages 15-17
‘I don’t know anyone who is
frightened of getting in a car, but
it’s actually bloody dangerous”
Philip Osmond British Airways
>> see Risks pages 21-23
‘I suddenly had a vision of
myself sitting behind a desk
pushing paper from one side of
the table to the other until
retirement in 2023. It was a
terrifying thought’
Peter den Dekker Stork and Ferma
>> see Headspace page 40
L EADING CAT MODELLER, RMS
estimated that the total economic
loss from the Japanese eathquake and
tsunami will be around $300bn, making it
three times more costly than Hurricane
Katrina in 2005 ($100bn). But because of the
lower insurance penetration in Japan,
losses to the insurance industry are likely to
be much lower than other major historic
losses. Insurers swallowed $22.5bn worth of
claims following the
September 11 terrorist attacks and
$70bn a� er Hurricane Katrina devastated
New Orleans.
Fitch Ratings said that while the
earthquake in Japan will be among the
largest insured losses in history, it can be
absorbed by the insurance and reinsurance
industries without widespread solvency
problems. However, with the prospect of
further catastrophe losses to come this year,
it “could be a catalyst for a pricing hike”,
Fitch said.
The total economic cost of September
11 is much harder to calculate: would there
have been an Iraq war without the terrorist
attacks, for example? Including stock
market falls, most place the price tag at
around $2 trillion.
Level5
This is the level on the
international nuclear event
scale given to the accident
at Japan’s Fukushima
Daiichi nuclear power
station on 18 March by
the International Atomic
Energy Agency.
Extensive damage in the
11 March earthquake caused
the plant’s essential cooling
systems to shut down and
reactors to overheat.
France’s nuclear safety
organisation accused Japan
of downplaying the risk,
a� er Japanese authorities
initially submitted a level 4
rating on the 1-7 scale.
Source: Financial Times
EARTHQUAKE
Cost of Japan tragedy to hit $300bn
Japan earthquake and tsunami, 2011$300bn (or about 5% of Japan’s GDP)
Hurricane Katrina, 2005$100bn
Japan earthquake and tsunami, 2011$20bn
September 11, 2001$22.5bn
Hurricane Katrina, 2005$70bn
Insurance industry losses
Totaleconomicloss
Co
rbis
Anti-Gaddafi : Libyan rebel fi ghters
cheer as shells explode nearby
during a battle with forces loyal to
leader Muammar Gaddafi , outside
the oil town of Ras Lanuf
Japan earthquake and tsunami, 2011$300bn (or about 5% of Japan’s GDP)
NEWS ANALYSIS [ CONTEXT & INSIGHT ]
8 StrategicRISK [ APRIL 2011 ] www.strategicrisk.co.uk
Retro rescue: Youngsters
rescue what they can from
the mud a� er severe
fl ooding in Brisbane,
Queensland in January 1974
Re
x Fe
atu
resR ECENT EXTREME WEATHER
conditions in Australia have greatly
tested the resilience of businesses’
continuity planning. But some, like law fi rm
DLA Phillips Fox and car rental company
Hertz, passed with fl ying colours.
DLA Phillips Fox’s corporate services
director, Mark Hornsby, describes learning
that there was going to be a problem.
“Following extreme rain in the Brisbane River
catchment area, it was fairly rapidly predicted
that the river would break its banks and
that large parts of Brisbane, including the
central business district and the low-lying
suburbs, would be inundated.
“Building management of Waterfront
Place, home to our Brisbane offi ce, ordered
the evacuation of all tenants just before
midday on Tuesday 11 January. At that
time, all our Brisbane staff were safely
evacuated and a number of our immediate
incident responses were implemented.”
Hornsby says that the fi rm’s business
continuity management plans worked
well when put to the test. “We were able
to quickly assemble and put into action
the right components to ensure the safety
and wellbeing of our staff was maintained,
that business operations continued
uninterrupted and that communication to
our staff , clients and other stakeholders was
timely and informed. It also worked
particularly well to have a national team
established, with some representatives ‘on
the ground’ in Brisbane but also with many
of us working remotely from other offi ces.”
Unlike some other Brisbane businesses,
DLA Phillips Fox, one of Australia’s largest
law fi rms, was fortunate in being able to
maintain business operations throughout
the period via its sophisticated remote
access and backed-up IT systems. It meant
that the majority of staff could continue to
work remotely from home or from the
fi rm’s temporary offi ce until they were able
to return to the building.
Hornsby says that there were also some
unforeseen challenges. “Power outages in
Brisbane’s suburbs created an initial
communications challenge for some staff ,
meaning communicating via SMS – a
system we had previously established –
proved critical.”
Hertz, meanwhile, has offi ces
throughout the world, so it is almost
inevitable that it will be aff ected wherever
disaster strikes. Good business continuity
plans in such an organisation are crucial.
As director of risk and claims
management for EMEA and Asia-Pacifi c
Patrick Smith says, many organisations
have continuity plans in place but have
never used them. “In Australia, we had ours
tested; they were resilient and they worked.
In fact, they were so successful that we are
using the Australian experience as an
internal case study and to bench test other
plans. It reinforced why you need
continuity planning.” SR
BUSINESS CONTINUITY
Keep calm and carry on, the Aussie wayAustralian businesses’ continuity plans were put to the ultimate test by the recent Brisbane fl oods. But some
companies have proved that, with the right systems in place, they can stay one step ahead
Addressing costs and future perils
Reports suggest that the Australian
fl oods have killed 32 people and
aff ected around 30,000 properties in
Queensland. There has also been
signifi cant crop damage.
On 27 January, Australian prime
minister Julia Gillard estimated that
the fl ooding would cost A$5.6bn
(€4.06bn) and said the government
plans a one-off levy on taxpayers to
help pay for reconstruction.
The tax will raise around
A$1.8bn – with a levy of 0.5% applied
on income between A$50,001 and
A$100,000, and a 1% rate applied
on taxable income above A$100,000.
Secondary perilsThe December 2010 and January 2011
rainfalls that severely aff ected the
Australian states of Queensland, New
South Wales and Victoria are a prime
example of how secondary perils can
cause widespread damage to property.
Secondary perils are usually
high-frequency, low to medium-
severity events and include fl oods,
hailstorms and bushfi res, among
others. Although they are not
usually on the same fi nancial scale
as earthquakes, hurricanes or
winter storms, they can cause
signifi cant damage.
Head of Swiss Re’s fl ood group
Jens Mehlhorn says: “Secondary
perils are very o� en underestimated.
Typically, these perils are diffi cult to
model. Hence, there are no adequate
risk assessment models available,
which contributes to uncertainty
when assessing these perils.”
LOWDOWN
NEWS ANALYSIS [ CONTEXT & INSIGHT ]
10 StrategicRISK [ APRIL 2011 ] www.strategicrisk.co.uk
Co
rbis
D ESPITE ENVIRONMENTAL
devastation and loss of seven lives
caused by last October’s toxic sludge spill
from MAL Hungarian Aluminium
Production and Trade Company’s plant near
Ajka, the company was still releasing
poisonous substances in waste water
directly into the surrounding area in
February, according to Greenpeace.
While the Hungarian government
balances the need for strong punitive action
against political and cost considerations,
MAL and similar plants, both in Hungary
and central and eastern Europe generally,
remain a “toxic time bomb”, says Hungarian
Greenpeace campaigner Balázs Tömöri.
Greenpeace has been monitoring the
region aff ected by the original spill since it
fi rst occurred. In November 2010, it identifi ed
an additional polluting discharge from the
plant, via a waste water disposal pipe, and
this is yet to be stopped.
Not surprisingly, MAL and the non-
governmental environmental organisation
have been in some disagreement as to the
nature of the discharge. MAL’s catastrophe
management team blamed it on rainwater
and leakage rather than deliberate pollution,
telling Greenpeace that it was relatively
harmless and being treated. The company
also considered that measurement of the
risk should be interpreted in comparison
with sewage water (which is discharged as a
matter of course from the plant and allows
for a higher threshold value of pollutants)
rather than ground water.
Taking the easy optionGreenpeace, however, contends that this
discharge is unacceptably toxic and going
into a stream that does not stop at perimeters
of the land owned by MAL.
Tömöri told StrategicRISK: “In all fairness,
MAL’s emergency management team have
made huge eff orts to minimise losses and
restore the area in the last three months
since the initial spill, but the question mark
around continuing pollution could really
obscure this hard work. We think MAL
should close the pipe that is discharging to
avoid certain damage to people and nature.”
A key danger is that the water course
the pipe is discharging into runs alongside
a public road with busy bus lanes. The
contaminants in the discharge are
understood to cause nervous system
problems.
While MAL’s team is endeavouring to
neutralise the alkaline discharge by adding
acid, Tömöri is concerned as to the adequacy
of this method. “It’s essential that the acid
added is mixed in properly. But this is a very
small pipe. The acid is being added into the
middle of the waste water channel and there
are people checking the pH level of this
waste water every hour – but it’s hardly the
most modern technology,” he said.
“A good clean-up process would
guarantee international acceptance but we
fear that they are taking the easiest option.”
Perhaps the biggest concern is that the
plant may simply run out of storage space for
this toxic sludge, raising questions as to
where it will look for additional storage.
Government worriesThe Hungarian government has expressed
regret over the loss of life and environmental
damage caused by the initial spill – but it will
also be aware of the political and fi nancial
consequences of any action it takes. MAL can
expect some heavy fi nes but it is in the
interests of the government to keep the
company viable. If it goes bankrupt, it is the
government that will be le� to meet the very
heavy costs of clean-up. It would also lead to
considerable job loss in the area.
Tömöri warns: “There are other toxic hot
spots in Hungary”, citing another plant, now
decommissioned, which has discharged
toxic waste into a storage reservoir next to
Danube, the dyke of which is also the dyke
of the Danube’s fl ood protection system.
“This should be checked properly – perhaps
even internationally – because it is next to
an international river. A similar catastrophe
here would be an even bigger disaster.”
Tömöri believes that the whole of the
central and eastern European region has
some very dangerous sites and that a
disaster like Hungary’s toxic red sludge
spill could easily happen elsewhere.
“Governments need to start procedures to
check these facilities properly.” SR
ENVIRONMENT
Fresh fears for Hungary’s ticking ‘toxic time bomb’ MAL insists it’s under control, but Greenpeace says a polluting discharge from the
plant responsible for the toxic sludge spill last year presents unacceptable risks
‘MAL has made huge eff orts to restore the area, but the question mark around continuing pollution could really obscure this hard work’ Balázs Tömöri Greenpeace
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NEWS FEATURE [ GLOBAL RISKS ]
12 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
Na
tha
n M
cKe
nn
a
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 13
Save our souls: some fear a
full-blown trade war
between China and the USA
INTERNATIONAL TRADE
Tricks of the trade
I NDUSTRIAL ESPIONAGE, BLACKMAIL AND BROWN envelopes stuff ed with cash. No, it’s not the StrategicRISK
awards: it’s how some companies – and their governments – do business.
So says Knightsbridge Company Services group chief executive Stuart Poole-Robb, echoing the World Economic Forum and Eurasia Group’s warnings about the risks of a global governance breakdown. The economic crisis is exacerbating the ‘every state for themselves’ mentality, and one of the main fears is a fi erce trade war between China and the USA.
There’s little that doubt protectionism is on the rise, but has it reached the extent that Poole-Robb suggests? Opinion is divided.
“The situation of each state looking after its own interests isn’t new,” KPMG head of internal audit, risk and compliance services David Defroand says. “To some extent this has probably always been the case, but perhaps it’s becoming more visible.”
In the case of joint ventures in countries such as Russia, governments appear to be taking more interest in maximising revenues for the state rather than the corporations operating there.
Control Risks global issues analyst Jonathan Wood explains that there has been increased rhetoric, particularly from the USA on its relationship with China. But that is not necessarily resulting in a drastic increase in discriminatory trade measures.
He says: “The rhetoric is linked to the economic atmosphere around the recession. Many manufacturing jobs have been lost in the USA, particularly in key industries, so politicians are faced with a huge employment challenge. China makes a convenient scapegoat.”
USA in the frameBut one European risk manager told StrategicRISK that he considers the USA quite capable of introducing trade discriminatory measures in its political interests. He cites the decision in September 2009 to impose punitive tariff s on all car and light truck tyres from China for three years. “My own business has a higher than average risk of being hampered by legislation introduced with the purpose of protecting the USA’s own trade. It’s very diffi cult to handle, politicians are highly unpredictable, and perceptions do not necessarily refl ect reality,” he says.
Closer to home, how far are European governments prepared to go to protect national interests? In the case of some, very far indeed, according to Poole-Robb. “The EU directives on how companies should behave are being observed by UK plc for the most part. But British companies are playing uphill when it comes to competing against other European multinationals,” he says.
Although these organisations recognise both national and EU
Protectionism is nothing new, but some in the business community believe the playing fi eld of international trade is becoming more rather than less uneven
Key points
01: Russia is increasingly
focused on
maximising state
revenues
02: Concerns are
mounting over US
relations with China
03: British companies are
seen as being at a
disadvantage in
Europe
04: France, Germany and
Italy viewed as most
aggressive in Europe
05: 75%-80% of markets
adopt protectionist
strategies
»
NEWS FEATURE [ GLOBAL RISKS ]
14 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
regulations, Poole-Robb believes they take the view that if they can fi nd a way around, under or over these laws, then they’re not actually breaking them.
