European risk and corporate governance solutions www.strategic-risk.eu [ July 2011 ] Issue 71 €25 NEWS & ANALYSIS » War risk management » Apple’s worker rights » Al-Qaeda aer Osama » Forest fires VIEWPOINTS [ PEOPLE ] Sub-sea cable layer and industrial giant Prysmian’s group risk manager reveals all RISKS [ THREATS ] In an increasingly divided world, global consensus is hard to come by. This poses problems for multinationals. What should risk managers do? GOVERNANCE [ COMPLIANCE ] Global insurance programmes are a challenge for many risk managers. We explore the issues THEORY & PRACTICE [ BEST PRACTICE ] Criminals do a lucrative trade in kidnap and ransom. Here’s our essential guide to help you avoid being kidnapped Ship and cargo owners need to toughen up their defences – piracy is one industry that just keeps on growing Risk Atlas Bribery and corruption are hot topics. Our map shows where the risks are greatest Special Report Almost everything you need to know about forming a captive insurer StrategicRISK Awards The winners of this year’s risk management accolades RISKY WATERS
Transcript
European risk and corporate governance solutions
www.strategic-risk.eu
[ July 2011 ]
Issue 71 €25
NEWS & ANALYSIS » War risk management » Apple’s worker rights » Al-Qaeda a� er Osama » Forest fi res
VIEWPOINTS[ PEOPLE ] Sub-sea cable layer and industrial giant
Prysmian’s group risk manager reveals all
RISKS[ THREATS ] In an increasingly divided world, global
consensus is hard to come by. This poses problems for
multinationals. What should risk managers do?
GOVERNANCE[ COMPLIANCE ] Global insurance programmes are a
challenge for many risk managers. We explore the issues
THEORY & PRACTICE[ BEST PRACTICE ] Criminals do a lucrative trade in
kidnap and ransom. Here’s our essential guide to help
you avoid being kidnapped
Ship and cargo owners need to toughen up their defences – piracy is one industry that just keeps on growing
Risk AtlasBribery and
corruption are hot
topics. Our map
shows where the
risks are greatest
Special ReportAlmost everything
you need to know
about forming a
captive insurer
StrategicRISK AwardsThe winners of
this year’s risk
management
accolades
RISKY WATERS
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 1
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With you from A-Z
Ingo Zimmermann, Head of EADS Corporate Insurance Risk Management
NEWS MATRIX [ THE LATEST BUSINESS ROUND-UP ]
4 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
Top 10 essential online stories
01
0405
07
0306
08
10
09
01 TERRORISM
Al-Qaeda leadership battle to ensue
02 COMPANIES
Top 10 global risks
Members of the terrorist cell in Yemen are
most likely to exploit the death of al-Qaeda
leader Osama Bin Laden, according to experts.
Following the killing of Bin Laden by the
US military, a self-destructive battle for
succession within al-Qaeda is likely, which
al-Qaeda in the Arabian Peninsula (AQAP) in
Yemen is best-placed to exploit, said the
Global Jihad Analysis team at Exclusive
Analysis.
Since 2001, the death or capture of
several senior fi gures associated with
al-Qaeda has gradually reduced the core of
older veterans in top leadership positions.
Before his death, Bin Laden had slowly
been sidelined as an operational commander,
explained the analysts. His communiqués
were frequently out of date and in some cases
contradicted other senior al-Qaeda leaders.
Exclusive Analysis believes that Yemen’s
AQAP will take a greater role in planning
al-Qaeda’s overseas attacks, following
involvement in the deployment of a would-be
bomber on a Detroit-bound passenger jet on
Christmas Day 2009, which showed intent
and capability for mass casualties.
web. goo.gl/DbGeI
Aon Risk Solutions surveyed 960
companies from 58 countries and found
the top 10 risks to businesses today are:
1 Economic slowdown
2 Regulatory/legislative change
3 Increasing competition
4 Damage to brand
5 Business interruption
6 Failure to innovate/meet customer needs
7 Failure to attract or retain top talent
8 Commodity price risk
9 Technology failures or system failures
10 Cashfl ow or liquidity risk
For the fi rst time in this survey’s
history, strategic risks such as failure to
innovate and attract top talent ranked
highly as a problem.
web. goo.gl/KIynI
03 JAPAN
Tepco struggles with earthquake compensation bill
04 DISASTER
Spain rocked by earthquake
Japanese power company Tokyo Electric Power Co (Tepco) is currently involved in a
heated debate over how much in damages it is liable to pay for the nuclear
accident at the Fukushima Daiichi power plant.
The Japanese government has already ordered Tepco to pay the 48,000
families who live within the 30km exclusion zone approximately €12,000 each,
marking the start of a huge compensation bill.
Even a company of Tepco’s size will struggle to pay these losses, which means
the Japanese government will have to intervene. Tepco is too integral to Japan’s
electrical infrastructure to fail.
Tepco has presented a formal written request to the Japanese government,
asking for fi nancial help to deal with the spiraling compensation costs.
Since the earthquake, many of the key infrastructure problems in Japan have
been caused by disruptions in the power grid and the knock-on eff ect this has had
on the business supply chain.
web. goo.gl/Z8nNC
On 11 May, two earthquakes hit the Murica region of
south-eastern Spain.
The town of Lorca was the worst aff ected, with extensive
damage to buildings, 120 people injured and eight people killed.
It was the fi rst earthquake to cause fatalities in Spain since 1997.
Lorca has a population of approximately 92,000 people, most
of whom spent the night out in the open due to fear of
a� ershocks. Spanish newspaper El Pais reports that a further
10,000 people were evacuated from their homes.
Teams have begun to evaluate the damage caused by the
quake, but an offi cial statement has been issued confi rming that
the region’s transport network is not badly aff ected.
web. goo.gl/OgDNG
02
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www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 5
07 TORNADO
Up to $6bn for US storm damage
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Online Contents
Most read storiesRisk Management Award 2011 winners
Online analysisAl-Qaeda and other Islamist militants
may seek to exploit the insecurity in
Libya generated by current civil war.
While Libyans show little sympathy
towards such terrorist organisations,
support for al-Qaeda could increase if the
war proves to be protracted and bloody.
web. goo.gl/KIil8
StrategicRISK spoke to two al-Qaeda
experts to analyse the threat from
international terrorists a� er the killing
of Osama Bin Laden. Both agreed that
while al-Qaeda’s organisation has
changed, it still represents a key threat.
web. goo.gl/bCqI6
09 INSIDER TRADING
Volcano threat to European airspace
A volcano in Iceland began
erupting on 20 May, sending
large amounts of ash and
steam into the atmosphere.
According to Reuters, the
country’s main airport just
outside of Reykjavik has been
closed due to fears that ash
from the Grimsvötn volcano
will interfere with engines.
The eruption was more
violent than that of the
Eyjafj allajökull volcano in
April of last year, which
caused extended periods of
chaos in European airports.
web. goo.gl/1zLI9
05 HACKING
Sony’s cyber woes
10 INSURANCE
D&O policies are ‘unwieldy beasts’
08 CORRUPTION
Campaigners slam the Bribery Act
06 CIVIL UNREST
Anti-austerity protests in Greece
Insured losses from the US tornado outbreak in April are
estimated to be between $3.5bn ($2.46bn) and $6bn, according to
Risk Management Solutions.
The storms took place from 25 to 28 April, with the state of
Alabama hit by the majority of the violent tornadoes,
accounting for approximately 70% of the overall loss.
Over 300 tornadoes touched down during April, breaking the
previous April monthly record of 267. The April average is 161.
Risk Management Solutions project manager Matthew
Nielsen stated: “This tornado outbreak is set to become one of, if
not the, costliest severe convective storm event in US history.”
web. goo.gl/2wrNH
Sony’s determined pursuit of a famous
hacker last year may have incited a breach of
the Playstation security systems that put the
network offl ine for a week in April.
The recent Playstation Network hack is
one of the biggest cyber attacks of all time.
As a result of the intrusion, Sony is now
“rebuilding its security system from the
ground up”, CAPITA information security
manager Dave Whitelegg explained.
Last year, Sony reportedly settled a legal
battle with notorious hacker George Hotz,
who gained fame a� er hacking the iPhone.
Whitelegg suggested that Sony’s aggressive
pursuit of the case may have incited the April
attack on its network.
web. goo.gl/eXNCb
For risk managers, D&O policies need to be
clearer about what cover they off er and in
what circumstances they will respond,
according to Sedgwick Claims Management
managing partner Edward Smerdon.
D&O coverage can be problematic, said
Smerdon. “D&O policies are unwieldy beasts,
with lots of clauses and too many defi nitions.”
He added that the lack of clarity in D&O
policies increases the likelihood of disputes
between policyholders and insurers, leaving
directors stranded. Coverage issues stem from
‘dra� ing problems’ in the policy itself.
Directors’ and offi cers’ liability has
become an increasingly important issue
since the global fi nancial crisis of 2008.
web. goo.gl/q1dfk
A leading anti-bribery group has
severely criticised the offi cial
guidance to the Bribery Act,
published by the UK
government in March.
The organisation said that
the guide undermines key
features of the Act, which will
come into force in July.
According to Transparency
International, parts of the
guidance indicate that the UK
government has surrendered to
business lobbyists, which could
allow corrupt practices to
continue.
web. goo.gl/ZeGtL
Strict austerity measures implemented
by the Greek government have sparked
large protests in Athens.
According to Reuters, on 11 May 3,000
people took to the streets, resulting in
several violent clashes between
protesters and riot police.
The majority of the protest passed
peacefully, but a minority broke away
from the main group and began throwing
stones at the police.
According to Greek police reports,
17 demonstrators and two police offi cers
were hurt as a result of these clashes.