Where tenders for very large contracts are concerned – not just in the defence industry but in sectors such as oil, power and natural resources – Poole-Robb says governments are prepared to step in to ensure success for their country’s companies.
“Confi dential negotiations are held on a government-to-government basis. Very little is put on paper for fear of leaks, so there’s little evidence to prove or disprove what government ministers have agreed,” says Poole-Robb. Such awards feature “mouth-watering side deals” – perhaps the provision of educational or medical facilities.
European hard-hittersPoole-Robb says the governments of France, Germany and Italy, in no particular order, are the most aggressive in trying to infl uence contracts.
Wood doesn’t see a problem, maintaining that there has always been a political element in the agreement of very large deals between countries. “All governments support their national companies with some incentives,” he says. For example, the UK’s offi cial export credit agency, the Exports Credit Guarantee Department, helps overseas buyers to purchase goods and services from UK exporters. It guarantees bank loans to fi nance these purchases, as well as insuring UK organisations against non-payment and political risks.
“We haven’t seen companies losing out because of secret government deals, although there is, of course, increased competition as there are more players in the market,” Wood says. But he does note a trend for developing countries to want projects to be staff ed by the local population rather than a company’s own workforce, and this can aff ect the outcome of tenders.
Industrial espionagePoole-Robb refers to European companies in bidding wars increasingly suff ering from industrial espionage, some of it
government-sponsored. “They are not necessarily after your technical or industrial secrets. They’re trying to fi nd out how tight your margins are. Where you pose too much competition, the local competitor will adopt whatever strategy it considers necessary within the framework available to it to put you out of business or for you to be less eff ective,” he explains.
There is a fi ne line between aggressive but fair competition and corruption. In the UK, some risk managers are concerned that the Bribery Act, due to come into force in October, may be putting too strict an ethical burden on British companies – for example, in barring facilitation payments to help oil the progress of deals. Poole-Robb says: “It will undoubtedly make the UK far less competitive in world markets.”
Wood disagrees. “We’ve already seen very aggressive enforcement of anti-corruption legislation in the USA and that hasn’t produced a decline in the
competitiveness of USA companies. Also, Germany and other countries in Europe are looking to enact similar legislation with an extra-territorial impact, as is Japan.”
Control Risks’ RiskMap 2011 states that corruption will be the most pervasive operational risk in 2011. “The new evangelism with which the Foreign Corrupt Practices Act (FCPA) is being enforced in the USA is likely to intensify. With stringent laws being enacted elsewhere (the UK Bribery Act, which will come into force in 2011, is the FCPA on steroids), corruption should be emblazoned across all corporate risk registers.
“Good intentions are not enough; the new global enforcement regime requires boards to actively demonstrate real compliance through the tangled web of joint ventures, agency agreements and distributors that is the everyday reality of transnational business.”
Corruption aside, how can European risk managers and their companies mitigate the eff ects of aggressive protectionism? “It’s important for risk managers to help their boards to think through the implications,” says Defroand. “What if not one but three countries slap trade tariff s on your imports, increasing the cost of your products by 30% or 40%? What can you do to manage the impact?” he asks. SR
‘We do not think the Bribery Act will put the UK at a big disadvantage’Jonathan Wood Control Risks
Since 1995, the Trade Barriers Regulation (TBR) has given
European businesses a tool for tackling trade barriers in export
markets. Businesses can use the TBR to ask the European
Commission to investigate restrictions on their sales abroad,
discriminatory treatment in foreign markets, diffi culty obtaining
patents or licences or any other form of unfair barrier to their
export of goods or services.
In the past decade dozens of companies or industries have
used the TBR to tackle problems in export markets, as well as
unfair foreign trade practices that cause injury within the EU
internal market. The TBR cases has helped improve export
conditions for car manufacturers in Colombia, pharmaceutical
companies in Turkey, textile fi rms in Brazil, among others.
Source: European Commission Trade
Barriers to trade
»
ANALYSIS
Saints and sinnersTransparency
International’s Corruption
Perceptions Index 2010
grades countries from
9-10 (very clean) to
0.0-0.99 (very corrupt). No
EU and Western European
countries are ‘very corrupt’
but some are in the lower
half of the scale.
01: Denmark 9.3
02: Finland 9.2
02: Sweden 9.2
04: Netherlands 8.8
05: Switzerland 8.7
06: Norway 8.6
07: Iceland 8.5
07: Luxembourg 8.5
09: Ireland 8.0
10: Austria 7.9
10: Germany 7.9
12: UK 7.6
13: Belgium 7.1
14: France 6.8
15: Estonia 6.5
16: Slovenia 6.4
17: Cyprus 6.3
18: Spain 6.1
19: Portugal 6.0
20: Malta 5.6
21: Poland 5.3
22: Lithuania 5.0
23: Hungary 4.7
24: Czech Republic 4.6
25: Latvia 4.3
25: Slovakia 4.3
27: Italy 3.9
28: Romania 3.7
29: Bulgaria 3.6
30: Greece 3.5
Viewpoints [ PEOPLE ][ OPINION ][ COMMUNITY ]
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 15
> Comment Viking Run ........... 18A view from the ice
> In my opinion Libya .............. 22Control Risks’ Richard Fenning on the opportunities that could come from the Middle East upheaval
PROFILE
Here be dragonsAt sea, there’s no hiding place from possible disaster. The head of risk at Electrolux, Lennart Edström, thanks his early years in the Merchant Navy for helping him keep business afl oat
Jon
as S
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be
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VIEWPOINTS [ PEOPLE ][ OPINION ][ COMMUNITY ]
16 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
A LOT OF WHAT LENNART EDSTRÖM UNDERSTANDS about risk, he learnt at sea. In 1977, at the age of 20, he began
a fi rst career of 13 years in the Merchant Navy. Now he is head of group risk for Electrolux, the world’s second-largest household appliance company.
The Merchant Navy taught Edström a lot about personal risk. He recalls a time when he narrowly avoided injury. “One of the ships I had been working on sank in the North Sea off Hartlepool in the UK, as a result of a dangerously fl ammable cargo being loaded with a pulp and paper shipment.”
Rising to the rank of offi cer, Edström mastered the art of navigation and shiploading aboard cargo vessels and bulk carriers, mainly sailing out of Gothenburg in Sweden and Singapore. But in 1988, when his wife gave birth to their fi rst daughter, Sophia, Edström decided it was time to head for shore.
“I would like to be back there, but you always forget about the bad times,” he tells StrategicRISK. “I learned a lot about risk in those days. When you’re on a ship, you can never hide away from risk. You cannot delegate it or skip it. You have to face up to it.”
The wilder shores Edström’s fi rst foray into the realm of professional risk management was with WASA Insurance, a Swedish underwriter. He worked in its industrial and marine division, mainly on cargo claims. In 1995 a position opened up at Stora AB, a Swedish-Finnish pulp and paper maker with roots going back to the 13th century. “The risk manager there hired me for marine risk management and loss prevention,” he explains. “I would follow the cargo to fi nd out where the claims occurred and then I’d see what I could do to rectify the situation.”
In 1997 Stora’s group risk manager left and a golden opportunity presented itself to Edström. “My experience working on the ships was really valuable. Moving into group risk management, however, I needed to scrub up on lots of insurance topics that I didn’t have much experience with, like property and casualty, directors and offi cers, crime and fi delity.” Fortunately, it wasn’t all “rocket science”, Edström says. “I learnt quickly.” Despite his limited knowledge of technicalities, he did not lean on brokers for support. “If I’d been smart I would have used brokers much more. But I didn’t. I did much of it myself.”
Seeing that the company was spending a lot on insurance, Edström decided to start implementing higher deductibles for the paper mills. “We said to the business units: ‘This is your business and you are going to have to take care of it’. We asked them to record loss statistics and report back to us at group level.”
It was tough at fi rst, he says, because the individual mills saw risk management as a drain on their profi ts rather than a long-term risk mitigation measure. Despite initial resistance, the business quickly began to record marked improvements. “Some of the mills started to have zero claims a year, down from 100 or so,” remembers Edström. “Giving the mills ownership over the risk was the key. In the beginning, they didn’t want to implement the retentions but they would never want to go back.”
In 2005, Edström was headhunted by one of Sweden’s iconic brands, Electrolux. “I started as group risk manager,” he says. He was inspired to join the company by a clear commitment from the senior management.
“In one of my interviews for the job, Electrolux’s chief executive
and the chief fi nancial offi cer sat down with me for one and half hours and we talked about risk management. Every quarter I have a meeting with the chief executive, chief fi nancial offi cer and head of legal. If I have a diffi cult decision, I can anchor it in the group’s executive management. That makes implementing it a lot easier.”
“If there’s a negative claims development in one of our product divisions, for example, I might need to heavily increase their premium contributions,” he explains. “The operations will be reluctant to do that and they will lobby back. If I go to the senior bosses and they can give me the go-ahead then I have a strong foundation for implementing that change.
“It means I can say to the business unit: ‘This is what I propose you do to rectify your premium. If you don’t make these changes then I’ll increase the premium again.’ It could be a product liability or quality issue. Or it could be that one division has a loss prevention strategy that doesn’t match up with the group’s.”
As well as the group insurance programmes, Edström takes responsibility for loss prevention, specifi cally property and business interruption. “We had some big losses in the late 1990s,” he says. “A plant in Hungary burnt down, it was built up again and it burnt down again a year later. A plant in Warburton in the UK was also completely burnt down in 1999. We had to lease a warehouse for 15 years.”
Following these catastrophic losses (and the ensuing problems getting insurance cover) Electrolux’s board “handed over a big bag of cash” to the risk management department and asked Edström
2nd largest household appliance
company in the world
40m products sold by Electrolux to
customers in 150 countries
every year
53% jump in profi t to SEK4bn
(€453m) in 2010
54,000 employees in 2008
COMPANY PROFILE
Jon
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ved
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www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 17
to make it stop. The result was Electrolux’s Fire 2000 programme to get the protection level on its facilities worldwide up to scratch. “Now we haven’t had a claim for some time and we are an attractive risk for the insurance market,” Edström says. “We still have the momentum within the group to work on loss prevention. It’s almost part of the group’s DNA now.”
Product safety also falls under the risk management remit at Electrolux. “Although we are not responsible directly for product safety – that’s Operations’ responsibility – we are responsible for reporting all cases to the top management,” Edström explains.
Sector product safety advisory committees report any issues quarterly into the group product safety advisory committee, which
Edström chairs. He then fl ags up any serious issues before quarterly risk committee hearings.
Electrolux’s corporate security chief also reports to Edström. “Among other things, he looks after the personal security of the top management,” he
says. Something that is particularly pertinent as the group is currently mulling over an acquisition in Egypt.
Captive controlThe group’s captive operation is another area over which Edström takes ownership. “We have two captives today,” he says. “A couple of years ago we had four. We transferred the portfolios from our Dublin- and Luxembourg-based captives into a new Swedish captive, where we write property and business interruption, casualty and business travel.
“In the USA, we write casualty and workers’ compensation through another captive. We have big retentions, which means we have much better ownership over the risks.”
Unlike some other white goods manufacturers, Electrolux does not write third-party business through a captive. “That’s a conscious decision,” Edström says. “The captive is there to support the core business, not to make money.”
As a senior risk management professional, Edström isn’t alone in having a few issues with the concept of enterprise risk management (ERM). His main bugbear is the way that consultants sell ERM into companies. “I’m of the fi rm opinion that these issues should be owned by the company because every company has its own set of risks,” he says. “Consultants can advise but ERM needs to have buy-in from the operations and grow organically rather than being imposed externally.”
In his view, senior management should set the organisation’s risk appetite and risk managers should implement the strategy. “Maybe there are some ambitious risk managers who would like to take control over all aspects of risk, but I think it is wrong,” he says.
It is easy to see how Edström’s philosophy has been shaped by his time at sea. As a ship’s captain has to scan the horizon for danger, risk management is all about being proactive and avoiding risks before they strike, he says. With that mentality (and a bit of luck), he thinks risk managers should be able to avoid icebergs. SR
‘A plant in Hungary burnt down, it was built up again and it burnt down again a year later’Lennart Edstrőm Electrolux
Risk awareness is becoming more sophisticated in GCC countries to keep pace with the new needs of the region, but smaller fi rms are on a learning curve
IN MY OPINION
Gulf rises to complex new challenges
Ben Dyson, DEPUTY EDITOR,
GLOBAL REINSURANCE
R ISK MANAGERS IN THE GULF COOPERATION COUNCIL countries are increasingly adopting more sophisticated risk management
techniques such as enterprise risk management, according to panellists at the fi fth annual MultaQa Qatar conference. However, much of the activity remains confi ned to larger companies and smaller fi rms still lack a consistent approach across their organisations.
Rahat Latif, enterprise risk management lead, corporate planning at Qatar Gas, said he had seen a big change in the risk management approach of the region’s corporations over the four and a half years he has been working there. A particular milestone was the establishment of a regional chapter of the Institute of Risk Management (IRM).