Three Greek policemen have since
been suspended due to a police brutality
investigation that began a� er a video
showing the violent altercations
appeared on Youtube.
web. goo.gl/4apjn
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Madrid, Spain – Mar 2004
Sharm el-Sheikh, Eqypt – Jul 2005
Ammam, Jordan – Nov 2005
London, UK – Jul 2007
Bali, Indonesia – Oct 2002
Manilla, Philippines – Feb 2004
Madrid, Spain Manilla, Philippines
Sharm el-Sheikh, Bali, IndonesiaLondon, UK
Ammam, Jordan
October 2002,
Bali (Kuta).
202 people killed.
February 2004,
Philippines
(Manilla Bay).
Ferry bombing:
116 people killed.
March 2004,
Spain (Madrid).
Public transport
bombing: 191 people
killed/1,800 people
wounded. A l-Qaeda
are attributed
with the attack
but did not
accept responsibility.
July 2005, Eqypt
(Sharm el-Sheikh).
Ninety people killed,
over 200 wounded.
November 2005,
Jordan (Ammam).
Sixty people killed,
115 wounded.
July 2007,
UK (London).
Public transport
bombing:
56 people killed.
6 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
RISK INDICATOR [ VISUALISING DATA AND TRENDS ]
TERRORISM
Al-Qaeda a� er OsamaCountries worldwide are on high alert following the death of the USA’s most wanted terrorist
T HE DEATH OF OSAMA BIN LADEN, WHO WAS KILLED BY NAVY
Seals in a daring raid in Pakistan on 2 May 2011, could increase
the likelihood of further international terrorist attacks. India, the
Philippines, the UK and the USA are all on high alert and a global
travel advisory has been put in place.
The death of Bin Laden is a symbolic victory for the USA, but
al-Qaeda’s cell structure means it is a highly decentralised
organisation. As such, experts believe it won’t stop planning attacks
even a� er the death of its fi gurehead.
Al-Qaeda confi rmed the death of Bin Laden in a statement
posted on various Jihadist websites, warning that his death would be
avenged and the group would continue in their war against the USA
and its allies.
In the statement, al-Qaeda also claimed that it would soon
broadcast a recording of Bin Laden that was made one week before
his death. This recording reportedly shows Bin Laden “sharing with
the Islamic nation the joy caused by the Arab revolts” and giving
advice to his followers. The US government said that a search of Bin
Laden’s compound revealed evidence of the early stages of a planned
attack on the US rail network. In the short term, analysts say, the risk
of terror attacks has probably increased but the situation could
change in the long term.
For example, the recent political revolutions in North Africa
could potentially off er a legitimate social and political alternative to
terrorism, which could damage al-Qaeda’s credibility and its ability to
recruit new members.
Key points
01: Osama Bin
Laden was killed
on the 2 May
2011 in
Abottabad,
Pakistan
02: There have been
51 terrorist
attacks inspired
by or suspected
of al-Qaeda
since 9/11
06_07_RiskInd_SRJuly11.indd 6 27/05/2011 10:35
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 7
NATIONAL SECURITY
CYBER CRIME
Top fi ve[ MONEY-GRABBING CYBER CRIMINALS ]
OVERHEARD
“Soundbites”
1. Valdir Paulo de Almeida – March
2005, €37m
The ‘phishing kingpin’ accessed
Brazilian bank accounts by sending
a trojan horse virus to thousands of
the bank’s clients via email.
2. Alberto Gonzalez – April 2001, €7.9m
Gonzalez, a serial Cuban-American
hacker, stole the details of 130 million
credit and debit card holders.
3. Yevgeny Anikin and Viktor
Pleshchuk – November 2008, €5m
A Russian gang of hackers stole
millions of payroll account details
from RBS Worldpay.
4. Ivan Biltse, Angelina Kitaeva and
Yuriy Rakushchynets – January
2008, €2m
The group hacked into the server
controlling Citibank cash machines
located across the USA.
5. Unknown – January 2007, €670,000
Customers of Swedish bank Nordea
lost a combined €670,000 when
fake anti-virus so� ware recorded
their bank details. The hackers
responsible were never found.
Source: CNET.com
‘Piracy is just another risk that
needs to be managed and
planned for. I wouldn’t want
it overstated. There are dangers
but also ways to be prepared’
Paul Taylor Morgan Crucible risk director
>> see Cover story pages 15
‘My most embarrassing moment
was arriving at an Airmic dinner
about 15 years ago with my
dinner jacket but no trousers’
John Hurrell Airmic chief executive
>> see Headspace page 48
‘In the long term, Egypt will be a
hugely attractive market’
Lucy Jones Control Risks Middle East analyst
>> see Risks page 30
‘Europe and the UK is still an attractive target for al-Qaeda’Exclusive Analysis head
of Global Jihad Analysis
Anna Murison explains
that while al-Qaeda’s
organisation and its
capabilities have changed, it
still represents a key threat.
Following the death of
Osama Bin Laden, al-Qaeda
may attempt to mobilise an
attack planned well before
his death, but may not be
able to execute a new plan in
a short time. Transport
networks have the highest
risk of being aff ected.
But Murison also says Bin
Laden’s death “is likely to
accelerate the fragmentation
of al-Qaeda”.
EUROPE
Forest fi res blazing across Europe could create radioactivity riskA SERIES OF FIERCE WILDFIRES
have blazed their way across Europe,
causing damage to homes and businesses in
the UK, Switzerland, the Netherlands and the
Ukraine. Low rainfall, wind and high
temperatures created the ideal conditions for
the fi res, which occurred at the end of April
and beginning of May. Some of the regions
aff ected are not accustomed to dealing with
such large-scale forest fi res and may struggle
to protect property and infrastructure.
In the Ukraine, forest fi res were
reported inside the exclusion zone that
surrounds the site of the Chernobyl nuclear
disaster. There have been over 1,000 forest
fi res in this area since 1992 and an
international consortium of scientists are
now warning that a high-intensity fi re in
the exclusion zone could result in the
release of a signifi cant amount of
radioactive material.
Last year, higher-than-usual
temperatures in central Europe resulted in
devastating wildfi res that burned across
Russia. Fires were blamed for the death of
approximately 55,000 people due to the
smog and increased temperatures.
THE BIG NUMBERS
Japanese earthquake statistics
Re
x
Tohoku earthquake was the
fi � h-largest earthquake
since 1900
*Figures confi rmed by the Japanese
National Police Agency
515,019 people killed
9,056 people missing
88,873 homes damaged/destroyed
3,970 roads damaged/destroyed
71 bridges damaged/destroyed
NEWS ANALYSIS [ CONTEXT & INSIGHT ]
8 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
Fly it up the fl agpole and see
who salutes: history’s great
generals used clear, commanding
rhetoric, not management speak
Co
rbisR ISK IS AS INSEPARABLE FROM
warfare as it is from business. In war
the stakes are high, for failure may mean the
defeat and subjugation of a nation, while the
principle raw material of warfare is the lives
of the soldiers who must do the fi ghting. It is
logical enough to therefore expect a
successful general to be an expert in
managing the risks he faces, and a glance
through military history indeed shows that
many of them, from Hannibal to
Montgomery, knew how best to deal with the
risks of their trade.
What can business learn from them? The
world of risks faced by business is remarkably
similar to that faced by those in charge of an
army. Familiar military concepts such as
logistics, domination of ground, command
and control, and strategic or tactical balance
have their civilian equivalents in supply
chain, market penetration, management
hierarchies and resilience.
Communication is of as much
importance to the general as to the risk
manager, and clarity of purpose is central to
both. Take this from Montgomery, on
assuming command of the eighth army in
1942: “I want to impose on everyone that
the bad times are over, they are fi nished!
Our mandate from the prime minister is to
destroy the Axis forces in North Africa … It
can be done, and it will be done!” Clear and
to the point – there is no mention of
‘deliverables’ or ‘drilling down’.
History lessons Reputation is also important for the general,
to give his troops confi dence in his leader-
ship and to strike fear into the enemy. The
Duke of Wellington said of Napoleon that his
presence on the battlefi eld was worth 40,000
men, and the same could be said of Rommel,
whose reputation for aggressive risk-taking
could induce paralysis in the British eighth
army during the Second World War.
Generals have always spent time
cultivating their reputation – a lesson which
should not be ignored by business.
POLITICS
When to attack, when to defendThe boardroom is a battleground, risk managers are generals and raw materials are the lives of soldiers;
important risk management lessons can be learnt from history’s greatest wars
risk, with disastrous consequences. Napoleon,
on the other hand, usually got it right. At
Austerlitz, he gave up a defensive position
and weakened his right wing to tempt the
Russian and Austrian armies to attack (they
could have forced a retreat just by waiting).
The Russian general Kutuzov knew
attack was the wrong option, but was
overruled and the allied armies were duly
smashed by Napoleon’s counter attack.
Napoleon assessed the risk correctly
and deliberately deceived his opponents
into thinking their risk was much smaller
than it was.
In boardrooms, less may be at stake
than on the battlefi eld, but many of the
pressures that can distort a general’s view
of risk are similar. It is the risk manager’s
task to present the correct assessment, and
looking at where military men get it right
and wrong can be a useful guide. SR
‘Victorious warriors win fi rst and then go to war, while defeated warriors go to war fi rst and then seek to win’ Sun Tzu author of The Art of War
Sun Tzu, author of The Art of War, wrote:
‘Victorious warriors win fi rst and then go to
war, while defeated warriors go to war fi rst
and then seek to win.’ It is a maxim that
anyone seeking to push their brand should
take to heart.
Cutting your lossesIt is in the fi eld of risk appetite, however,
that military history can bring most
enlightenment to the risk manager. The UK
Treasury’s guide ‘Managing your risk
appetite’, says: “Risk appetite is about
taking well thought through risks where
the long-term rewards are expected to be
greater than any short-term losses,” and
since this is precisely the mindset of the
general approaching battle, it is worth
looking at how generals manage this risk.
The obvious example of how not to do it
is to be found in the sanguinary battles on
the Western front during the First World War.
In one off ensive a� er another, British and
French generals took the ‘one more heave’
mentality, whereby the commitment of ever
greater resources to a failing attack merely
resulted in a massive increase in casualties
rather than the anticipated breakthrough.
The same failure to assess risk properly and
to let risk appetite get out of control is to be
found in many a corporate M&A battle.
It is again to be found in Operation
Citadel, Hitler’s last attempt to attack on the
Russian front in 1943. “Whenever I think of
this attack, my stomach turns over,” Hitler
said, but the planning was too far advanced
to be easily cancelled, and the attack was
duly crushed.
Here, loss of prestige became a factor in
risk assessment, distorting the appetite for
TOUGH DECISIONS.
Go ahead and make the
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NEWS ANALYSIS [ CONTEXT & INSIGHT ]
10 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
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HUMAN RIGHTS
Report undermines Apple’s code of conductDespite a ‘rigorously’ enforced code of conduct, new research
highlights the continuation of poor working conditions standards
A YEAR AGO, A SPATE OF SUICIDES AT
Foxconn’s plants in China were
followed by pledges by the company’s
customers, notably Apple, HP and Dell, to
work with Foxconn to help it achieve higher
international labour standards. However, a
report from Students & Scholars Against
Corporate Misbehaviour (SACOM) claims that
poor working conditions continue.
SACOM researchers visited two Foxconn
production facilities in Chengdu and
Chongqing municipality in Western China,
which manufacture Apple iPad 2 and HP
laptops. They also revisited Foxconn’s
fl agship plants in industrial towns Longhua
and Guanlan in the Shenzhen, where
employees are still housed in dormitories
surrounded with anti-suicide nets.
The report states: “Workers always have
excessive and forced overtime in order to
gain a higher wage. Workers are exposed to
dust from construction sites and shop fl oors
without adequate protection. Even worse,
they are threatened by potential harm of
occupational diseases in various depart-
ments. Additionally, military-styled
management is still in practice, characterised
by ‘military training’ for new workers.”
The report’s fi ndings contrast sharply
with Apple’s own statement on supplier
responsibility in its 2011 progress report:
“Apple is committed to driving the highest
standards of social responsibility throughout
our supply base. We require that our suppliers
provide safe working conditions, treat
workers with dignity and respect, and use
environmentally responsible manufacturing
processes wherever Apple products are made.
“Suppliers commit to the Apple Supplier
Code of Conduct as a condition of doing
business with us. Drawing on internationally
recognised standards, our Code outlines
expectations covering labor and human
rights, health and safety, the environment,
ethics, and management commitment.
“Apple monitors compliance with the
Code through a rigorous programme of onsite
factory audits, followed by corrective action
plans and verifi cation measures … By making
social responsibility fundamental to the way
we do business, we ensure our suppliers take
Apple’s Code as seriously as we do.” SR
R EUTERS REPORTS THAT JAPAN’S GOVERNMENT
plans to hold Tokyo Electric Power (Tepco) liable
for unlimited damages resulting from its crippled
nuclear power plant.
Government offi cials, Tepco and creditor banks have
been attempting to design a scheme to enable the
company to cope with the massive bill for compensating
displaced residents and still remain in business.
Japanese law allows nuclear plant operators exemp-
tion from paying damages if an accident was caused by
“a grave natural disaster of an exceptional character”.
But chief cabinet secretary Yukio Edano does not
believe that Tepco’s plant qualifi es for that exemption
since the earthquake, although large, was not on a
previously unexperienced scale.
On 10 May, Tepco’s president Masataka Shimizu met
with cabinet ministers to ask for fi nancial help from the
government. He said that Tepco will try to fi nance
compensation for victims of the accident by selling its
stockholdings and property, as well as by streamlining
its operations.
Tepco has started making compensation payments
to residents and local governments near the plant who
were forced to evacuate. But it has yet to determine how
much it will have to pay in total. J.P. Morgan has
estimated that Tepco could face Y2,000bn (€17bn) in
compensation claims, but some reports suggest that the
fi gure could be double this.
According to the Financial Times, Tepco raised
Y2,000bn from its banks in March, but much of that is
needed to decommission Fukushima’s damaged
reactors and to buy natural gas, oil and coal to make up
for lost nuclear capacity. The government rescue plan
would keep Tepco out of bankruptcy and prevent
shareholders from being wiped out.
But the value of Tepco’s stock – already down by
three-quarters since the crisis started – would likely
remain depressed as operational profi ts would be
diverted for years. SR
COMPENSATION
Multibillion-dollar costs for TepcoExperts believe Tepco’s compensation
bill will reach upwards of €17bn
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NEWS ANALYSIS [ CONTEXT & INSIGHT ]
12 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
Damaged blowout
preventer on an oil rig
Re
ute
rsW HEN THE DRILLING STATION
Deepwater Horizon exploded and
sank last April, killing 11 workers and
seriously injuring 16 others, the world
looked on helplessly as thousands of gallons
of crude oil gushed into the Gulf of Mexico.
Numerous failed attempts by BP and
the American government to stem the fl ow
saw massive economic and ecological
damage done to the area and, by the time
the leak had been capped nearly three
months later on 15 July, almost fi ve million
barrels (210 million gallons) had leaked.
Fuelled by the one-year anniversary of
the disaster, attention has refocused on the
necessity of proper risk management and
eff ective fallout mitigation.
Yet the recent announcement that BP
has issued $40bn (€28bn) worth of lawsuits
against its contractors Halliburton,
Cameron and Transocean, means that a
comprehensive overhaul of risk prevention
and mitigation systems is unlikely to occur
any time soon.
In an internal 193-page investigation
into the incident published late last year,
BP cited “a complex and interlinked series
of mechanical failures, human judgments,
engineering design, operational
implementation and team interfaces” as the
cause of the disaster.
However, the lack of interaction and
co-operation between the companies has
seen ineff ective mitigation and therefore a
failure to remedy the situation.
Start talkingA January 2011 White House national
commission report on the oil spill urged
“better communication within and between
BP and its contractors” and demanded “inter-
nal reinvention … and sweeping reforms
that accomplish no less than a fundamen-
tal transformation of its safety culture”.
Yet fallout from the disaster has been
met with only a blame game from the
companies involved: BP’s internal report
laid signifi cant blame on its contractors,
DISASTER
One year on from Deepwater The scale of the environmental damage for the Deepwater Horizon disaster is yet to be fully realised and
blame has not yet been formally attributed. The only certainties are the lessons that can be learnt from it
safety – as well as individual safety
measures – it is also recognised that Black
Swan-type accidents can still happen, even
with industry-standard risk management
in place.
“This shi� s the focus to resilience and
recovery – ensuring that the organisation
can recover quickly from an incident and
that its impact – human, fi nancial,
environmental and reputational – is
minimised.”
The government has also taken steps
to prevent such disasters in the future,
splitting the agency that oversees off shore
drilling by segregating the divisions
responsible for safety regulations and the
collection of industry royalties. The
government also temporarily suspended
deep-sea drilling to investigate and
reinforce design and safety requirements.
And, despite the impending legal
furore, BP’s new chief executive, Bob
Dudley, has hinted towards progress.
In an op-ed in the Wall Street Journal
he indicated that BP was “creating a
central safety and operational-risk
organisation reporting directly to me”.
Dudley insisted that this organisation
would have “the authority to intervene in
our operations anywhere in the world …
linking the management of employees’
performance and reward directly to safety
and to compliance with BP’s standards”.
Yet though measures have and are
being implemented, the situation is still a
long way from being resolved. A recent
environmental report suggested that it
could be decades rather than years before
the full extent of the damage becomes
clear, while the legal battle between BP and
its contractors is set to obfuscate an
already complex web of systematic
problems underlying the economic and
environmental fallout of the disaster.
Lessons have been learnt from the
Deepwater Horizon disaster: whether
improvements will be fully and eff ectively
implemented remains unclear. SR
‘Since the BP oil spill, many companies have been asking themselves: “What could be our Deepwater Horizon?”Carolyn Williams Institute of Risk Management
who responded in turn by dismissing the
report as fundamentally fl awed.
This evasion of responsibility has seen a
failure to adhere to risk mitigation practices
that could have signifi cantly limited the
environmental and economic costs.
In June 2010, the US House Committee
on energy and commerce criticised BP for
its failure to test cement at the well, which
would have cost around $150,000 and taken
around 8-12 hours.
What we know nowDespite the prolonged and ongoing fallout,
though, lessons have been learnt from the
disaster. Institute of Risk Management head
of thought leadership Carolyn Williams told
StrategicRISK that “since the BP oil spill,
many companies have been asking
themselves: ‘What could be our Deepwater
Horizon?’ and subsequently building this
sort of reverse scenario planning into their
risk management.
“Whereas the BP situation underlined
the need for a stronger emphasis on process
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NEWS FEATURE [ COVER STORY ]
14 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
Dutch battleship Hr Ms Evertsen
can be seen in the background
as a member of the Dutch
Special Forces stands guard
aboard the Fade I cargo ship, a
World Food Programme vessel
delivering 5,000 tonnes of food
aid to Somalia
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 15
Sve
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ictu
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PIRACY
A king’s ransomPiracy exists outside the law and continues to grow every year. As political confl icts increase the situation is set to get worse, creating new and potentially dangerous risks to manage
Key points
01: Piracy attacks are at a
record high, with 70%
taking place off the
coast of Somalia
02: Average annual
earnings in Somalia
are around €350,
making piracy an
attractive option
03: The main driver of
piracy is the increased
ransoms being paid
04: There is limited
political will to tackle
piracy, which means
private companies are
le� to take action
05: Businesses with
interests in the region
should consider ways
to lessen the risk of
piracy attacks
A S BUSINESSES AROUND THE WORLD ASSESS THEIR prospects, one industry at least can be confi dent that 2011
will be another bumper year: piracy.Attacks at sea hit an all-time high in the fi rst three months of this
year. There were 142 attacks worldwide, with 97 of these off the coast of Somalia where, with no central government (see box, overleaf), pirates are free to operate at will. The country, which fronts onto some of the most valuable shipping lanes in the world, is rapidly becoming the world centre for piracy with at least 18 commercial vessels and around 500 hostages currently held by Somali pirates, according to Maritime & Underwater Security Consultants.