“There is an increasing awareness of the role risk managers have to play,” Latif told delegates during a panel discussion at MultaQa on 15 March. “It is also interesting to note that the IRM has seen the Middle East as a key growth area. The interest has been there and it has not just been superfi cial. I have seen the growth of the IRM and in the number of risk management roles being established throughout the industry.”
Speaking in a later presentation, deputy chief executive offi cer for Qatar Financial Centre Regulatory Authority, Michael Ryan, pointed out that the fi nancial crisis and the threat of failure of systemically important institutions had emphasises the need for eff ective risk controls globally. “Group-wide supervision has become more important,” he said.
Development projects in the region are exposing corporations to more complex risks, driving the need for more sophisticated risk management and more advanced insurance products. While noting that insurance buying was still largely confi ned to more traditional property risks, Oman Insurance executive vice-president and head of strategy and planning, James Portelli, said certain projects, such as the Emirates Nuclear Energy Corporation’s plans to build the United Arab Emirates’ fi rst nuclear power plant in Abu Dhabi, were broadening risk managers’ horizons.
“Traditionally projects did not push the boundaries of insurance – it was just writing a larger piece of business with slightly diff erent wordings from the traditional ones. Now, because of nuclear and maybe some other risks, there is a need also for more education and awareness,” Portelli said.
But he contended that there was still work to do on consistent risk management approaches, pointing out that some corporate buyers were tackling insurance buying and risk controls separately. “Whereas business continuity management, security, health and safety and environment is dealt with by corporate services, engineering departments and so on, insurance has traditionally been a function of fi nance and treasury, and there was a disconnection,” he said.
“This is changing. But it’s changing more in the larger corporations – the publicly listed companies, the large government entities – where we are seeing more chief risk offi cers and risk managers.” SR »
15_19.indd 17 25/03/2011 15:31
VIEWPOINTS [ PEOPLE ][ OPINION ][ COMMUNITY ]
18 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
What are your views on the rise of China? Can it be compared to the rise of Germany in the 20th century? Obviously there were dire consequences for the world back then. How is the world going to cope with the emergence of China as a superpower?In theory it’s to everyone’s huge advantage. Not least because China has underwritten the US defi cit for the last few years. The implication of your question is: are we heading for some major clash between China and the West? America has the largest defence budget in the world by some way. The reason it is able to aff ord a large army is because China underwrites its budget defi cit by buying US treasury bonds. Therefore, China is eff ectively funding US military spending. So if it is all going to end in war then it will, rather bizarrely, be a war that China has paid for.
But I don’t think that’s going to happen. The Chinese are way too clever for that. They want to avoid confrontation with the USA. The theory is they are so interlinked they can’t survive without each other. And to a certain extent that is true. Mutual trade dependency will overcome political diff erences. It is easier to threaten people if you don’t have billions of dollars invested in their well-being.
Control Risks’ chief executive Richard Fenning discusses today’s major risks with StrategicRISK, ranging from the war in Libya to the rise of China, ‘hacktivism’ and Somali piracy
IN MY OPINION
Richard Fenning, CHIEF EXECUTIVE, CONTROL RISKS
Libya is not a blueprint for upheaval
How do you see the situation in Libya and the Middle East evolving?Libya is essentially being run as one man’s fi efdom. [Colonel Muammar] Gaddafi has stopped any other institution gaining power that could rival his. Most of the rest of the Middle East is not like that. So Libya, unlike Morocco, Algeria, Egypt or Tunisia, is capable of becoming a failed state, in the sense that the basic functions of the state are not able to deliver what the population needs.
It would be wrong to see Libya as a blueprint for what might happen elsewhere, because it does have this rather odd characteristic. So the intensity of what we are seeing and the possibility for dire consequences is greater.
Having said that, there could be some signifi cant opportunities as well depending on how the Middle East re-emerges from this. There could be investment opportunities. You may well see as a consequence of this that a much more engaged pluralist society emerges, where creative entrepreneurial talent is unleashed.
The World Economic Forum warned of the breakdown in global governance. And we saw this at the Copenhagen Climate Summit where
world leaders failed to reach agreement on curbing greenhouse gases. There is also a tendency for countries to look out for themselves during a downturn. And a pressure on them to introduce protectionist measures to bolster their own homegrown industries. What can be done about this?Yes, there’s always that. If you look at what’s happened over the past 10 years, though, the whole move towards globalisation has continued despite the rhetoric of politicians. So in the USA there’s a huge angry commentary about the loss of US jobs to other parts of the world, but actually nobody ever does anything about it. It is just the way the world is going. You get a lot of noise about it but actually I’m not sure whether that process is going into reverse in any meaningful way.
FERMA
M AYBE I DIDN’T PUT AS much thought into my answer
as I should have done when Ferma’s president, Peter den Dekker, asked me if I’d like to compete in the annual Vikingarännet (or Viking Run) ice race in Sweden, writes Nathan Skinner.
Once I’d agreed, there wasn’t much chance of backing down. And the idea of skating across a frozen Swedish lake in winter did appeal — particularly if StrategicRISK was
picking up the tab — despite my complete lack of experience.
When race day arrived in February, we couldn’t have asked for better weather. The temperature was well below freezing (meaning the ice wasn’t slushy) and for most of the day the sun was shining.This was scant consolation, however, for the fear that gripped me as our team assembled at 8am on the starting line in Uppsala. It consisted of myself and Peter, along
with Heikki Hakkarainen from Hannover Re, Erik Borjesson from Lloyd’s, Mark Vos of Crawford, and Arjen Ronner from Aon. Erik’s PA, Brenda Wallen, agreed to meet us at the halfway point with energy bars and hot soup. Standing on the frozen shore, that seemed a long way off .
The Vikingarännet is a 80km ice skating race that takes place annually along the shore of Lake Mälaren, starting in Uppsala and fi nishing in Stockholm. A few thousand (mainly northern European) skaters take part every year. Many either injure themselves en route (usually by colliding face fi rst with the ice at 20km an hour), or fail to complete
the distance in the time allowed (my main concern).
My limited amount of pre-race training had not prepared me for the number of cracks in the ice. Swedish ice is notoriously evil, so Swedish skaters use poles to help themselves balance. Dutch skaters, who I had trained with (once), don’t.
Peter, a Dutchman, had explained that “no real man” uses poles. But that didn’t stop me from accepting them when Erik Borjesson off ered. The kind Swede and insurance professional quite literally saved my skin.
You’d have thought someone who writes about risk every day would have engaged in a little more risk mitigation.
‘China is eff ectively funding US military spending. So if it is all going to end in war then it will be a war that China has paid for’
Frozen fudge is the taste of defeat on the Viking Run
15_19.indd 18 25/03/2011 15:31
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 19
Communityupdate
Ferma has
invited
students to submit
entries in a
competition for the
best risk management
thesis. The competition
is open to any risk
management student
and the deadline is 30
June. A winner, who
will receive €1,000 in
prize money, will be
chosen at the Ferma
forum in October. A
panel including
representatives from
academia, Ferma and
the award’s sponsors,
ACE, will judge the
competition.
Steve Willis,
Insurance
Manager at
International Power
GDF SUEZ, has won the
2011 Arthur Quern
Quality Award from the
RIMS Quality Advisory
Council. The award
recognises Willis’
innovative insurance
programme. It
acknowledges
individuals and
organisations that
innovate and
demonstrate
sustainable results.
Willis will receive the
award at the RIMS
conference in May.
Swedish, Danish
and Norwegian
risk managers gathered
in Stockholm on 24
March for the fi rst
pan-Scandinavian risk
forum. President of
Swedish risk association
Swerma, Charlotte
Barnekow, told
StrategicRISK her
members would also be
attending events hosted
by the Danish and
Norwegian associations.
“Many of the issues that
we face as a profession
are the same across
Scandinavia. It is good
for us to come together
and share ideas.”
What’s the right strategy to cope with the rise of cyber risks? We’ve seen with WikiLeaks how ‘hacktivists’ can launch revenge attacks against companies. It’s really diffi cult because you’ve got hacktivists and then you have state-sponsored espionage where people will break in to steal information or do damage. This is a very potent threat at that state-to-state level. It is extremely hard to protect against absolutely. It’s beholden on all companies to have the best possible information protection measures that they can and for people to assume we are living in a hostile environment.
I wonder if there’ll be backlash against hacktivism, and whether it will be regarded more as a criminal activity rather than the Robin Hood mystique that has grown up around it.
Piracy is another big issue in the headlines, in particular the rise of Somalia pirates, but elewhere too. How has it been allowed to become such a problem?It’s kind of a medieval risk that has come back to haunt us. Fundamentally it hasn’t changed at all – it is still young men climbing up the side of your ship at night and taking it over.
As piracy gets more violent and more outrageous then the response to it will get more assertive. It could take the form of attacks on pirate havens in Somalia or more aggressive responses from international maritime forces.
But you’d be wrong. Most of our team were happy to self-insure their personal risk. Our only gesture towards risk management was in carrying ‘ice prongs’: crafty devices that help a skater to extract himself if he is unfortunate enough to fall, crash or slip into the icy depths. I didn’t see anyone do this but I did see some bloody patches of ice and oddly disjointed limbs.
Arjen Ronner, our most experienced skater and another Dutchman, has completed the legendary 11 Cities Race, but he proved that no amount of experience can prepare you for the Viking Run. He had to hike practically barefoot across
2km of snow trail, having decided against bringing spare footwear (competitors are encouraged to carry boots for the short hikes that connect stretches of ice).
I dropped straight to the back of the pack and lost sight of all my colleagues after a kilometre, yet I somehow made it to the Lloyd’s 41km pitstop by midday with all my bones intact. Brenda handed me a cup of coff ee and told me that I was only 45 minutes or so behind the main pack.
Spurred on, I returned to the race almost immediately, but the last third of the journey was a slog. The ice was “fudgy” (cracked ice with snow on top, preventing you from seeing or
avoiding the gashes). My legs and shoulders were burning by the time I made it to the fi nal pitstop before the fi nishing line, where a steward told me I’d missed the cut-off point by 15 minutes. With dusk descending I was forced to retire from the race at 67km.
My colleagues did their best to console me by calling me “brave Brit”, but it was hard to hide my disappointment. Fortunately there are plans to make the event an annual aff air so perhaps next time I’ll do a better job of practicing what I preach. A little more proactive risk management and it could have been a whole diff erent story. SR
The dream team: (L-R) Heikki
Hakkarainen, Erik Borjesson, Peter den
Dekker, Mark Vos, Nathan Skinner,
Arjen Ronner
[READ MORE ONLINE] For the full interview with Richard Fenning, go to strategic-risk.eu or goo.gl/w2g1p
[READ MORE ONLINE] For more photos from the event, go to strategic-risk.eu or goo.gl/bI7AM
We take time to listen and engage with clients, markets and colleagues
so that we can understand aims and objectives, put strategies in place
AT JLT SPECIALTY LIMITED WE DON’T RELY ON OFF-THE-SHELF SOLUTIONS
JLT Specialty Limited. Lloyd’s Broker. Authorised and Regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: 6 Crutched Friars, London EC3N 2PH.Registered in England No. 01536540. VAT No. 244 2321 96. www.jltgroup.com.
Risks [ THREATS ][ OPPORTUNITIES ][ MANAGEMENT ]
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 21
RISK PERCEPTION
Alarmed and dangerousFear, uncertainty and doubt: it sells papers and boosts viewing fi gures, but what are the consequences of a misperception of risk? »
> Risk atlas Climate change .....24The countries that pollute the least are most at risk
> Risk fi nancing Chains ...........26Growing interest in trade disruption insurance
Pic
cre
dit
RISKS [ COVER STORY ]
22 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
» I T’S A SCARY WORLD OUT THERE: MUGGERS AT THE bus stop, terrorists on the Underground. And that person
coughing in accounts, do they have swine fl u? It’s all worrying stuff . But just how dangerous is everyday life really?
We live in a society high on fear but with almost no understanding of risk. Stirred up by a sensationalist media that tweaks deep-seated human uncertainties, many people respond in a very irrational way to their fears. And that can put business in a very tricky position, especially those professionals whose jobs it is to assess risk and how to deal with it.
“Most people just don’t react rationally to facts,” says British Airways head of risk Philip Osmond. “For example, when there is news of an airliner crash, this can enhance fears of air travel, despite in reality people being far, far safer in the air than in their cars.”
And recent events have shown just how lethally dangerous an irrational response to fear can be.
After watching the horror of the 9/11 terrorist attacks unfold on television, many Americans sharply reduced their air travel. This led to increased car use, meaning increased road traffi c accidents. As a result, an estimated additional 1,500 people died on US roads in the attempt to avoid the fate of the passengers who were killed in a devastating – but so far unique – attack, according to a study published in 2006.
“I don’t know anyone who is frightened of getting in a car, but it’s actually bloody dangerous,” Osmond says. “Yet there is this common feeling that fl ying is unnatural; that hurtling along in an airborne metal tube at 38,000 feet and 600 miles per hour doesn’t feel right. In the same way, hurtling along at 80 miles per hour with controlled explosions going on under the bonnet doesn’t make much sense either. But people just don’t think about that.”