“This is a problem that will defi nitely persist in the near-medium term,” says Control Risks global issues analyst Karlin Younger. “There will be no solution until the situation on the ground improves. Whatever the international community or mariners do to protect themselves, the pirates shift their tactics and fi nd new ways to stay in business. They react. They read what people are writing about them in the media. Plus, the pirates now operate over such a huge area, it’s almost impossible to police it properly.”
Even where naval forces do engage pirates, their hands are often tied. “The legal framework for the military is not helping,” says Global Risk Solutions’ Sean Woollerson. “They often have to operate a capture and release policy. Plus, it’s not a crime to be sailing around with a few guns. A lot of fi shermen have guns – if only to protect themselves from pirates – and it can be hard to identify the aggressor. It’s a constant frustration for commanders when you talk to them; there’s no courts or jails to accommodate the pirates, no judicial infrastructure.”
“Piracy is the only game in town,” says Control Risks analyst
Karlin Younger.
Somali pirates earn up to 150 times the national annual
wage – $79,000 (€55,000) in a region where average earnings
are $500 or less – according to a recent study by the political
and economic intelligence consultancy Geopolicity.
The study estimates that Somali piracy was worth $238m
in 2010 and could hit $400m by 2015, while the costs of piracy
to the international community could almost double, from
$8.3bn in 2010 to more than $15bn by 2015.
A lucrative career path
ECONOMICS
NEWS FEATURE [ COVER STORY ]
16 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
“There is a lack of political will to do anything; a lack of appreciation for the importance of the issue. Unfortunately, I think there is a dim view of mariners: if we were talking about a couple of 747s being held hostage then the reaction would be, I think, quite diff erent.”
The pirates have been quick to take advantage of the situation. One recent tactical shift is the use of ‘mother ships’, large vessels that are used as a base to launch multiple attacks, re-supply and conduct hijackings. “These vessels – often hijacked themselves – greatly increase the amount of time pirates can stay at sea,” says Younger. “They are also less reliant on good weather.”
In addition, the remarkable success of the pirates – and the reporting of high ransoms in the global media – has attracted more aggressive criminals from across the region, which some analysts blame for a recent increase in violence towards crews. In 2011 hostages were executed for the fi rst time, and released hostages are increasingly reporting torture and mistreatment.
But the main driver of piracy – the issue no-one wants to talk about – is the increased ransoms being paid to free captive seafarers.
This is a hugely sensitive issue, and few involved will discuss fi gures, but according to Maritime & Underwater Security Consultants, the average ransom has increased from $2.1m (€1.47m) in the fi rst quarter of 2009 to $4.6m in the fi rst quarter of 2011.
“The key issue is: should there be payments?” says Maplecroft associate director Anthony Skinner. “No one is willing to discuss this, but ultimately it is ransoms that are perpetuating the problem.”
With so much money at stake, some see piracy spreading to the other side of the Gulf of Aden as the political situation in Yemen deteriorates and the country becomes increasingly lawless. “It bodes ill for a potential solution,” Skinner says. “While the vast majority of pirates are from Somalia, Yemen is becoming an important factor.
“Although the responsibility does really lie with the shipping companies to manage this, it is a matter of international concern. Although the pirates themselves are not ideological, there is evidence that al-Shabab in Somalia are ‘taxing’ pirates for a safe berth and that money is eff ectively funding Islamic extremism, which potentially has a global security dimension.”
But for the moment, industry is shouldering most of the burden. “For businesses it’s a triple whammy with rising premiums, longer transit times and the costs of additional security,” Younger notes.
However, for all the dangers some argue that cool pragmatism will win the day: “Piracy is just another risk that needs to be managed and planned for,” says The Morgan Crucible Company’s director of risk assurance, Paul Taylor. “I would not want to get it overstated. There are dangers but also ways to prepare.
“When you’re talking about shipping fi rms, then it is potentially big; you’re talking about the potential loss of ships, people and goods under their care and custody. With
manufacturing, where the shipping is outsourced, the big risk is loss of merchandise, loss of sales and any penalties for absent deliveries.
“With retail increasingly sourcing huge amounts of goods from Asia, whether it’s clothes or iPods, the potential for disruption could be considerable, especially if it were a Christmas supply,” notes Taylor.
“However, there is a lot of good information out there and risk managers should very quickly be able to look at the risk to their companies, and then the task is to work out how to mitigate that risk. They should be asking what routes ships are taking and potentially look at breaking up the cargo over diff erent vessels to spread the risk. There are a lot of preventative measures you can take and good crisis prevention training available.”
In short, be prepared. Whether it’s by installing water cannon and razor wire, or scrutinising contracts and thinking tactically, all businesses with an interest in the Gulf of Aden need to realise that the Jolly Roger will be fl ying high for some time to come. SR
‘For businesses it’s a triple whammy with rising
premiums, longer transit times and the costs of additional security’Karlin Younger Control Risks
Somalia is a classic ‘failed state’, one of the poorest and most violent places on Earth – and
the perfect berth for pirates who want to operate outside all law.
It has been without a central government since 1991, when president Siad Barre was
overthrown and the county descended into the war, famine, disease and anarchy that has
characterised it ever since.
Although there is an international recognised authority – the Transitional Federal
Government – it only controls part of the capital, Mogadishu, while the al-Qaeda affi liated
al-Shabab rules much of the south.
The northwestern region, Somaliland, has declared itself autonomous, as has the
northeastern region of Puntland. In much of the country, the only real authority is with
localised clans and warlords.
With easy access to weapons, desperate poverty and a generation who have only ever
known war, it was only a matter of time before young Somalis turned their attention to the
wealth fl oating by off shore.
The politics of Somalia
»
PIRATE HAVEN
Viewpoints [ PEOPLE ][ OPINION ][ COMMUNITY ]
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 17
> Association The big reveal .... 19Airmic has some signifi cant announcements up its sleeve
> In my opinion Hack attack ...20The Sony debacle shows that fi rms need to sharpen up their security
PROFILE
Well connectedManufacturing and laying sub-sea cables is a complex, big-money business. Luckily for group risk manager Alessandro De Felice, Prysmian takes its risk management very seriously
VIEWPOINTS [ PEOPLE ][ OPINION ][ COMMUNITY ]
18 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
I T’S A WARM MAY MORNING as StrategicRISK arrives in Milan to
meet Alessandro De Felice, group risk manager for Prysmian, the world’s largest manufacturer of industrial cables for energy and telecoms. We’re lucky to snatch some time with De Felice, who is in the midst of a major integration programme following Prysmian’s merger with Dutch cable-maker Draka.
Buried in papers at his offi ce on the fourth fl oor of Prysmian’s Milan HQ, he welcomes us with a friendly and fi rm Roman handshake and reclines comfortably behind his desk. Dotted on the rear wall are pictures showing De Felice enjoying one of his favourite pastimes, yacht sailing. Skiing is another passion. He’s also a family man with a wife and two young children.
But we came to talk business. Following the recent merger, Prysmian has overall sales of some €7bn, with subsidiaries in 50 countries, 98 plants, 22 research and development centres and 22,000 employees. Its cable-laying ship Giulio Verne has also recently fi nished one of the most ambitious energy cable projects in the world, laying a 435km sub-sea energy cable between Sardinia and Italy.
“Project risk management is very important to us,” De Felice explains. “Laying these cables is a complex operation and costs a huge amount of money.” The project to connect the cable from Sardinia to Italy was worth €480m, for example.
The risks associated with the project were vast, being in a part of the world where the seas are both tempestuous and busy with commercial ships and fi shing vessels. “It’s also a very deep water cable,” De Felice says. “In some places, the sea is 1,600 metres deep and in other places the cable had to be buried into the sea bed.”
The project itself is also extremely complex owing to the nature of the machines used to perform the operation. With the range of potential risk so large and complicated, it’s no surprise that Prysmian takes risk management so seriously.
Fortunately, the company had completed a number of these diffi cult installations before, including in San Francisco and Tasmania. “The cables are used a lot in large off shore wind platforms like in the North Sea,” De Felice explains. “We have a large project in the North Sea out of the Netherlands at the moment, which is one of the largest sea power projects ever realised. These projects allow our customers to transmit power so that it can be used where it’s needed and when it’s needed.”
Prysmian’s energy cable division is a large and growing part of the business, says De Felice,. “The claims associated with these projects could be very large, and the underwriting is very technical and it goes into great detail.” Risk management is a vital part of this.
And it is this that puts De Felice in an enviable position. The emphasis on risk management makes his job a little easier. “I don’t need to explain to my colleagues why we are doing risk
management activities and what the benefi t of it is,” he says. “That is already well recognised.”
The early yearsBut things weren’t always this simple. De Felice followed a traditional route into the risk management profession, via several years working in insurance. After graduating from the University of Rome with a degree in politics, he started professional life as a broker.
“Most people with a degree in politics in Italy go on to something like law,” he says. Instead, as a student De Felice worked for an insurer in Rome doing mainly administration. His break came in 1994 when he had the opportunity to move to London as a broker in the Lloyd’s market. “I was involved in the underwriting process, preparing submissions for large commercial risks,” he remembers. “Then I moved back to Milan as an account handler, mainly helping large foreign clients arrange their local insurance programmes.”
He spent most of the 1990s working as a broker and risk consultant, for a time working in aviation. “At that time, there were lots of small carriers operating from minor airports in Italy,” he says. “The aviation industry is historically one of the most developed in terms of risk management. There are a series of protocols, checks and balances to ensure safety.”
In 1999, De Felice took the biggest step of his career, leaving the insurance broking world behind and joining huge Italian brand Pirelli. The tyre maker is famously a breeding ground for risk management talent in Italy. De Felice is personal friends with Pirelli’s group risk manager Jorge Luzzi (profi led in the October 2009 issue of StrategicRISK). “I had worked with them before because they were one of my clients,” De Felice says. “Moving from being a consultant to the perspective of a company risk manager was attractive to me. Pirelli was a great experience – I had the
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 19
chance to travel a lot, as Pirelli’s subsidiaries were dotted all over the world. The activities in those days included tyres, cables and real estate, which was booming.”
Time for an upgradeDe Felice was soon promoted to the position of risk manager for Europe, the Middle East and Africa. In 2005, Pirelli sold its industrial activities in the telecom and cables sector to Goldman Sachs, and De Felice was off ered the group risk manager job for the new entity that was born out of the spin-off and took the name Prysmian.
His priorities were setting up the risk management department, writing the company’s risk management procedures and standards,
issuing loss prevention policies and reorganising the insurance programme. When Prysmian became a listed company in 2007, De Felice’s department took on more responsibilities and the emphasis on risk management increased even more.
“There were a lot more reporting requirements,” he says.
“We had to upgrade the insurance risk management to a more enterprise risk management approach, because we had to start reporting about risk management eff orts in the annual reports, which were public and audited.” This increased workload led to the risk management team swelling to fi ve people.
Just three years after the spin-off from Pirelli, De Felice set up Prysmian’s very own reinsurance captive, domiciled in Dublin. “The captive deals with the major risk transfer programmes for the group. It has had a hugely positive eff ect on our dealings with the insurance market.”
The Draka mergerCurrently, De Felice is in the process of integrating his department with Draka’s risk management team. “It’s one of the biggest mergers in Europe in recent years,” he says. “Fortunately, the company cultures are not that diff erent. Both companies have a similar emphasis on risk management.”
“The merger won’t ultimately change the risk profi le of Prysmian, because the product portfolio is the same,” De Felice adds. “The merger has increased the size of the portfolio, but not the risk exposure. We already know what the main business risks are. Our plants, for example, are similar. And our product liability is the same.
“The main issue is to integrate the risk management procedures and the insurance programmes. We have to eliminate potential overlaps. They may be using diff erent insurers, so we need to evaluate who has the better conditions and claims handling capacity. The best of both worlds is the motto for the merger. This activity will continue for the next couple of years – it’s a big challenge.”
In that time Prysmian will continue to expand its energy cable network, helping to keep the lights on in Europe and elsewhere in the world – provided, that is, De Felice can keep up the good work. SR
‘I don’t need to explain to my colleagues why we are doing risk management activities and what the benefi t of it is. That is already well recognised’Alessandro De Felice Prysmian
All the hard work of the past year is about to yield results as Airmic delivers a number of landmark changes at its annual conference
IN MY OPINION
It’s fi nally time to reap what we’ve sown
John Hurrell, CHIEF EXECUTIVE,
AIRMIC
A NYONE WHO HAS TENDED A VEGETABLE GARDEN WILL KNOW the feeling. You toil for months with little to show for it, then, if all goes to
plan, you’re suddenly awash with the rewards of your labour. This is how it feels now at Airmic. We have been working hard for the past year on a range of projects, many of them quite ambitious, and they are starting to yield impressive results.
Let’s begin with the issue of non-disclosure, because it’s so important to our members. A slight confession might be in order here. At the 2010 conference, we announced our intention to produce a model clause to get around shortcomings in the Marine Insurance Act 1906 by the end of last year. Well, making good the failings of a complex and entrenched 100-year-old piece of legislation has taken a bit longer than we originally hoped.
Nonetheless, at our conference in Bournemouth expect us to unveil our new clause, which has been drawn up by Herbert Smith for insertion into insurance contracts. The intention is to help members overcome the draconian nature of UK insurance law, which makes it virtually impossible for commercial insurance buyers to fulfi l their disclosure obligations. For those who use it, there will be a greater degree of certainty that legitimate claims will be paid. We believe it will also underpin the credibility of the UK insurance market. Airmic will also be publishing its disclosure best practice guide, drawn up by technical director Paul Hopkin.
Another landmark at the conference will be publication of the fi rst part of the Cass Business School study into ‘major risk events, their impact and implications’. This research has made tremendous progress over the past 12 months and contains valuable insights into the qualities that make fi rms resilient (or not) when events take a turn for the worse. Crucially, it is supported by 18 case histories, which will be published later this year. While there is no one way to guarantee success in adversity, we believe that this publication will be of tremendous value to risk managers.
Returning to insurance, if you have attended our briefi ngs you will appreciate what a headache the compliance of global insurance programmes can be. We are fortunate that our board member Helen Hayden is a recognised expert on global compliance and is helping us to produce a guide. It is a great example of Airmic and its members spreading knowledge to the benefi t of our community.
Anyone who has reached the top of their career will recall people who helped them at crucial times – more experienced colleagues who were happy to share their knowledge. Airmic will use the Bournemouth conference to launch a mentoring scheme that seeks to formalise this type of relationship. It involves senior risk managers partnering younger people from other organisations, and is being overseen by board member Elaine Heyworth, an experienced mentor, who says that the learning is very much a two-way process. Any volunteers please come forward.
There are many other things I could discuss were there more space. Our latest property benchmarking survey for example, or StrategicRISK’s own work on careers in the industry, so it’s genuinely exciting to be able to show off the work of the association and the many, many people and organisations that support us.
I hope you will agree that this year brings a good harvest. SR
17_21_Viewpoints_SRJul11.indd 19 27/05/2011 12:25
VIEWPOINTS [ PEOPLE ][ OPINION ][ COMMUNITY ]
20 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
Defy the odds: you only bag a StrategicRISK
Award if you show serious innovation
does it “for fun”. He doesn’t steal, he doesn’t stage ‘denial of access’ attacks on websites, but he knows how to do it and he’s in touch with other people that do. He estimates that 90% of websites are easily hacked into. The exceptions are those belonging to governments and fi nancial institutions, he says.
Ensuring cyber security So what are the risk management lessons here? As someone who is certainly no expert in technology, I would suggest some common-sense rules.
First, talk to your IT people about passwords and security. For example, don’t let them accept the standard mother’s maiden name as a security check. Anyone who has access to a customer’s name and date of birth will be able to get that information with not too much digging at a genealogy site.
Secondly, look at the kind of security measures that banks are employing. Card readers that issue a diff erent access number every time a company card is inserted seem to be pretty failsafe.
Your company may have to undertake some customer education. I talked with the risk manager of one large European store chain who said that customers were generally not concerned about data security when they entered credit card numbers
StrategicRISK’s editor-in-chief Sue Copeman considers what it means when a global giant falls foul of increasingly adept hackers, despite there being seemingly rigorous protection in place
IN MY OPINION
Sue Copeman, EDITOR-IN-CHIEF, STRATEGICRISK
When the mighty fall, what hope for the meek?
F OLLOWING HACKERS OBTAINING SOME 70 million gamers’ personal details from its
PlayStation Network recently, Sony’s chief executive apologised for the security breach and said that there was ‘no confi rmed evidence’ that credit card details or other personal information had been misused. A later report suggested that hackers may have stolen the personal information of 24.6 million Sony Online Entertainment users, with more than 20,000 credit card and bank account numbers put at risk.
The company has been criticised not only for its lack of security but also for failure to alert customers immediately. Apparently it now plans to cover each video games user with a $1m identity theft insurance policy. I wonder which insurance company is prepared to cover this risk? Could it be Sony Corporation’s own Bermuda-based captive PMG Assurance? The risk would hardly seem attractive to conventional commercial insurers.
Where there’s a will, there’s a waySony is blaming members of the ‘hacktivist’ group Anonymous for the episode, calling it retaliation for action that Sony took against a hacker in a US court in January this year. But that really isn’t good enough. Who did it and why they did it is
immaterial. The crucial point is that they were able to do it in the fi rst place.
A number of technology security companies have responded to the news of the Sony debacle with comments suggesting that current corporate security defence strategies are no longer enough. They are clearly right. But do any of them actually have the defi nitive security answer?
Sony is ranked among the world’s top 100 global companies. If a company that big can’t protect its online customers with the aid of the big bucks that they can pay consultants, what hope is there for smaller businesses?
Unfortunately for them, the Sony story followed news that Epsilon Interactive, an email service provider with hundreds of clients such as Best Buy and JPMorgan Chase, suff ered a data breach, potentially compromising millions of names and email addresses.
I spoke to a self-confessed hacker, who said he
AWARDS
I WOULD LIKE TO EXPRESS huge congratulations to all of the
winners of this year’s StrategicRISK European Risk Management Awards. We tend to say this every year, but it’s really true that the standard of entries just keeps on getting better.
Against a backdrop of tough economic times and a tricky operating environment, we received a record number of entries this year, well over a hundred. This list was independently
whittled down to a shortlist of 50 – you can’t win an SR award by buttering up the editor, sadly!
Next, our expert judging panel sat down together for a day to mull over the entries and decide on a winner in each of the 10 award categories: • Best Business Continuity Approach• Most Innovative Use of IT or
Other Technology• Best Risk Communication of
the Year
• Enterprise Risk Management Programme of the Year
• Risk Management Team of the Year• Risk Management Product of
the Year• Best Risk Training Programme• Best Risk Management Approach
in the Public Sector• Risk Management Young Achiever
of the Year• European Risk Manager of the Year
Tough customers I sat in on the awards judging and I can testify that the judges were not easily impressed. To win an award, you have to demonstrate innovation and clearly show what benefi ts your
‘Who hacked Sony is immaterial. The crucial point is that they were able to do it in the fi rst place’
Industry leading lights shine at StrategicRISK awards
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 21
online. If they wanted to buy something, they were happy to assume that the website was safe.
This attitude is very likely to change in the next few years as more and more people learn a hard lesson. But in the meantime if something goes wrong, it’s your company that will get the blame and your business’s reputation that is on the line.