The eff ects of risk avoidanceIrrational fear is particularly a problem in situations where the consequence of a negative outcome is so terrible that people are reluctant to tolerate any level of risk whatsoever.
A good example is the MMR scare in the UK. In 1998, Dr Andrew Wakefi eld published a study in The Lancet suggesting a link between autism and the single vaccination for measles, mumps and rubella. This was widely reported in the media and, as a result, vaccination rates plummeted, which led to a rise in measles. Despite the study being subsequently utterly refuted – the General Medical Council has ruled he had acted “dishonestly and irresponsibly” in doing his research and even Dr Wakefi eld admits his claims were “unfounded and unjust” – many people are still unwilling to give their children the vaccination.
“People are just not willing to take a risk when the consequences – in this case their child becoming autistic – are too awful for them to contemplate,” says head of risk for London Underground, David Hancock.
In circumstances like this, companies can fi nd themselves in a situation where they have to be seen to respond to public fears, even if rational analysis would perhaps demand a diff erent reaction. “We see this all the time on the railways,” Hancock says. “Statistically, train travel is very, very safe, but because of the fatalities that have occured in the rare instances of a crash, we endeavour to make the public aware of the huge amount of money we spend on safety. Perception is
1. The mediaThe media can increase the sense of
threat, and decide what we should be
worrying about. Foreign criminals,
teenage gangs, and avian fl u are
treated diff erently in diff erent
news outlets.
2. How risk is explainedThe statistical tools used to explain
data in scientifi c journals can
infl uence how it is interpreted, and
how the public and media react to it.
3. Personal experienceIf an individual has had negative
experiences, they are much more
likely to expect those things to
happen to them again.
4. EntertainmentThe success of particular fi lms – like
disaster movies – can infl uence how
people perceive the risk of certain
activities, such as air travel.
5. How you see the worldHow you perceive risk is shaped by
your views. For example, a le� -wing
person is unlikely to view industrial
action as a ‘risk’ in the same way as a
more right-wing person. A success-
driven person will be more afraid of
failure than someone more laid-back.
6. Familiarity of the riskThe more o� en you safely experience
a ‘risky’ activity, the less likely you are
to fear it. To the uninitiated,
rock-climbing may look dangerous,
but it will seem much less so to the
seasoned climber.
7. Necessity of the riskIf calculated risk is part of your
day-to-day world – as it is for a
trapeze artist or a stock market trader
– you are much less likely to be
frightened of the consequences.
8. Recent eventsA commuter stepping onto the
Underground the day a� er a terrorist
attack will probably see another
attack as more likely than they did
the day before the bombing.
9. EducationThe better able an individual is to
analyse a situation, the more
rational their response to any risk
will be.
10. The scale of the riskIndividuals are more likely to
overreact to risks – however
unlikely – if the consequences of a
negative outcome are unbearable
to them.
Top 10 factors aff ecting risk perception
INSIGHT
Re
x Fe
atu
res
21_23_RisksFeat_SRApr11.indd 22 25/03/2011 16:05
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 23
everything. Risks don’t actually exist – hazards exist – what risk managers do is just future gazing. In that sense, perception is actually the ‘truth’.”
And it isn’t just in response to life-threatening events that risk perception can distort reality and shape the future – it also infl uences how employees work in more subtle ways. “Concepts of risk can be self-fulfi lling,” Hancock says. “If you imagine that you won’t manage a project well, the likelihood is, you won’t.”
Additionally, going on a gut reaction rather than facts can also cause employees to downplay real risks. Factory fl oor workers may not be as worried as they should be about safety, because they’re constantly exposed to a risk and become complacent, or they are infl uenced by media stories portraying health and safety as a waste of time.
The picture is further complicated because many companies depend on a degree of risk as a way of gaining a competitive advantage. “Often you have to break away from the herd, and that always involves taking risks,” Hancock says. “Certain industries, such as banking, depend on it, and that has to be managed.”
Other sectors, like education, face the opposite problem: they are expected to operate on something as close as possible to zero risk, despite this being almost impossible to achieve. “We see bizarre situations, like parents bringing their children to school on a motorbike and then expecting teachers to keep them safe indoors and not even allow them to play outdoors,” Hancock says.
Learning to live with riskIt would seem that, across the board, human beings are predisposed to irrational reactions to risk, placing many companies in an awkward situation. But there may be a straightforward solution.
“If you read a typical psychological explanation of why this happens, it will argue that there is something wrong with people’s brains,” says Professor Gerd Gigerenzer, director of the Max Planck Institute for Human Development and the Harding Centre for Risk Literacy. “But I don’t think this is true. There is now a whole industry in the form of the media that has set out to deliberately distort and create misunderstanding. We have to educate people to deal with this. That is the key to helping them understand risk.”
According to Gigerenzer, the way information – particularly statistics – is presented is often deliberately confusing. For example, the results of a particular survey may reveal that the risk of death or injury associated with a particular activity has risen from 1:1,000 to 2:1,000 – a statement of absolute risk. Not so dramatic perhaps. But phrased another way – in terms of relative risk – there was a 100% increase. That’s the way to grab headlines and shift your agenda or product from a scientifi c journal to the mainstream.
“We live in a society where we have the right to clean water, but not clean information,” Gigerenzer says. “There is an example of a study into the health risks associated with third-generation contraceptive pills that was skewed and created huge fear. Women in the UK stopped using it and there were around 14,000 more abortions that year. We cannot trust our media and there is no society without trust. We need to teach people how to be more risk literate.”
Hancock agrees that education is key to helping people better understand and think through fear. “The problem is partly that people are reacting emotionally,” he says, “but more importantly they are reacting in this way because they don’t have the tools to make an informed decision. We need to change this. Risk is seen as a controlling thing by both businesses and individuals, but I think a proper understanding of it can be very empowering.”
Gigerenzer agrees. “We need to educate a new generation to deal with the modern world,” he says. “We need to teach them how to live with uncertainties and not look for certainties were they don’t exist. There will be more surprises this century, and people need to know what questions to ask – whatever comes along.” SR
The millennium bug that didn’t biteAt the close of 31 December 1999, our world
was due to end. As the clocks struck midnight,
the great silicon meltdown would begin as
computers across the world, unable to cope with
the new date, fl ickered and went quiet, taking
with them our civilisation’s life support systems:
health, medicine, power, water, transport.
We all knew that the ‘Millennium Bug’
had the power to do this because we had read
endless articles about it in the run-up to New
Year’s Eve 1999 – and not just the sensationalist
tabloids, but in the pages of the serious press
too. Yet, despite all the warnings, when dawn
broke on 1 January 2000 it revealed a world
with a bit of a hangover for sure, but otherwise
pretty much fi ne.
The Millennium Bug is one of the great
irrational risk reactions of our time. From a
single paragraph in a 1993 issue of the Canadian
Financial Post, headlined ‘Turn of century poses
a computer problem’, to a 1999 headline in
London’s Evening Standard – ‘Life-saving
hospital equipment and 999 services in London
face total breakdown on January 1’ – the media
stirred a self-perpetuating storm of hysteria.
The fi rst sources were computer scientists
who thought there might be a problem
although – crucially – had no idea how serious
it would be. But pretty soon the real risk posed
by the Bug was lost as business, IT and the
media abandoned the facts and hyped up the
fear. In the end, countless hundreds of millions
of dollars were wasted preparing for a disaster
that was never actually going to happen.
CASE STUDY
‘Most people just don’t react rationally to facts. An airline crash can enhance fear of fl ying despite air travel being far safer than being in a car’Philip Osmond British Airways
Nuclear winter: the
risk threatened by
Japan’s Fukushima
plant taps into one
of the public’s
greatest fears
Nuclear safety scale
01: Anomoly: variation
from permitted
procedures
02: Incident: incident
with potential safety
consequences
on-site. Insignifi cant
release of
radioactivity off -site.
03: Serious incident: very
small release; public
prescribed limits.
Local protective
measures unlikely.
04: Accident without
signifi cant off -site
risks: minor release;
public exposure of
the order of
prescribed limits.
Local protection
measures unlikely
except for some foods.
05: Accident with off -site
risks: limited release
of radioactivity. Partial
implementation of
local countermeasures.
06: Serious accident:
signifi cant release
of radioactivity.
Full implementation
of local
countermeasures.
07: Major accident:
major release of
radioactivity.
Widespread health
and environment
eff ects.
21_23_RisksFeat_SRApr11.indd 23 25/03/2011 16:05
RISKS [ THREATS ][ OPPORTUNITIES ][ MANAGEMENT ]
24 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
[READ MORE ONLINE] Download a PDF of this risk map atwww.strategic-risk.eu or goo.gl/wrNha or go to maplecro� .com for more maps and indexes
7
Rank Country Category
1 Bangladesh extreme
2 India extreme
3 Madagascar extreme
4 Nepal extreme
5 Mozambique extreme
6 Philippines extreme
7 Haiti extreme
8 Afghanistan extreme
9 Zimbabwe extreme
10 Myanmar extreme
RISK ATLASENVIRONMENTAL RISKS
The next 10 catastrophes
T HOSE COUNTRIES THAT PRODUCE THE LEAST BY WAY OF
greenhouse gas emissions are most vulnerable to the eff ects
of climate change, according to new research.
The huge earthquake and ensuing tsunami that struck the
east coast of Japan in March is the latest horrifying example of the
power of Mother Nature. Fortunately for its citizens, Japan has the
resources to assist the victims. Cruelly, according to Maplecro� ’s
Climate Change Vulnerability Index, the countries most exposed to
climate-related catastrophes are those least able to cope.
Bangladesh and India top the table among other countries at
most risk, characterised by high levels of poverty, dense
populations and reliance on drought-prone agricultural land.
India’s massive population and increasing demand for scarce
resources make it particularly sensitive to climate change.
The industrial giants of China, Brazil and Japan are all listed
as ‘high risk’. Wealthy European nations make up the ‘low risk’
countries. Russia, the USA, Germany, France and the UK are all
‘medium risk’.
The National Centre for Atmospheric Research recently
highlighted America’s growing threat of severe and prolonged
drought in the coming decades. In its Strategic Defence and
Security Review, the UK also warned that climate change
represents a potential threat to its security.
Rising climate risks could also hit foreign investments into
vulnerable countries, warns Maplecro� principal environmental
analyst Matthew Bunce.
“Organisations with operations or assets in these
countries will become more exposed to associated risks, such
as climate-related natural disasters, resource security and
confl ict,” Bunce says. “Understanding climate vulnerability will
help companies make their investments more resilient to
unexpected change.” SR
Climate change is most likely to strike in the
countries least able to cope with the eff ects,
according to Maplecro� ’s new index
‘Understanding climate vulnerability will help companies make their investments more resilient to unexpected change’Matthew Bunce, Maplecro�
Map, data and indices courtesy of Maplecro�
Key
Extreme risk
High risk
Medium risk
Low risk
No data
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 25
10
5
3
2
8
1
4
6
9
Vast swathes of Australia are rated at
‘extreme risk’ of water stress because
demand is exceeding 90% of total
renewable water resources. The issue is
particularly pressing in the south of the
country. Nearly one million sq km of land
is at ‘extreme risk’ of water stress, which
represents 12.8% of the total land area,
warned Maplecro� . High demand for water
from the industrial and mining sectors is
compounding the problem, as illustrated
in the map, le� .
SPOTLIGHT ON AUSTRALIA
Bangladesh
1 Maplecro� rates Bangladesh as the country most at risk because of extreme
levels of poverty and a high dependency on agriculture, while its government has the lowest capacity of all countries to adapt to predicted changes in the climate. In addition, Bangladesh has a high risk of drought and the highest risk of fl ooding.
India
2 Climate vulnerability could adversely aff ect India’s appeal as a destination for
foreign investment in coming decades. Almost the whole of India has a high or extreme degree of sensitivity to climate change, according to Maplecro� . This is compounded by a high level of poverty and agricultural dependency, it added.
IN ASSOCIATION WITH
Michael Bruch is head of R&D at
Risk Consulting, Allianz
Tools and processes must keep ahead of climate upheaval
INSURERS SUFFERED AT LEAST $36BN
in catastrophe losses in 2010, according
to Swiss Re. This is the highest loss year
if major hurricanes are excluded and the
fourth highest overall in the past decade.
Devastating fl oods in Pakistan
and Australia; cyclone Yasi – climate
change seems to materialise and aff ect
natural catastrophes worldwide,
including regions that haven’t been
hit in the past. From an insurer’s
perspective, these developments have
major ramifi cations for businesses on
various levels.
Internal risk models of insurers and
reinsurers are currently not adequately
refl ecting the growing severity and
frequency of natural catastrophes. Risk
management tools and processes
therefore have to be adjusted to
maintain sustainable (re)insurance
business models now and in the future.
In addition, accumulation of values
in areas prone to natural hazards
increases the vulnerability of businesses.
Having adequate building codes, early
warning systems and loss prevention
measures in place, and being prepared
to take the right contingency actions, is
critical to avoid future losses.
But carbon emission reduction
eff orts also off er business opportunities.
This is refl ected in signifi cant growth
rates of wind or solar industry. Those
projects are becoming larger in scale,
which leaves them more prone to risks
such as natural hazards, breakdown or
design failure.
The insurance industry plays an
important role as technology enabler by
identifying, analysing and off ering
mitigation solutions for those risks.
EXPERT VIEW
Karratha
Carnavon
Geraldton
NorthantPerth
RockinghamBunbury
Busselton
Albany
Esperance
Yulara
Adelaide
Kalgoorlie Boulder
Mining areas
Risk of water stress in South-east Australia
RISKS [ THREATS ][ OPPORTUNITIES ][ MANAGEMENT ]
26 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
19701980 1985 1990 1995 2000 2005 2009
50
0
100
150
200
250
300
Change in GDP 2009 2010 2011 2012*
USA -2.6% 2.8% 2.2% 2.4%
Eurozone -4.0% 1.7% 1.3% 1.5%
Germany -4.7% 3.6% 2.1% 1.6%
France -2.5% 1.5% 1.3% 1.8%
Italy -5.1% 1.0% 1.0% 1.1%
UK -5.0% 1.7% 1.7% 1.7%
* forecast fi gures Source: Euler Hermes
1975
Source: Swiss Re
RISK FINANCINGSUPPLY CHAINS
Chain reactions
E VENTS OF THE PAST YEAR HAVE PROVIDED A GRAPHIC
demonstration of the risk faced by global supply chains. The
Chilean earthquake brought the country’s transport infrastructure
to a halt, while the volcanic ash cloud halted fl ights across Europe.
More recently, there was the catastrophic fl ooding in Australia,
which closed a major international port, and now the political
unrest in the Middle East could have a signifi cant impact on
international trade.
And it is not just high-profi le events such as these that can
disrupt trade and break supply chains. More prosaic incidents, like
a fi re at a key supplier, a strike at a port, or an IT failure, can have
dramatic implication for a business’s supply chain. And as supply
chains become ever more extended and as costs are taken out to
improve effi ciency, the potential for disruption has increased.
“Supply chain risks are high on risk managers’ agendas. They
are hugely aware of this. It is increasingly at the top of their list of
exposures,” says Airmic technical director Paul Hopkin.
Assessing the impactA recent survey by the Business Continuity Institute found that
nearly three-quarters of companies experienced at least one
supply chain disruption last year, with an average of fi ve
disruptions experienced.
The impact of these disruptions can be costly. One in 10
companies put the fi nancial cost of the disruptions at over
€500,000, while one in fi ve respondents said the company’s brand
or reputation had suff ered as a result of third-party failures.
Zurich global supply chain proposition manager Nick
Wildgoose says: “During the recession, insolvency [of suppliers]
has been an issue for supply chains. And although the rate of
insolvencies is dropping, it continues to be a risk as companies
expand and pressure is put on cashfl ows. A bigger concern is
political risks, such as what is happening in the Middle East.”
He adds: “The breadth of exposures is considerable. Supply
chains are more global in nature and therefore more sensitive
to disruption.”
Technology group Invensys vice-president of risk
management and insurance Chris McGloin says: “The disruption
arising from natural catastrophes has always been an issue for
supply chains. What has changed is that people expect things to
happen quickly, so if there is a disruption, it will have a signifi cant
impact. You need to focus on the interdependencies.”
It is not surprising that brokers and insurers are reporting a
growing interest in trade disruption insurance cover to protect
their supply chains. Rupert Sawyer, a supply chain specialist at
broker Miller, says the number of enquiries relating to supply
chain insurance has increased signifi cantly this year.
An increasingly complex world is putting
supply chains under more pressure than ever
before. Can insurers respond with the type of
cover that global businessess need?
Natural catastrophes and man-made disasters
Number of events 1970-2009
Man-made disasters
Natural catastrophes
“In the past few years, there has been demand from
sophisticated buyers to protect supply chains and business
revenues. High-profi le natural catastrophes and political unrest
have raised interest and increased demand,” he says.
Sawyer says the number of enquiries for supply chain
interruption cover has risen by 20%-30% over the last 12 months,
following a 20% increase the year before. The number purchasing
insurance has also increased, rising by around 10% over the
past year.
Covering all eventualitiesWhile interest in the supply chain insurance is increasing, risk
managers say the insurance market is struggling to provide a
comprehensive response to supply chain risk.
Traditionally, insurers have focused on business interruption
arising from property damage, but they have struggled to provide
cover where the disruption arises from an event in which there is
no physical damage, such as a strike at a port.
Miller and Lloyd’s insurer Kiln developed a trade disruption
policy over 20 years ago, which broke the link with physical loss or
damage, providing cover on a ‘named perils’ basis.
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 27
2005
2011
UK
Po
rtu
ga
l
Au
stri
a Bel
giu
m Net
her
lan
ds
Sp
ain
Ita
ly
Fra
nce G
erm
an
y
Insolvency Index
The concept of corporate insolvency is diff erent
from one country to another, which makes
international comparison diffi cult. To overcome
this, Euler Hermes monitors the change in
insolvencies over time. The graph represents the
percentage change over time from a global
insolvency baseline (from 2000).
Sources: national fi gures, Euler Hermes estimates
Since then, a few other insurers have entered the market,
most recently Zurich, which launched a product in 2009 providing
cover on an ‘all risks’ basis as a way to cover non-physical damage
business interruption. Yet this class of insurance is still in its
infancy and the market is small in size.
Kieron Russell, an underwriter in Kiln’s enterprise risk
management group, says that not many companies buy trade
disruption insurance. “Not everyone is aware of it and is
comfortable enough to purchase it,” he says.
Tom Teixeira, life sciences practice leader in the global
markets international division at Willis Group, says: “The key
challenges in the carrier community for this type of risk are
availability of required capacity and pricing. Various solutions are
being discussed and strategies being formulated.”
Getting the solution rightAirmic’s Paul Hopkin says insurers are not off ering the breadth of
cover that risk managers would like. “Insurers have the ability to
respond by off ering contractors’ extensions, o� en linked to
insured perils, and they have the desire to respond to non-damage
business interruption, but they need a signifi cant amount of
information, which is o� en diffi cult for the insured to obtain.
Pricing the risk and understanding the risk is diffi cult.”
Chris McGloin at Invensys says a more “joined-up” response
from insurers on physical and non-physical damage business
interruption is required. “We’ve always looked at supply chain risk,
but we have been looking at the insurability part more recently. As
a business we take on risk, but we want the insurance market to
take on the catastrophe exposure.
“We need a simple product covering a complex situation.
There are relatively few insurers that are gearing up to do it.”
Zurich will therefore be hoping that its ‘all risks’ approach will
respond to the requirements of risk managers. Meanwhile, Kiln is
developing the breadth of cover it can provide, adding elements
such as cover for disruptions arising from the failure of IT
networks, product recalls and regulatory investigations.
Miller’s Sawyer concludes: “Trade disruption has been an area
where insurers have for a long time failed to grasp a rapidly
growing need for insurance to match the new virtual supply chains
where companies no longer fi t the cosy model of traditional, owned,
industrial manufacturing.” It’s time for insurers to catch up. SR
‘We need a simple product covering a complex situation. There are relatively few insurers that are gearing up to do it’ Chris McGloin Invensys
SUPPLY CHAIN INTERRUPTION OR
trade disruption insurance covers the
fi nancial consequences that occur when a
company’s supply chain is disrupted and/
or interrupted beyond its control.
The disruption may be caused by:
political events, such as a trade embargo;
a physical event, such as a closure of a
port or a strike; a natural peril, such as a
windstorm; or a commercial event,
such as the insolvency of a key supplier.
It diff ers from traditional business
interruption policies, which are linked
to physical damage.
Trade disruption insurance is
targeted at businesses with an extended
supply chain, in particular those
employing a ‘just-in-time’ approach to
manufacturing, or outsourced production
and service functions.
But trade disruption insurance is a
complex area, and the market for this
type of cover is relatively limited. Risk
managers say that it is o� en diffi cult to
fully describe and document the risks to
which the supply chain is exposed, which
makes it hard for underwriters to provide
appropriate cover and price the risk.
WHAT IS TRADE DISRUPTION INSURANCE?
Per
cen
tag
e ch
an
ge
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EUROPEAN RISK MANAGER of the year
Igor V Mikhaylov Mobile TeleSystems OJSCAnnette Schutt Fiig Novo Nordisk Elaine Heyworth Everything EverywhereJohn Ludlow IHGColin Campbell Arcadia Group PLC
EUROPEAN RISK MANAGEMENT TEAM of the year
Tetra LavalDixons Retail PLCArcadia Group LtdTesco PLCCapital Shopping Centres PLC
ENTERPRISE RISK MANAGEMENT PROGRAMME of the year
Amlin PLCUK Power NetworksSIBUR – ZAO SIBUR HoldingHoerbiger Holding AGAeroports de Paris
BEST RISK COMMUNICATION of the year
Aviva PLCZurich Financial ServicesSAPLondon Borough of LambethTesco PLC
MOST INNOVATIVE USE OF IT OR OTHER TECHNOLOGYLambeth CouncilScience for HumanitySonae Sierra Financial Information SystemsAon Benfi eld Analytics
The StrategicRISK European Risk Management Awards 2011 are sponsored by
Congratulations to our fi nalists JOIN US on the 25th May 2011 when we reveal the winners!StrategicRISK will reveal
the winners of the European Risk
Management Awards 2011 at a
networking lunch.
Places are limited so make sure
you reserve your table today!
DATE, TIME & VENUE Wednesday 25th May 201112pm – 3pmWaldorf Hotel, London
BEST RISK TRAINING PROGRAMMEBBCAmlin PLCTesco PLCYorkshire Water Services LtdSIBUR Holding
BEST RISK MANAGEMENT APPROACH IN THE PUBLIC SECTORLondon Underground (TFL)London Borough of Newham Ealing CouncilLondon Borough of LambethWoodleigh Outreach Support Service
RISK MANAGEMENT YOUNG ACHIEVER of the yearDaniel Davies Network RailRachelle Banham Hertfordshire ConstabularyClaire Bromley John Wood Group PLCNicolas Vioix Westfi eldMichael Szonyi Zurich Insurance Company
RISK MANAGEMENT PRODUCT of the yearTrimbleCapital Shopping Centres PLCRoyal Bank of Scotland PLCMaplecro� Wolters Kluwer Financial Services
THE BEST BUSINESS CONTINUITY APPROACH of the yearLondon Borough of NewhamThe Co-operativeRentokil Initial PLCSAP AGGategroup
LIFETIME ACHIEVERStrategicRISK’s Lifetime Achiever Award will be presented at the awards ceremony
Governance [ ETHICS ][ COMPLIANCE ][ REPORTING ]
> Case study Eurotunnel .......... 31Eurotunnel saved €21m on its insurance premium by implementing alternative safety measures to those proposed by the regulators
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 29
REGULATION
How to stay nimble amid the hurdlesRegulators are running risk managers ragged as they struggle to meet ever-more complex general requirements as well as the needs of their business. We check out the obstacles in their path
A S MORE AND MORE ACRONYMS DESCEND ON them, corporate risk managers must feel as though they are under
siege. Each new set of letters from Brussels, London or further afi eld represents another law, regulation or directive, and more obligations to manage on behalf of their companies.
The noose is tightening across all sectors. “The burden of regulatory risk is much greater than it’s ever been, even more than it was fi ve years ago,” says Airmic chief executive John Hurrell. The danger, he adds, is of companies focusing on compliance rather than on the specifi c risks associated with their business. Most companies face a set of general regulations – including rules covering bribery, health and safety, and corporate governance – besides sector-specifi c regulations such as those for food hygiene, energy, solvency and insurance.
Until the past few years UK policy has been relatively light- touch, being based on comply or explain and/or an industry code of conduct. But that’s changing across the board as compliance becomes more specifi c and regulators more aggressive. »
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GOVERNANCE [ ETHICS ][ COMPLIANCE ][ REPORTING ]
30 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
BriberyAmerica is where most new regulations start. The USA’s Foreign Corrupt Practices Act has been ensnaring miscreant companies far beyond American shores for years. No international trading operation is immune
from the law’s main agent, the Securities and Exchange Commission (SEC), which is now much more powerful and better-funded than it was before the Madoff scandal of 2008 revealed its weaknesses. The SEC is also involving similar international authorities, such as the UK’s Financial Services Authority, in its pursuit of off enders much more than it has done previously, as Italy’s energy giant ENI and Germany’s Daimler discovered.
ENI and its former Dutch subsidiary Snamprogetti were fi ned $365m (€258m) last year for violations of the act after bribing Nigerian offi cials. “This elaborate bribery scheme featured sham intermediaries, Swiss bank accounts, and carloads of cash as everyone involved made a concerted eff ort to cover their tracks,” according to Robert Khuzami, director of the SEC’s Division of Enforcement. “But the billion-plus dollars in sanctions paid by these companies show that ultimately there is no hiding or profi ting from bribery.” (The unseemly scramble for Nigeria’s oil and other assets has netted the SEC no less than $1.28bn in sanctions.)