There’s a need to balance ease of transaction for customers with providing them with a secure transaction platform. Don’t let your company be tight-fi sted when it comes to proposals relating to protecting your customer base. Customers are the life blood of a business.
Don’t ignore the threat from within. Discussions that I’ve had with risk managers suggest there is very little monitoring when it comes to joiners and leavers of the company. Could someone within your business be leaving with the details of your client base on a memory stick tucked in their back pocket? If that’s possible, you need to do something about it, fast.
Finally, if something does go wrong, let your customers know as soon as possible. This gives them the chance to cancel credit cards and be alert to any possible identity theft.
We can assume that Sony had all the fi rewalls and safety nets they believed they needed to protect their sites. That didn’t work. Hackers are proving far more intelligent and resourceful than the consultants that many businesses employ to safeguard against them, so precautions are vital. SR
Trimble, Amlin and Woodleigh Outreach Support Service are all organisations that deserve to be commended for their tireless eff orts. Meanwhile, Rachelle Banham from Hertfordshire Constabulary Group and Igor Mikhaylov of Russia’s Mobile Telesystems are individuals who shone through as exceptionally high achievers.
Not to forget the special commendations that the panel felt compelled to dole out. These are awarded when the judges feel an entry is so good that it deserves to be recognised but it narrowly misses out on the top spot. The high number of these just goes to prove how many
organisation has derived from the risk management initiative that has been undertaken. A full list of judging criteria is available at www.strategic-risk.co.uk/digital/srawards2011/judging.asp. There is not always a clear winner and, in that instance, the judges were not afraid to eliminate the category from the competition rather than reward an entry that doesn’t quite live up to the strict standards.
Having said that, there were plenty of entries that simply blew the judges away. These were the organisations that had defi ed the odds and demonstrated excellence in the face of a really tough business environment.
Rentokil, Sonae Sierra, SAP, Sibur,
In May, 30 risk
professionals
from across Germany
launched the German
chapter of the Institute
of Operational
Risk (IOR). Risk expert
Walter Dutschke will
head the chapter. The
IOR will promote the
development of risk
management and give
support to risk
managers. Dutschke,
said: “In Germany,
operational risk is
increasingly regarded
as a key management
function. But there are
still areas that need
improvement.”
On 17 May,
French risk
managers met in Paris
for the annual CARM
conference. The theme
of the event was Web 2.0
– Threats and
Opportunities. The
event was overseen by
Ferma director Michel
Dennery and featured
variety of speakers from
the French risk
management world.
Issues highlighted at the
conference included
internet activism,
identity fraud, internet
security, changing
business dynamics and
web socialisation.
On 26 and 27
May, risk
managers from
around the Netherlands
met in the coastal
town of Noordwijk
aan Zee at the Hotel
van Oranje for the
annual Narim
conference. The main
theme of the event
was branding, and
keynote speeches
were given by
Sharepeople board
member Paul
Stamsnijder, Blogo
Media chief executive
Stephan Fellinger and
Dutch television
presenter Anita Witzier.
[READ MORE ON-LINE] For a profi le with Jorge Luzzi, worldwide director of risk management for Italian tyre maker Pirelli, go to strategic-risk.eu or goo.gl/GcLTO
great entries we received this year. In recognition of their special
achievements, plaudits must go to: the London borough of Lambeth , Aéroports de Paris, Maplecroft, London Underground, and John Ludlow from InterContinental Hotel Group.
Stand up and be counted Now in their eighth year, Strategic-RISK’s European Risk Management Awards will continue to provide a platform for risk management professionals to showcase their talents and demonstrate excellence. We consider it our mission to support, promote and help to develop risk management talent around Europe,
and the awards are a vital part of that programme.
The awards platform will exist for as long as risk management achievers are willing to put themselves forward, to stand up and be recognised. It can be tough sometimes, and I understand that some risk managers prefer not to stick their heads up above the parapet in case something does go wrong and they’re left rather red-faced.
But I encourage anyone in the risk management profession who has achieved something remarkable to enter next year’s StrategicRISK European Risk Management Awards and let the industry recognise and reward their achievements. SR
Communityupdate
VIEWPOINTS [ PEOPLE ][ OPINION ][ COMMUNITY ]
22 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
AWARDS
Meet the winnersIn May, well over 200 risk management professionals joined StrategicRISK to pay tribute to the industry’s high achievers and reward some excellent work. Here is the 2011 roll of honour
FINALISTS
• Arcadia Group Ltd
• Capital Shopping Centres Plc
• Dixons Retail Plc
• Tesco Plc
• Tetra Laval
FINALISTS
• Aéroports de Paris
• Amlin Plc
• Hoerbiger Holding AG
• Sibur Holding
• UK Power Networks
Enterprise Risk Management Programme of the Year
Risk Management Team of the Year
WINNER Arcadia Group
JUDGES’ REMARKS Team synergy
and collaboration are the hallmarks of
Arcadia’s risk management eff orts, the
judges felt. They noted how Arcadia
has addressed diversifi ed risks under
very tough fi nancial circumstances in
a merger environment.
WINNER Sibur Holding
JUDGES’ REMARKS The judges felt
that Sibur’s ERM programme was very
thorough. They noted particularly the
attention paid to cultural aspects.
“Embedding risk management into
the culture of an organisation is how
you make it work,” was one comment.
Sibur uses a network of key risk
administrators to help embed risk
management throughout the
organisation.
SPECIAL COMMENDATION
Aéroports de Paris
JUDGES’ REMARKS The judges
appreciated the fact that the ERM
programme at Aéroports de Paris had
the full support of the chief executive.
It is a comprehensive programme that
includes fi nancial risk as well as
operational risk, the judges said.
Colin Campbell,
Arcadia Group
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 23
Best Risk Communication of the Year
FINALISTS
• Aviva
• London Borough of Lambeth
• SAP AG
• Tesco Plc
• Zurich Financial Services
FINALISTS
• Annette Schutt Fiig, Novo Nordisk
• Colin Campbell, Arcadia Group Plc
• Elaine Heyworth, Everything Everywhere
• John Ludlow, InterContinental
Hotel Group
• Igor V Mikhaylov, Mobile TeleSystems OJSC
WINNER Igor Mikhaylov
JUDGES’ REMARKS The judges were
incredibly impressed with the
thoroughness of Mikhaylov’s entry and his
achievements in the realm of risk
management. They noted his exceptional
focus on the benefi ts that risk management
derived for his organisation and how he
won over senior management with his
eff orts.
SPECIAL COMMENDATION John Ludlow,
InterContinental Hotel Group
JUDGES’ REMARKS The judges wished to
hand Ludlow a very strong commendation
for his overall achievements and the
achievements of his team, who have met
big challenges in 2010 with a robust
framework.
European Risk Manager of the Year
FINALISTS
• Lambeth Council
• Science for Humanity
• Sonae Sierra
• Financial Information Systems
• Aon Benfi eld Analytics
Most Innovative Use of IT or Other Technology
SPONSORED BY
WINNER Sonae Sierra
JUDGES’ REMARKS This
award is open to organisations
that have introduced new
technology (or applied existing
technology in a diff erent way)
to produce demonstrable
benefi ts to their risk
management programme.
Sonae Sierra combined its core
IT systems with mobile
technology, which sped up
their processes on a cross-
border basis. While the
technology is not new,
the judges could see the
clear benefi ts shown by
this approach.
SPECIAL NOTE The judges
were also encouraged by the
eff orts of Science for
Humanity’s Global Risk
Register, which they thought
was a useful collaboration
between the public and
private sectors.
WINNER SAP
JUDGES’ REMARKS The
judges were impressed that
senior management were
clearly fully engaged in the
risk communication
programme, which helped to
raise the profi le of the
initiative. SAP was
commended for raising
awareness about some unusual
professional liability risks.
They also demonstrated
evidence of increased risk
awareness as a result of the
communication.
SPECIAL COMMENDATION
London Borough of Lambeth
JUDGES’ REMARKS Lambeth
council has clearly done a good
job with limited resources in a
diffi cult environment, noted
the judges. Lambeth increased
risk awareness within the
organisation using a range of
media and communication
channels.
Sandra Dias,
Sonae Sierra
John Ludlow,
Intercontinental
Hotel Group
Miriam Kraus,
SAP
w,
the
by
judges
d by the
isk
thought
ation
nd Sandra Dias,
Sonae Sierra
VIEWPOINTS [ PEOPLE ][ OPINION ][ COMMUNITY ]
24 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
Best Risk Training Programme
FINALISTS
• Amlin Plc
• BBC
• Sibur Holding
• Tesco Plc
• Yorkshire Water Services Ltd
WINNER Amlin Plc
JUDGES’ REMARKS The judges were blown
away by the cross-functional co-operation
that Amlin introduced through its risk
training programme. The quality of the
entry was also bolstered by an exceptionally
strong demonstration of the benefi ts
delivered by the programme, as well as some
excellent testimonials from core participants.
Best Business Continuity Approach
FINALISTS
• London Borough of Newham
• The Co-operative
• Rentokil Initial Plc
• SAP AG
• Gategroup
Risk Management Young Achiever of the Year
FINALISTS
• Claire Bromley, John Wood Group Plc
• Daniel Davies, Network Rail
• Michael Szonyi, Zurich Insurance Company
• Nicolas Vioix, Westfi eld
• Rachelle Banham, Hertfordshire Constabulary Group
WINNER Rentokil Initial
JUDGES’ REMARKS The
judges found that Rentokil’s
business continuity
programme was
comprehensive and solid.
The web-based, multilingual
platform was impressive, and
they applauded the way
that the programme was
implemented internationally,
especially given that the
organisation is so diverse. The
judges also liked the way the
programme had been piloted to
identify problem areas early on.
WINNER Rachelle Banham,
Hertfordshire Constabulary
JUDGES’ REMARKS Banham
has signifi cantly progressed
risk management within
Hertfordshire Constabulary.