ENI, which used a UK solicitor among other go-betweens to pay Nigerian offi cials through secret bank accounts, did not respond to StrategicRISK’s request to explain how it had reformed its governance procedures in light of the fi nes.
As for Daimler, its $91.4m disgorgement penalty, not counting $93.6m in fi nes on related charges, was for “a repeated and systematic practice” of bribing government offi cials across half the world.
Trading of derivativesSimilarly, much of the new wave of fi nancial-sector regulation originated in the USA, for instance regulation covering the trading of derivatives. Unfortunately, some of this has rebounded on corporates. In
the aftermath of the fi nancial crisis, the European Commission followed the American lead and started work on a policy for pushing trades through clearing houses with more transparent pricing and collateral requirements, instead of individually over the counter between fi rms.
Generally, this is seen as a good thing, except for all those many non-fi nancial companies whose treasurers employ derivatives not for speculative purposes but to hedge risk in physical transactions with counterparties (such as to cover the period between the manufacturing and delivery of products).
America is moving towards a dispensation (a ‘carve-out’) for non-fi nancial companies, but it soon became clear to the European Association of Corporate Treasurers (EACT) that Europe is not. The policy was taking shape in a way that would threaten a long-established commercial tool that posed no risk to fi nancial
stability. Indeed, without this tool the reverse would be true, as large amounts of cash would be tied up as collateral in a central clearing system.
EACT members went to Brussels to lobby regulators to soften the rules and permit the trading of such derivatives outside clearing houses. The draft legislative package is now working its way through Brussels with wording altered accordingly. “If it had gone through unmodifi ed, it would have had an impact on corporate derivatives,” explains EACT president Richard Raeburn. He’s keeping his fi ngers crossed that the package survives intact.
Health and safetyThe Gulf of Mexico disaster, the largest peacetime oil spill in a century, has launched a new wave of risk-based regulation on the oil and gas industry, particularly in the USA where two detailed reports, including a
president’s commission, found that the previous regulatory regime was unfi t for purpose. It has been scrapped in its present form.
As Peter Voser, chief executive of Royal Dutch Shell, explained in February: “The reality is that the picture has changed for the deep water industry. There will be increased regulation, and more public scrutiny of safety. To put it simply, our industry needs to rebuild trust with the communities we work in.”
In Big Oil as in other industries, the management of reputational risk – or trust – should be paramount. “You can’t pick and choose what you want to comply with, but fi rms should put their best eff orts into those compliance issues that bear on a company’s reputation whether its health and safety, product liability, the Bribery Act or anything else,” says Airmic’s Hurrell. “We urge companies to say ‘let’s put the reputation of this organisation at the heart of our risk map’.”
Solvency II The most far-reaching regulation to hit the insurance industry in decades, the capital-boosting Solvency II directive, is rapidly approaching opening day on 31 December 2012. The results of the fi fth quantitative
impact study, QIS5 – basically a dummy run to assess the quality and fi nancial integrity of fi rms – were released in mid-March. For consultants such as Deloitte, QIS5 presented “a host of real-life rather than merely theoretical opportunities to address Solvency
‘We now have repudiation risk (the rejection of a claim) and it’s largely unrecognised’Bruce Hepburn Mactavish
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www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 31
II” before it comes into force. So what did the results tell us? Firms can do better, is the summarised assessment of Sean McGovern, general counsel of Lloyd’s. “QIS5 was a worthwhile exercise, but it is vital that appropriate lessons are now drawn from it and refl ected in amendments to the Level 2 measures,” McGovern says.
“Further work needs to be done,” he adds. “While we remain supportive of the aims of Solvency II, the shortcomings identifi ed in QIS5 – particularly around non-life catastrophe risk –need to be addressed.”
However, as the Institute of Risk Management’s head of thought leadership Carolyn Williams adds, there’s still room for manoeuvre in Solvency II.
“The directive is not a code-of-conduct approach, but there’s leeway in the regulations for fi rms to develop their own risk models. It’s more a matter of satisfying the regulator that proper procedures are in place.”
Corporate governance With corporate governance regulations tightening, most publicly listed companies are vulnerable to class actions under various sets of regulations and laws.
One such unsuspected Achilles heel may be shortcomings in insurance management. According to a two-year study, released in March, of some 600 UK companies by risk consultant Mactavish and PricewaterhouseCoopers, boardrooms
Sometimes the best argument to use with regulators is superior
knowledge, as Eurotunnel has learned in the wake of the shuttle
train fi re in 2008 that caused €290m damage. The bill was so
high, the company believed, because the safety regulator, the
Intergovernmental Commission, had insisted on rules that
required trains to stop in the event of a fi re rather than to clear
the tunnel fi rst, as has long been established practice on
railways. Thus fi refi ghters had to travel 25km from the surface,
by which time the fi re had taken hold.
In the subsequent investigation, the company proposed an
alternative procedure based on four “safe stations” spread out
along the route with permanently installed fi refi ghting facilities.
“Eurotunnel had no say in regulation, but it believed it had built
up enough experience a� er 17 years of operation to propose its
own solutions,” said a spokesman. “We were in a much better
position to discuss safety with the commission.”
A demonstration was conducted in Spain and a prototype
tested in the tunnel before observers from the commission and
insurers. Impressed, they signed off the safe-station concept.
The net benefi t is a €21m reduction in the insurance premium
– “Eurotunnel will recoup the investment in the fi rst two years”
– and a victory for experience.
CASE STUDY
could be exposing fi rms to “repudiation risk” – the rejection of a claim – because they failed to assess “the fi nancial materiality of insurance to their business.”
The study revealed “serious defi ciencies” in the insurance arrangements of many fi rms across most sectors. The result is that claims are increasingly being disputed in court, delaying payouts in some cases for so long that the company’s survival is threatened, particularly in an era of more highly leveraged balance sheets.
“The balance of risk is shifting to corporates rather than to insurers,” says Mactavish chief executive Bruce Hepburn. “If the insurer is unable or unwilling to pay a claim, pressures on business can become severe. We now have repudiation risk and it’s largely unrecognised.”
Environmental regulationFor fi rms most vulnerable to environmental regulation, risk management should be a key concern for the entire board including the non-executive directors, as BP has learned to its cost. In the wake of the Macondo catastrophe,
chairman Carl-Henric Svanberg pushed BP’s directors out of the boardroom and into the executive suite so they can develop a better feel for the company than they can possibly glean from piles of documents at board meetings.
As it happens, this is what private equity directors routinely do. McKinsey’s global managing director Dominic Barton pointed out recently: “What’s especially needed [in publicly listed companies] is an increase in the informal time that board members spend with executives and shareholders.
“The non-executive board directors of companies owned by private equity fi rms spend 54 days a year, on average, attending to the company’s business, and 70% of that time consists of informal meetings and conversations.”
Airmic’s Hurrell agrees: “It makes very good sense for directors to know as much as possible about a company. They should not rely on the chain of command but should drop down through the layers to gather as much information as they can.”
Perhaps it’s a question of attitude. As the IRM’s Williams suggests: “What matters in the long run is that fi rms approach regulation as a business benefi t and not because the regulations require it.” SR
Eurotunnel puts the fi re out
Tunnel vision: the work
to repair €290m of
damage caused by the
2008 shuttle train fi re
Theory & Practice [ INSIGHT ][ CASE STUDIES ][ BEST PRACTICE ]
32 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
entrenched in a similar way. This type of
risk requires no extra cost outlay, and sits
on top of the company model like a
recurring lottery ticket.
3 NEW RISKS BRING NEW IDEAS
Mining for oil has been a risky
business for many years, but there are
always new risk sectors emerging for
businesses to exploit. Take the rising
signifi cance of climate change and
environmental sustainability. Companies
now evaluate their carbon footprints and
water usage as part of their future growth
STRATEGY
When chance really could be a fi ne thingThe real market movers are those that are able to embrace risk as part of their
business models and use it to their advantage. But when the stakes are high, how
do you make sure you come out a winner?
forecasts. But these new sectors are also
stimulating innovative business ideas.
Deloitte Consulting LLP director Will
Sarni says US engineering giant GE was
early to use its expertise with energy,
transportation and engineering to move into
the water sector. “All industries, whether
consumer facing or business-to-business
need water, and water scarcity will drive
innovation,” he says.
4 TRACK UNDERLYING RISK-
AFFECTING POLICY
Although risk is necessarily unforeseeable,
that does not mean that it cannot be
quantifi ed within parameters. Managing
director of London-based consultants
Hargreaves Risk and Strategy John
Hargreaves advises a group of housing
associations that pool together to share
their analysis of risk issues.
At the moment, the convergence of cuts
in UK social security payments and
underlying changes of government policy
towards the housing sector mean that the
nexus of risk is changing fast in this sector.
Hargreaves says that this means
predicting future returns for housing
associations need to be recalibrated
according to the new risk environment
that they are operating in. “Tracking the
impact of changes in regulations and policy
can be vital to assessing risk in any sector,”
he adds.
5 YOU WILL ALWAYS BENEFIT IN
A CAPTIVE MARKET
If you are off ering services in risky sectors,
seek a niche where your company expertise
cannot be easily matched. Even if your
services or goods are so specialised that
they are only required in very rare
circumstances, if you are the only person
capable of delivering them, sooner or later
your speculation will pay off .
A good example was pioneering
fi re-fi ghter Paul Neal ‘Red’ Adair, who
developed a reputation that made him the
fi rst port of call during disasters aff ecting
oilfi elds. Cataclysmic disasters involving
oilfi elds may have been few and far
between, but when they happened, it was
Red who got the call.
And because of this, he could charge
pretty much what he liked, as he pointed
out himself: “If you think it’s expensive to
hire a professional to do the job, wait until
you hire an amateur!” SR
Even if your services are only required in rare circumstances, if you are the only person capable of delivering them, sooner or later your speculation will pay off
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A NY GAMBLER WILL TELL YOU THAT
the fl ip side of risk is gain. The most
entrepreneurial and successful businesses
seize the bull by the horns and negotiate an
advantage, turning what others fear into a
lucrative business opportunity. For
example, some of the world’s most
war-ravaged and inhospitable states are
also rich in resources and minerals, waiting
to be mined by the boldest market movers.
Meanwhile, inherent business risks –
such as those posed by climate change and
the uncertain fi nancial markets – also
provide innovative enterprises with niche
market opportunities customised to
manage and exploit risk. Here are fi ve ways
that you can incorporate risk directly into
your business strategy.
1 IDENTIFY THE LIMITS OF YOUR
RISK APPETITE
When Shell goes into a challenging new
territory to probe for oil, it carries with it
not only the expertise it has gleaned from
similar forays in the past, but also the
knowledge that it can absorb any large
losses. In the same way as a fund manager
juggles the potential of returns across a
range of investment opportunities, serious
risk should be limited to a percentage that
can be easily absorbed by the non
risk-aff ected returns of the business.
2 LOOK FOR POTENTIAL GAINS
INHERENT IN BUSINESS MODELS
A music producer may run a recording
studio on the basis of safe return, satisfying
clients on a day-to-day basis. But, if one of
the clients records a hit, royalties from the
hit album can bring a huge one-off gain.
The risk in certain business models is
Rob Wilson is senior manager at
PricewaterhouseCoopers’ forensic
services practice
W HISTLEBLOWING
programmes are the
channels through which your
people can raise concerns about
anything from health and safety to
fraud. In the best-case scenario., these
channels become a safety net for risk
management. But would your net
catch the right risks?
Whistleblowing has some
negative connotations and is
perceived by many as only a means
to identify problems. Building a
broader strategy, however, allows you
to focus on positive reporting: a
‘speak up’ strategy incorporating the
full range of ways employees can
seek guidance from and raise issues
to line management.
So, how does this help with
low-probability, high-impact risks?
An open culture is fostered by
encouraging employees to trust
and communicate with their line
managers. This way, issues will come
to light sooner and can be resolved.
Staff should feel more
comfortable raising diffi cult issues,
giving you a chance of identifying
‘black swan’ events at an earlier stage.
And not only will your net catch the
risk issues, but you will foster a
positive attitude in your people,
which may have indirect benefi ts to
your bottom line.
The biggest challenge is getting
people to buy into the open culture.
How do you make it work?
1 SECURE COMMITMENT
FROM THE TOP
In an open culture, people with
serious concerns are more likely to
use other speak-up arrangements,
rather than formal whistleblowing
mechanisms.
And an organisation’s general
attitude to business ethics is
cultivated by its chief executive,
board and senior management
through the policies they design
and the examples they set. Senior
management must also be
involved, supporting the
implementation and monitoring
of whistleblowing reports and
outcomes.
2 DEVELOP AN
OUTCOME-BASED POLICY
Be clear about the purpose of your
whistleblowing policy and how it fi ts
into a broader speak-up strategy.
This will make the system more
useful and thus used more widely.
Identify who will be able to use your
reporting system.
This is a great way of managing
your third-party and supplier risk.
It can help with Bribery Act
compliance, for instance, as well as
strengthening your key relationships.
3 CHOOSE THE RIGHT
MECHANISMS
Determine what combination of
direct (through the management
chain) and indirect (through an
independent team) reporting
mechanisms are needed and
whether these will be in-house or
through external service providers.
Providing a range of reporting
mechanisms increases the chances
that people will trust at least one of
the options.
4 TALK TO MIDDLE MANAGERS
Eff ective communication,
guidance and training must be in
place to embed the programme.
O� en, the missing piece in an
eff ective programme is the support
of middle management. They can
become disillusioned, feeling
targeted by those below or
unsupported by those above.
Worse, they can be blockers to the
system, increasing the risk of
whistleblowers going public.
Appointing local champions
within management can help with
both communication and buy-in.
Research suggests that where
whistleblowers use a local
champion, they report their concerns
formally within the organisation
constructively. Champions build
trust and help direct issues to the
right team.
5 REPORT, MONITOR,
EVALUATE AND ADAPT
If you don’t measure it, it won’t get
done, but measure the wrong thing
and the wrong thing will get done.
Appropriate measures will change
as your programme matures, so
evaluate and adapt regularly. What
balance of measures is right for
you? The number of reports,
investigations, convictions?
You get out what you put in.
An eff ective speak-up strategy is a
great way to build an open, ethical
culture while maintaining your
risk management safety net.
Capturing good ideas as well as
risks will not only protect the
bottom line but will also build
value in your business. SR
COMPANY CULTURE
Speak up now to prevent whistleblowingWhy an open culture and positive reporting will net more black swans than formal procedures alone
KNOWLEDGE British Standards Institution Whistleblowing
Arrangements: Code of Practice (2008)
The code defi nes whistleblowing as the process whereby
someone within an organisation “raises a concern about a
possible fraud, crime, danger or other serious risk that could
threaten customers, colleagues, shareholders, the public or the
organisation’s own reputation”.
Secure the value you create
How to reduce the
fi nancial impact of an earthquake
‘ Seismic Matters’. Our Free White Paper outlines a new engineering-based approach to minimising risk and loss. Download it now at www.fmglobal.co.uk/touchpoints
THEORY & PRACTICE [ INSIGHT ][ CASE STUDIES ][ BEST PRACTICE ]
34 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
FRAUD
How to spot a con manIf you want to avoid damage to both your fi nances and
reputation, you need to make sure you do your research
Jeff Katz is chief executive of Bishop
International, a London-based corporate
investigations company
C ON MEN – AND WOMEN – COME IN
all shapes and sizes, ages and
nationalities. Their schemes run the gamut
from the opportunistic to the carefully
planned. The objectives may vary from
conducting a simple advance-fee fraud to
the more exotic Ponzi schemes, like that
operated by Bernie Madoff .
Most con men have designs on their
victims’ bank accounts. But, if you are a
company executive and the con man’s target
is your company, you may fi nd that the
damage to the reputation of the business is
far worse than any fi nancial loss. They may
act the part of a sophisticated fi nancial
adviser or may manufacture a career history
that appears to make them suitable for a
senior executive role.
So what can be done to avoid being
tricked by people with designs on yours or
your company’s fi nances and reputation?
1 OBTAIN A CV AND REVIEW IT
If someone is asking you for something,
especially money, you need to know who
they are. If they haven’t been asked for a
CV for a while, they may need a few days
to update one. But if they prevaricate for too
long, you can bet something’s not right.
In the 1980s and ’90s, con man Barry
Edward Gray was an assiduous reader of the
business press, who looked for contentious
situations and would then contact one of the
parties to a dispute, saying he was a private
investigator commissioned by the other side
to dig up dirt.
But, he would say, he hadn’t been paid
and was willing to spill the beans about
what he had been asked to do. All he wanted
was his expenses, typically a few thousand
pounds. He got away with this for decades
because no one ever asked him to provide
proof of who he was.
2 INTERVIEW CAREFULLY
Interview the person in an offi ce
setting. If there are gaps in the CV, ask for an
explanation. Look for things that don’t make
sense. If an employer is listed without details
of the department worked in or the job title,
ask about it. If an answer seems vague, press
for more details. An honest individual with
nothing to hide will always provide as much
detail as required.
3 DO SOME ONLINE DIGGING
Don’t rely on an individual’s own
website. Even the most novice computer user
can check Google or other search engines.
Look for plenty of positive information
online from independent sources.
4 SPEAK TO OLD COLLEAGUES
Don’t rely on an individual’s references.
You need to independently identify former
colleagues to talk to. In 2008, Terence
Freeman was set to be hired to run a hedge
fund. Research showed that he had worked
for a business not on his CV. By speaking
to someone there, it was revealed that he
had recently married a Russian woman.
The marriage certifi cate showed that his
original name was Terence Sparks. Further
research showed that Terence Sparks was a
disqualifi ed director. He wasn’t hired for the
job. A few months later, he was arrested for
swindling investors out of £44m (€51.4m). SR
Could you briefl y describe your role?
I look a� er the commercial insurances and the
commensurate risk management for Marks & Spencer
Group. This includes the purchase of classes of insurance
from aviation through property and casualty to life. We
also oversee and administer ‘local’ overseas programmes.
How did you get into risk management?
Like most people, I fell into insurance. I started in the
insurance department at Taylor Woodrow, then I moved
to a subsidiary of Sun Alliance, then into corporate
insurance management at Brinks MAT, and from there to
an international commodity trading company. I joined
Marks & Spencer almost 25 years ago.
How is your performance measured?
On many things: budget, scope of cover achieved, ‘client’
risk management, profi le and relationships. Sometimes
it’s easy to demonstrate success, but when things are
running smoothly it can be diffi cult to highlight
achievements. When a major crisis comes along, provided
you deal with it well, you can demonstrate your value.
How have you been able to progress your career?
Hard work, application and a large element of luck! My
advice would be to get qualifi ed and make a nuisance of
yourself – don’t accept glass ceilings. Make as many
contacts as you can because you never know when they
will come in handy. And don’t be afraid to step outside of
your comfort zone. SR
LESSONS IN LEADERSHIP
This is not just insurance risk management …Marks & Spencer head of insurance
John Windsor on never accepting
glass ceilings
[READ MORE ONLINE] For more lessons in leadership from top risk professionals, visit www.strategic-risk.eu or goo.gl/rGpor and download the report, published by StrategicRISK for Airmic
Co
rbis
Special Report
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 35
INTRODUCTION
SPONSORED BY
This special report has been produced with input from:
Géraud Verhille, Chartis management liability and fi nancial lines
vice-president in Europe
D IRECTORS’ AND OFFICERS’ LIABILITY INSURANCE IS very much a buyers’ market. Over the past seven years,
European companies have benefi ted from increasingly advantageous prices and terms as a result of continuing high insurance capacity.
Yet it is unrealistic to assume that the market will be able to sustain the double whammy of reduced premiums and high business acquisition costs indefi nitely. While the credit crunch and economic recession may not have produced the volume of claims expected, other factors are emerging that will increase losses.
Regulators and criminal prosecutors are becoming less forgiving of bad corporate behaviour. Directors and their insurers are having to dig deep to fund the legal expenses of investigations and defending allegations. So-called ‘fi rst-party’ claims are growing, with companies seeking compensation from directors for perceived mismanagement and for fi nes levied by regulators or criminal courts. Bankruptcies are leading to a fl urry of claims.
These trends have been seen across Europe, particularly in Germany, where the new VorstAG regulation is creating problems.
As recently as 25 years ago, few European companies bought D&O cover; it was a US phenomenon. Now it is not so much a question of whether to buy, but how much. The increasing global reach of companies has brought a growing need for worldwide D&O policies. But global cover does not work for all jurisdictions, so there will always be a place for locally arranged covers.
Few commentators see signs of the D&O market hardening in the short term. But history shows it doesn’t take many large losses or an industry-wide shock, such as the recent Japanese earthquake, to trigger a sharp swing in insurance cycles. History also shows that the really big losses are not predictable. If they were, they would never have been allowed to reach that magnitude.
Prudent risk managers will enjoy the buyers’ market. But they will alert senior managers to the fact that it won’t last forever. SR
Contents
[ D&O LIABILITY INSURANCE ]
36 Directors’ cut
D&O rates may be falling, but with
claims on the rise, how long before
the market hardens?
36 Those who can, D&O
New laws in Germany are putting
company directors in even greater
need of appropriate D&O cover
38 Buying local
Global companies must ensure
adequate worldwide cover while
also addressing local-level risks
SPECIAL REPORT [ D&O LIABILITY INSURANCE ]
36 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
‘Over-capacity in D&O liability cover is pushing prices down, with insurers carrying more risk for less premium’ Gérard Verhille Chartis
and the surge in company claims. But there is a consistent volume of company claims trying to establish director or offi cer liability on the back of an underlying breach of fi duciary duty, linked to operational and managerial issues causing fi nancial loss to the company.”
Claims made by companies against their directors on the back of hedging transactions gone wrong, or more recently for reimbursing corporate fi nes and penalties, have become an additional very expensive contributor to market losses, he adds. Such claims initially involve lengthy defence, with insurability and actual individual liability determined case by case. In addition, the German fi nancial sector is experiencing a big rise in claims after the fi nancial crisis, some of which have gained much attention in the national media.
Verhille warns that if the notifi cations in volume and substance go beyond what other jurisdictions would observe in terms of derivative actions or other third-party claims, the market may need to reassess the format, pricing and/or scope of company
GERMANY
Those who can, D&OThe recently introduced VorstAG legislation in Germany is putting company directors at greater risk, for which there are two possible insurance solutions
T HE GERMAN D&O LIABILITY insurance market shares the
characteristics of the rest of Europe, with competition generated by over-capacity continuing to push down premiums and broaden covers. Like other countries, there are no signs of the market hardening in the short-term. However, risk managers are not ruling out a change.
“Everyone has been expecting the big bang to follow after the fi nancial crisis and some prominent corruption incidents,” says Bertellsman AG senior vice-president for corporate risk management and insurance Jurand Honisch. “We feel that this may be the quiet before the storm.”
Certainly, claims against German directors and offi cers seem to be rising. “There has been a surge in bankruptcy notifi cations from the 2008-2010 period,” says Chartis vice-president of management liability and fi nancial lines in Europe, Géraud Verhille. “Limited credit availability keeps this area at greater risk than normal. There’s a correlation between the economic downturn
E UROPEAN COMPANIES ARE generally experiencing lower directors’
and offi cers’ (D&O) liability insurance rates for the seventh consecutive year. The only exceptions may be businesses that have radically changed their operations or whose risk has increased signifi cantly.
Chartis vice-president management liability and fi nancial lines in Europe Géraud Verhille says: “Over-capacity is pushing prices down, with insurers carrying more risk for less premium. Rate reductions are off setting income from new clients, so the premium pool is stable. In addition, insurers’ business acquisition costs are high and growing.”
Airmic’s 2010 D&O Liability Insurance Benchmarking Report shows that, at the last
VIEW OVER EUROPE
Directors’ cutInsurance rates for directors’ and offi cers’ liability have dropped once again, but claims for bankruptcies, regulatory investigations and criminal proceeding are on the rise
directors were negligent because all companies’ shares went down in value.”
While continued softening of the market appears unsustainable, Aon head of European D&O Enrico Nanni says: “There are no signs of the market hardening until there’s a reduction in capacity.”
The view is that this is a buyer’s market: with lower cost has come broader coverage, says Purdy. “In the past six months we’ve seen carriers tuning wording to clients’ advantage.”
renewal, 14% of UK fi rms had a premium reduction of 10%-20%; 32% had 5%-10% and 13% a reduction of less than 5%. Only 11% had increases, with the rest staying the same. The downward pattern is being repeated this year for European companies, though reductions are in single fi gures. Executive director at Willis’s FINEX division David Purdy says: “Our renewals and negotiations are fi nding premiums continuing to fall, although not as dramatically as last year.”
Airmic technical director Paul Hopkin also attributes the drop to a benign claims landscape. “There hasn’t been the level of claims expected three or four years ago. With the global fi nancial crisis, it was diffi cult for shareholders to say individual
35_38_SpecialRpt_SRApr11.indd 36 25/03/2011 17:19
www.strategic-risk.eu [ APRIL 2011 ] StrategicRISK 37
prices for such cover are adjusted, it may be withdrawn or limited, warns Verhille.
Purdy agrees there is cause for concern over the reach of regulators, particularly for bribery charges under the US Foreign Corrupt Practices Act and UK Bribery Act.
More companies are seeking to recover losses from their directors – for example, for hedging transactions that have gone wrong, or to reimburse fi nes levied by regulators or criminal courts. With the core function of a D&O policy seen as protecting individuals and settling third-party claims, insurers are watching this closely, says Verhille.
Hopkin says non-executive directors feel particularly vulnerable. Verhille suggests they should focus on the solvency of the companies whose boards they sit on. “The proportion of bankruptcies of subsidiaries and participations far outweighs that of parent companies,” he says.
Nanni believes fi nancial institutions should worry about exposure to sovereign debt in countries such as Greece, Portugal and Spain. The Spanish authorities require some banks to raise minimum levels of core capital, forcing them to go to capital markets to raise money, which might also raise these banks’ exposure to claims, he says. SR
claims cover. He says ever greater understanding and use of the D&O policy may generate growing claims activity. In addition, bankruptcy proceedings permeating into claims and criminal proceedings are likely to be a growing trend.