The judges noted that
Banham grasped some
unusual challenges in a
focused and pragmatic
way. Considering she does
not have a background in
risk management, “she has
achieved a lot in a short
period of time”, commended
the judges.
Rachelle Banham,
Hertfordshire
Constabulary
Iain Hovell,
Rentokil
‘Banham has signifi cantly progressed within risk management within Hertfordshire Constabulary’
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 25
Best Risk Management Approach in the Public Sector
FINALISTS
• Ealing Council
• London Underground (Transport for London)
• London Borough of Newham
• London Borough of Lambeth
• Woodleigh Outreach Support Service
Risk Management Product of the Year
FINALISTS
• Capital Shopping Centres Plc
• Maplecro�
• The Royal Bank of Scotland Plc
• Trimble
• Wolters Kluwer Financial Services
SPONSORED BY
[SEE MORE ONLINE] For more photographs of the event, go to www.strategic-risk.eu or goo.gl/ChmZX
WINNER Woodleigh Outreach
Support Service
JUDGES’ REMARKS The
judges felt the quality of
entries from the public sector
was very high. But they were
particularly taken with the
way that Woodleigh Outreach
Service recognised the link
between risk and human
behaviour. The judges thought
that Woodleigh Outreach
Service had a risk programme
that delivered comprehensive
benefi ts to the organisation
and the people it serves.
SPECIAL COMMENDATION
London Underground (TfL)
JUDGES’ REMARKS The
complexity of London
Underground as an
organisation was recognised
and the judges said the risk
management programme was
very comprehensive.
WINNER Trimble
JUDGES REMARKS Trimble’s
telematic devices, which assist
in fl eet risk management,
could be useful to a lot of risk
managers. “Trimble has taken
its product development to
another level,” the judges said.
They were impressed by its
directly measurable results,
which could help improve a
company’s environmental
performance and save money.
SPECIAL COMMENDATION
Maplecro�
JUDGES’ REMARKS
The judges liked the
comprehensive nature of
Maplecro� ’s Risk Dashboard
– an interactive platform that
enables users to monitor risks.
Janice Nicholson, Woodleigh
Outreach Support Service
Martin Otter,
Trimble
‘The judges were particularly taken with the way that Woodleigh Outreach Services recognised the link between risk and human behaviour’
Risks [ THREATS ][ OPPORTUNITIES ][ MANAGEMENT ]
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 27
> View Inequality ......................29‘If in the decade of the strongest economic expansion inequality increased, what will happen now?’ Angel Gurría, secretary-general of the OECD
isto
ckp
ho
to.c
om
/mik
eu
k
Showing the cracks:
‘Tiger iron’ haematite
banded rock
ECONOMY
Fault linesGlobal disasters, growing inequality and a depletion of natural resources are catalysing tensions between nations. Are risk managers fully prepared for the consequences?
RISKS [ THREATS ][ OPPORTUNITIES ][ MANAGEMENT ]
28 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
T HE LAST THREE YEARS’ plethora of unforeseen disasters –
fi nancial, political, climatic – has given rise to a millenarian breed of prophets seeking out the next great unforeseen crisis that might shake the planet.
Economist Raghuram Rajan led the way last year with his tome Fault Lines, in which he argues that the credit crunch evolved from structural fl aws in the US economy, warning that a potentially more devastating crisis awaits us if they are not fi xed.
He claims America’s growing inequality and thin social safety net create dangerous pressures to encourage easy credit and keep job creation robust, highlighting that the US fi nancial sector has become the critical but unstable link between an over-stimulated America and an under-consuming world.
As the fi nancial crisis still works itself out – and with critical sovereign debt issues hampering the European area – such theories gain traction.
Risk analysts Eurasia Group president Ian Bremmer says that the slow creep back to growth fails to compensate for the fact that we are living in the ‘G-Zero’ (see below) and “2011 looks to be the year that our understanding of how the world works becomes out of date”.
A reference to the G20 group of nations – and their inability to respond eff ectively to the crisis – the G-Zero is Bremmer’s name for a time in which “the key institutions that provide global governance [such as the International Monetary Fund (IMF) and World Bank] become arenas not for collaboration but for confrontation”.
He believes that the result will be political posturing at best and, at worst, more confl ict. Europe is showing the way, according to this theory. Rifts are developing despite its political maturity – witness the current tussle between Germany and Greece over the potential default on Greek sovereign debt. As geopolitics takes on an increasingly geoeconomic hue, Bremmer believes “all the G20’s pledges to ‘avoid the mistakes of the past’ will not prevent the G-Zero from taking hold and sparking other forms of confl ict”.
Crisis on a global scaleEurope is only one of a long list of regions where the next crisis could appear, however, G-Zero or otherwise.
This year has spawned unforeseen revolutions in Tunisia and Egypt, continuing war in Libya, and violence in Syria and Yemen. The Israel-Palestine issue has taken a break from the front pages, but remains an unlanced boil.
Should the Arab spring have been foreseen, however? According to Control Risks senior global issues analyst
China’s state capitalists – supported by Beijing’s indigenous
innovation – are opening up a line of confl ict between states
and corporations globally in cyberspace.
Indeed, off ensive cyber capacity is a new way to project
power in a world where direct military strikes are both
domestically and internationally constrained. Ian Bremmer
says: “The almost-certainly state-sponsored Stuxnet attacks
on Iran’s industrial infrastructure is a more likely avenue for
future off ensive eff orts versus government antagonists, than
large-scale conventional warfare as in Iraq and Afghanistan.”
The greatest risk in cybersecurity, however, has shi� ed
from al-Qaeda and China to radicalised info-anarchists,
inspired by Julian Assange, undertaking debilitating attacks
against either critical infrastructure, a key government
agency, or a pillar of the private fi nancial system.
TECHNOLOGY
Evolving cyber terrorists mean new risks
In contrast to Eurasia Group’s
depiction of international relations
being defi ned by squabbling, a
consensus over intervening in
support of Libyan rebels emerged
at the UN relatively quickly
Wil
lia
m D
an
iels
/Po
lka
Ma
g/P
an
os
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 29
Jonathan Wood, the underlying features of these revolts give important clues and show where the pressure will lie in the future. “In these countries, there is a high demographic pressure, a large and growing younger male unskilled population and growth in economic demand.”
He says that the intrinsic conservatism of these cultures – incapable of absorbing highly skilled female labour into the workforce – creates bottlenecks. These are feeding into “the biggest change since the collapse of the Ottoman Empire”.
Demographics, whether of energy resources or particularly of labour, are key elements of predicting the next problem. OECD secretary-general Angel Gurría says that income and earnings inequality has been on the rise over the past two decades in most OECD countries and emerging economies.
He warns: “If in the decade of the strongest economic expansion inequality increased, what will happen now? What will we do with long-term unemployment and youth unemployment? Halting the scary outlook of increasing inequality is more urgent than ever.”
Although political risks remain at the fore (see box, right) perhaps the greatest unknown, and the largest constellation of risks, relates to the Chinese pattern of export growth at twice the rate of economic growth, with resulting large current account surpluses.
This will continue to be the object of international outcry as the world’s second largest exporter continues to pump out goods in a demand-constrained world economy. A wall of money, driven by expectations of higher long-term growth rates – chiefl y in China – is headed into emerging markets and developing economies. This trend is generating upward currency pressure on those economies open to capital infl ows, hurting domestic fi rms by making exports more expensive and intensifying import competition.
In response, policymakers in many nations have turned toward currency management in the form of direct market interventions to protect local players. Governments have begun to look more seriously at capital controls as a way to counter appreciation. Brazil, South Korea and Taiwan have already signalled their intention to move in this direction. Other countries thought likely to enact capital controls should appreciation pressures continue are Colombia, Malaysia, Peru and Thailand.
Another risk that looms over China – without being restricted to it – is the growing confl ict between government-supported economic entities and multinational corporations in cyberspace (see box, left).
However, the most intriguing and worrying risk unites the two most restive zones in the world: the Middle East and China. Control Risks research director Michael Denison points out that in the north of China, an aquifer supplying a large chunk of the country is rapidly depleting, and last year the chief water-supplying aquifer of Saudi Arabia dried up. “Saudi went from a net exporter of wheat last year to a net importer this year,” Denison says.
As risks from cyber security and the politics of the G-Zero era become more complex, the next shock awaiting us is perhaps the most simple: our inability to feed and water the planet. SR
‘2011 looks to be the year that our understanding of how the world works becomes out of date’Ian Bremmer Eurasia Group
The Korean peninsula is more
fragile than usual. In the north,
a faster-than-expected
leadership transition in
Pyongyang – as Kim Jong Il
looks to entrench his son’s
succession – has led to sporadic
belligerence for reasons that no
one fully understands.
Meanwhile, the South
Korean political landscape is
polarised, and hard-liners are
pulling the strings. Furthermore,
North Korean escalation is likely
to provoke a response. In this
case, the USA and China have
sharply diff erent priorities in
the region’s most serious
security challenge.
The US military would
seek to pin down the north’s
nuclear arsenal while the
Chinese military look to restore
order and to repel a wall of
refugees. Nor have they
discussed the issue, which, as
Evasia Group president Ian
Bremmer points out, is “not a
recipe for crisis management”.
Meanwhile, Pakistan is
experiencing a near perfect
storm of political, economic
and social crises, all rising in
the absence of an eff ective
government, neatly showcased
by the recent capture of
Osama bin Laden in a com-
pound yards from the country’s
military academy.
A 1999-type military coup is
unlikely, but a failure of security
and governance in Punjab and
Sindh could encourage the army
to intervene politically.
President Asif Ali Zardari
would resist eff orts to remove
his cronies and government,
risking a damaging power
struggle.
HOTSPOTS
Political power struggles still a concern
RISKS [ THREATS ][ OPPORTUNITIES ][ MANAGEMENT ]
30 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
The once buoyant economy has taken a dive, partly because of unrest and violence. According to Maplecroft: “Companies face an increased risk of their property being damaged or stolen.”