Honisch considers one of the biggest risks for German directors is being held responsible for poor company results. “We are heading towards a US comparable situation where shareholders are the biggest enemies of the executives,” he says.
A recent development for German directors was the introduction of VorstAG – Gesetz zur Angemessenheit der Vorstandsvergütung [Law on the Appropriateness of Managerial Remuneration] – from 1 July 2010. One of its provisions is a compulsory deductible for board members of public limited companies that have a valid D&O claim of 10% of the value of the claim, up to one-and-a-half times a director’s fi xed salary.
As a member of the board of German risk management association DVS, Honisch
Verhille says: “We are observing the development of older claims as well as more recent bankruptcy and derivative claims on the back of the fi nancial crisis, alongside a general surge in regulatory or criminal proceedings, and investigations and company claims. We have observed a shift in loss profi le from low-frequency and high-severity claims, often linked to the USA, to home-grown higher frequency, medium-severity claims out of Europe. This, coupled with decreasing rates and increasing acquisition costs, will translate into an unsustainable outcome for the industry.”
With most losses aff ecting primary policies, dynamics in the excess markets will be diff erent. “These are likely to be hit by securities claims, especially in the USA,”
has discussed with insurers how to deal with VorstAG. He describes two main solutions: “The fi rst is a complete standalone cover for each board member, the second embeds the deductible requirement within the company’s existing D&O policy. Standalone policies have the advantage that any claims paid do not erode the primary layer of the company’s cover, so don’t produce capacity problems. But they do cost more than embedded coverage.”
Verhille says. “Here, while the number of securities claims in the fi nancial sector has reduced, there’s been a steady stream from other sectors, with a shift of allegations from accounting irregularities to operational mismanagement. In addition, bankruptcy proceedings and company claims, typically characterised with severity, will also up the cost for the excess markets. But they may take longer than the primaries to experience the pain and react.” And once the market contracts, the swing could be brutal.
What other unpleasant surprises may be on the horizon? Claims in areas such as legal expenses for individuals in regulatory and criminal proceedings are growing, as is the number of proceedings, particularly in the USA, UK, Italy, Spain and France. Unless
SIEMENSFollowing a record €1bn settlement of corruption and
bribery charges in Germany and the USA, together with an
estimated €1bn in legal fees, in 2008 Siemens pursued
seven former managers, including former chief executive
Klaus Kleinfeld, for compensation. It alleged that they failed
to stop the bribery, allowing it to continue for two years.
The German press reported that Siemens was
claiming between €1m and €6m from its former
executives. At the end of 2009, Siemens announced that it
had reached compensation agreements with Kleinfeld and
fi ve other managers.
MAN GROUPIn December 2009, Man Group agreed to pay €150.6m in
settlement of bribery charges.
In February 2011, Klaus Stahlmann resigned as chief
executive of Man’s Diesel & Turbo division. He is the
subject of a continuing investigation into bribery and
other alleged claims.
CORRUPTION CASES
Honisch says discussions with insurers indicate that the split of take-up of the two models is around 50:50. Generally, bigger companies buy the standalone option while smaller ones opt for the cheaper cover.
And there seems to be a question mark as to whether either or both solutions comply with the punitive intent of the law. Honisch says: “We’ll have to wait for the fi rst claim, when the legal system may reveal whether one system is better than another.” SR
D&O in Europe
01: Lower premiums
and broader
cover continue.
02: Claims are
growing with
respect to
bankruptcies,
regulatory
investigations,
criminal
proceedings and
company
recoveries from
directors.
03: Anti-bribery
legislation will
increase losses.
04: Non-executive
directors
perceive high
vulnerability.
05: Specifi c national
requirements
are increasing
exposures.
2005
2006
2007
2008
2009
2010
Securities lawsuits Lawsuit type
Breach of fi duciary duty
33%
0 1,200600
Derivativeactions
11%
Securities fraud
34%
Securities class action
16%Other
6%
SPECIAL REPORT [ D&O LIABILITY INSURANCE ]
38 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
A NUMBER OF FACTORS AFFECT a company’s decision whether to
opt for a single group master D&O policy, a global D&O programme or to insure individual operations nationally. Chartis vice-president of management liability and fi nancial lines in Europe Géraud Verhille says all solutions off er their own benefi ts and drawbacks.
“Global policies are written in a fairly universal way, which means they provide consistent cover that doesn’t discriminate between executives in the group; the cover provided by individual local policies could be quite diff erent to one another,” he says.
Independent local policies or those found within a programme allow for local payment, which may not be possible with a global policy underwritten by an insurer that is not admitted in the country concerned. Further, local policies can cover specifi c national exposures that might not be readily available or even be uninsurable in the country where the global policy is issued. The reverse is true as well. The global policy might pick up exposures not readily available or insurable in some jurisdictions.
Another consideration is that capacity is shared in a global programme, whereas independent local policies only share capacity between local directors.
With just a limited number of multinational insurers possessing the practical network capabilities for global coverage, there’s likely to be more competition for single global policy solutions than for global programmes. But economies of scale generally make global programmes more attractive than paying lots of individual premiums for local policies. Also, says Verhille, fi rms should consider whether they actually need a specifi c policy in countries where the group’s exposure is limited.
In practice, many large European multinationals already have global D&O policies. Risk managers thinking of taking
REGIONAL COVER
Buying localMultinationals need to walk the thin line between consistent, company-wide insurance and protection form country-specifi c risks
indemnifi cation of directors,” he adds. Swedish fi rms need shareholders’ approval.
In some countries, premiums for standalone policies for directors are treated as benefi ts in kind, so the directors have to pay tax on them. There may be provisions on issuing policies in local language. France has specifi c rules on retroactive cover, which eff ectively mean that companies acquiring a French subsidiary are liable for its actions before the date of acquisition.
Those are just some of the diff erences in Europe alone. But worldwide, the variations proliferate, refl ecting diff erent countries’ regulations and codes of conduct.
Making your choiceFollowing all this essential background work is the crucial decision of what type of cover to go for. Usually, it isn’t a simple choice between one global policy or a number of local covers, but a compromise with a master global policy supporting local arrangements in countries where the global policy may not be eff ective. The wide-reaching nature of the global policy means it is important to choose a carrier with expertise in handling claims worldwide.
“Where countries require locally placed insurance, the risk manager will need to work with an insurer that has the capability to issue these, or brokers represented in these countries that can buy locally,” says Lea. “ If the local policy cannot be tied to the global policy, there may be duplication of cover.” And, of course, buying local cover means paying local premium income tax.
Diff erence in conditions and diff erence in limits provisions in a global master policy can protect directors in jurisdictions where the locally admitted insurance falls short, although indemnifi cation needs careful handling to avoid falling foul of national regulations. On the plus side, D&O claims are fairly rare against operations in such jurisdictions.
The fi nal step in arranging a primary global D&O policy, says Lea, is considering how to place any excess cover, refl ecting the total capacity required by the business.
As Airmic’s D&O Liability Insurance Benchmarking Report 2010 sums up: “While it is essential to have a global D&O insurance policy that provides high limits and broad protection, it’s equally important to have local D&O policies to protect foreign executives in jurisdictions where the global policy may not be eff ective.” SR
the plunge into a programme or multiple policy logic have much to consider. Adequate solutions for insureds will range from the simple to the more complex: given the time needed for due diligence, fi nding the right provider and implementing such solutions, it is important risk managers engage their broker and insurers early on.
What to considerMultinational companies should identify their purchasing policy to decide what cover they need, says JLT head of D&O liability Mike Lea. Do they simply want to protect the directors (so-called side A cover) or include protection for the company’s balance sheet where it indemnifi es executives (side B)? Is the balance sheet robust enough to take an uninsured hit?
After that comes the question of how much. Working out the limit needed is likely to require benchmarking. Lea says: “This generally involves limit comparison and exposure analysis. The risk manager will probably talk to a broker to see what limits similar companies buy and how his company’s exposure diff ers from its peers.”
The company’s cover needs come next. “Multinational companies need to identify the countries where they face D&O exposure and national idiosyncrasies,” Lea says. “There are diff erent regulations, even in Europe. For example, German directors of public companies face personal liability under Vorst AG (see previous page).
“Finland, the Netherlands and Sweden have issues around companies’
International exposure
01: Assess the
trade-off
between global
and local cover.
02: Determine
purchasing
strategy.
03: Choose a
realistic limit.
04: Review
territories and
national
requirements.
05: Top up the
primary limit
with excess
cover as
required.
In some countries, premiums for standalone policies are treated as benefi ts in kind, so the directors concerned have to pay tax on them
35_38_SpecialRpt_SRApr11.indd 38 25/03/2011 15:32
Airmic Annual Conference6 – 8 June 2011Bournemouth
Together Leading in Risk TM
www.airmicconference2011.com
Can you afford to miss it?The Airmic conference is the UK risk management and insurance gathering of the year... more than 650 risk professionals coming together for two days of talks, lectures, training sessions and workshops. Plus, of course, plenty of social opportunities to share ideas, meet old friends and make new ones.
We look forward to welcoming you.
Embracing New Horizons
VIEWPOINTS [ PEOPLE ][ OPINION ][ COMMUNITY ]
40 StrategicRISK [ APRIL 2011 ] www.strategic-risk.eu
WHAT’S INSIDE YOUR HEAD?
HeadspaceFerma president Peter den Dekker shares his thoughts on some past experiences – some embarrassing, some satisfying, but nearly always very chilly
What are you thinking about right now?How will I balance my regular day job as corporate insurance risk manager for Stork with the activities I do for Ferma. Both jobs are very challenging. I just hope I can fi nd a balance and also spend some time at home.
What’s your biggest fear?That one of my family members – I have three daughters – or friends ever gets hurt.
What was your most embarrassing moment?A couple of years ago, I was outside my house and had challenged some young guys to cross a weak part of some ice. On my second crossing of the ice, in front of all my neighbours, it cracked and I went under. This was the fi rst – and to date the only – time I have fallen though ice, and I found it is very cold and very diffi cult to get out of.
What is your most treasured possession?That’s diffi cult to say. I like gadgets, but I think I could defi nitely live without them. Happiness is not in the things you own but in the people you love.
What makes you happy?Spending time and having fun with my three beautiful daughters – who are 20, 23 and 24 years old – and my beautiful wife. I also enjoy gardening, ice skating with my best friends and riding a motorcycle.
What makes you unhappy?Negative news. Generally I’m a very optimistic and positive person, but when I look at the news or read the papers, it’s so diffi cult to fi nd anything that makes you feel happy. The current situation in the Middle East
makes me very unhappy. The people there are showing a lot of courage to demonstrate and demand a better life. And the violent response by the authorities is something that I just can’t understand. It makes me realise how lucky and fortunate we are in Europe.
Who is your greatest hero?I don’t really have any heroes. Probably because that’s not the way Dutch people think. Real heroes in my view are the many unknown people who help other people in need.
What’s the biggest risk you’ve ever taken?One easy answer would be to say bungee jumping. My daughters once gave me a ticket for it and I couldn’t refuse. But in the end it wasn’t actually that scary. So I’d say the biggest risk I’ve ever taken is the New Year’s Dive. This is an annual event in the beach resort of Scheveningen in the Hague (where I’m from). On New Year’s Day 2009, my daughters and I went to the frozen beach – it was -6°C and very windy – to dive into the North Sea. We must have seemed crazy to the people standing on the beach wrapped up in their winter
clothes. I’ve never been in colder water in my life before – of my own free will. But it was a great memory.
What is the worst job you’ve ever done?My fi rst job was as a civil servant at the Ministry of Defence. I worked there for three months. After two months, I got a letter from the pension fund
department telling me that my retirement would be in the year 2023. I suddenly had a vision of myself
sitting behind a desk being a very small cog in a big machine pushing paper from one side of the table to
the other. It was a terrifying thought. So I became a bartender, which was much more fun at the time.
What is your greatest achievement?Completing the 80km Viking Run from Uppsala to Stockholm this February. This is actually an ice skating race
on the frozen surface of Lake Mälaren. The other achievement is still in the making, which is to hopefully help organise the biggest and best
ever Ferma Risk Management Forum in Stockholm this year.
What is the most important lesson you’ve learned?
Think carefully and try to understand before you judge other people. Personally, I
have to be more patient and less dominant in groups. That’s not easy, because I am a
passionate person, full of energy. SR
‘I don’t really have any heroes. That’s not the way Dutch people think’
Peter den Dekker is president of Ferma and corporate insurance risk manager at Stork BV in the NetherlandsIllustration by Richard Phipps
There’s a lot more to Swiss Re than reinsurance. Isn’t it time you found out how much more?Don’t let the name mislead you; there’s a lot more to Swiss Re than reinsurance. Commercial insurance, industrial insurance, large corpo-rate risks and specialty insurance. Insurance for aviation and space as well as environmental and commodity markets. Financial tools like insurance-linked securities and catastrophe bonds. Yet every service we off er and every challenge we face for our clients receives the same commitment and the same hands-on expertise. Why? Because across all industries, risk is the raw material with which we work; what we create is opportunity.
See for yourself at www.swissre.com/corporatesolutions
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