Some essential governmental functions have gone into slow motion or stopped dead. In late May, Seacom, an undersea cable company, was experiencing delays in the approval process for its new cable in the Red Sea running alongside Egypt. It is “a tough place to do business in right now”, complained Seacom head of business development Aidan Baigrie.
Proceeding with cautionTransfers of capital abroad have slowed because of the central bank’s fears that illegal assets may fl ee the country. The bank requires volumes of documentation before approving requests.
Politically, there’s a temporary military government that is reluctant to hold power past this year and has set a timetable, regarded as reasonably fi rm by most observers, for properly democratic elections. Parliamentary ones are due in September and presidential ones in December.
The main concern is about what kind of democracy will replace it. Moderates worry that the Muslim Brotherhood, banned from previous elections, may dominate with the aid of militant
EGYPT
Revolution solutions?Regime-changing revolutions in Egypt have altered a long-established landscape of illegal transactions and questionable deals, but in whose favour? And how long until business as usual returns to the country?
A FTER THE DRAMATIC 18-DAY REVOLUTION THAT toppled the regime of Hosni Mubarak, former army hero
turned dictator, the business world in Egypt remains in turmoil. Local businessmen are being hauled before the courts in their
hundreds or even thousands and their assets frozen in a general campaign against corruption that is almost turning into a witch hunt, according to StrategicRISK sources. At least two businessmen from the Gulf region have been convicted in absentia.
Some pre-revolution deals are being unwound, especially those involving formerly state-owned assets such as the privatisation of department store chain Omar Eff endi, bought by Saudi investors at a knock-down price. The sale of large areas of re-zoned agricultural land at reduced prices could also be reversed unless it has already been developed into commercial or residential projects.
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 31
fundamentalists. Mohamed ElBaradei, a winner of the Nobel Peace Prize who has declared himself a presidential candidate, describes the situation as a “political and constitutional mess”.
And yet there’s hope. As Control Risks Middle East analyst Lucy Jones told StrategicRISK: “In the long-term Egypt will be a hugely attractive market.” She cites its large and increasingly aspirational market of 82 million people and its generally pro-business environment.
Maplecroft associate director Anthony Skinner adds: “The starting point with Egypt is that it has very strong economic potential.” As he points out, despite its bureaucracy and corruption, pre-revolutionary Egypt averaged GDP growth of around 6%.
Even fears of the purge of corruption could be misplaced, at least among Western businesses. It is considered unlikely to reach foreigners apart from those, mainly from the Gulf, who struck blatantly dishonest deals.
“The government is not trying to target foreign businesspeople in any way,” Exclusive Analysis senior forecaster Firas Abi Ali explains. “Egyptians would rather compromise and settle [questionable deals] than expropriate foreign investment. If a businessman has just invested in a factory, there’s no way it will be taken away.”
However, most international companies operating in Egypt – or planning to do so – are sitting on their plans until the dust of the revolution settles. “Investors are waiting for stability to return,” notes Maplecroft’s Skinner.
A changing climateFirst, the purge on corruption. The jailing of business leaders such as Ahmed Ezz, founder of the steel giant named after him, under corruption charges marked a dramatic change of commercial power.
These investigations have almost paralysed some sectors of the economy, not only the fi rm concerned but its subsidiaries and suppliers. According to Control Risks, there’s only been two convictions so far but more are likely as scores are settled, albeit against indigenous businesspeople close to the dictatorship.
However, looking ahead, relative normality may not be too far away. The new government is expected to support business, especially foreign business, because of the urgent need to create jobs and grow the economy. Foreign direct investment is considered vital in this.
The European Bank for Reconstruction and Development wants to pump capital into Egypt in a show of support for democracy, a move that should kick-start a recovery. The stock exchange reopened in late March, albeit in a much attenuated form because of suspended share trading in suspect companies.
And although corruption remains endemic, as Maplecroft points out in a May report about a nation that always appears well down Transparency International’s corruption league table, some observers like Control Risks’ Jones remain optimistic. “If dealt with properly, the backlash over corruption could have a positive eff ect on the long-term business climate.”
[READ MORE ONLINE] For more political risk analysis and country risk profi les, go to www.strategic-risk.eu
Key points
01: Mubarak was forced
out of offi ce a� er 30
years of presidency
in Egypt, accused of
corruption and abuse
of power
02: Suspicions of illegal
dealings throughout
Egypt are now being
thoroughly
investigated
03: Companies in Egypt
now face increased
risk of property
damage and the�
while the situation
stabilises
04: A question mark
hangs over the kind
of new political
landscape that will
take shape
05: In the future
businesses will have
to work with a much
larger constituency
Young protesters
stand on top of a
tank in Tahrir Square,
Cairo, Eypt
Ivo
r P
rick
ett
/Pa
no
s P
ictu
res
Nobody expects Egypt’s opaque way of doing business to disappear overnight. Although the ringleaders among the civil service have been targeted, smaller fry remain in place. “There will be a fall in corruption but it won’t be a large one,” Abi Ali adds.
It certainly won’t be a case of ‘back to the future’ for Western business. In the long run foreign companies will have to work with a much bigger constituenc y than they did under Mubarak, say Egypt watchers. That constituency will include not only local
offi cials but more militant workers in the coming battle between a relatively poor workforce and the economic elite.
And while most foreign companies are expected to sit it out until the elections, those plunging in now should be sure to do their homework. “An acquisition of an existing company could be dangerous,” warns Jones. “It’s a time for due diligence, especially of potential partners.”
By common consent, the big fear is that the return to stability could be ruined by a new government that dashes, as Maplecroft puts it, “the high expectations of the revolution”. That question will be answered in September. SR
‘If dealt with properly, the backlash over corruption could have a positive eff ect on the long-term business climate’
Lucy Jones Control Risks
RELIGIONIn May, 13 people died
when hundreds of
fundamentalists
attacked Coptic
Christians in a slum
near Cairo with guns,
knives and fi rebombs.
StrategicRISK’s sources
believe the atrocity
may have been
fomented by the
remnants of the
interior ministry to
create doubt about
the army’s ability to
maintain control.
POLITICSIn Alexandria, sporadic
clashes between
revolutionaries and
anti-revolutionaries
have become more
frequent. Egypt-
watchers say these
could increase
between now
and the September
parliamentary
elections in a battle
for power at the
ballot box.
TERRORISMIn late April an armed
gang blew up a gas
terminal near the town
of El Arish, 30 miles
from the Israeli border.
It’s assumed the
attack was by
fundamentalists
objecting to Egypt
exporting energy to
Israel as a warning of
future demands to
sever long-standing
ties with Israel.
With Mubarak’s feared interior ministry largely sidelined, outbreaks of violence have fl ared up in Egypt.
BLOOD AND THUNDER ON THE NILE
RISKS [ THREATS ][ OPPORTUNITIES ][ MANAGEMENT ]
32 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
9% Auto liability
3% C
rim
e/fi
del
ity
5% F
inanci
al pro
ducts
19% General/third-party liability
4% Product liabilit
y
4% Marine
2% Life
5% H
ealt
h/m
edic
al
RISK FINANCINGCAPTIVES
An exercise in parental control
W ITH SOLVENCY II AROUND THE CORNER AND A SPATE
of natural catastrophes suggesting an end to the so�
insurance market, the captive industry fi nds itself at a crossroads.
Captive growth, in Europe and other parts of the world, has
been relatively constrained since the beginning of the fi nancial
As the fi nancial squeeze continues and the
market hardens, many parent companies will
look to get more from their captives
crisis in 2007. The combination of a so� general insurance market
and regulatory uncertainty created a level of stagnancy in the
market. Yet despite the slow rate of captive formations, there has
been a move towards greater risk retention.
Existing captives have been an obvious benefi ciary of
that greater retention. According to Marsh’s 2011 Captive
Benchmarking Report: “In a period when the (re)insurance markets
continued to so� en, and when many organisations struggled just
to keep afl oat, the annual average GWP [gross written premium]
for captives within our sample groups showed signifi cant levels of
increase.”
These increases were, perhaps unsurprisingly, most
pronounced for the class of business where capacity in the
traditional market contracted and rates hardened, namely for
fi nancial institutions. But captives for retail and consumer
products also showed big increases. Construction and
transportation were the only sectors that did not follow this trend.
‘New generation’ captives in Continental Europe – those formed
between 2002 and 2005 – have seen some of the most marked
increases in premium. By looking at the ratio between GWP and
owner’s equity as a measure of how eff ectively captives are working
their capital, it is clear this group has the edge, notes Marsh.
“Our expectation would be to see higher
levels of premium income to capital
for the younger group of captives.”
Multi-line approachMany parent companies
are putting their captives
to greater use. The
fi nancial crisis has put
pressure on corporate
fi nancial directors to cut costs
and gain greater effi ciencies
and captive insurers have
not been immune from
this enhanced scrutiny.
As a result, many are
now seeing their remit
expanded.
Manager of global
insurance at Heineken Eric Bloem
explains how the group has
extended its product line, having
initially begun with property. The
organisation’s captive, Roeminck
NV, underwrites property,
liability, marine and motor fl eet,
and is looking to further extend
its service to two or three more
classes. The aim is to underwrite
a multi-line programme within
the EU consisting of fi ve lines of
business.
As well as typically
underwriting more risk on behalf of
Reinsurance lines underwritten by captives 2010
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 33
2% W
arr
an
ty 2% A
viatio
n
2% Directors’ and officers’
11% Employers’ liability/workers’ compensation
3% Environmenta
l
20% Property
9% P
rofe
ssio
nal indem
nity
the parent, the captives of many European
corporates – such as Heineken – are writing
more diverse books of business. Very little is
beyond the remit of a captive, explains
Willis Captive Practice’s chief marketing
offi cer, Dominic Wheatley. Typically, it is only
during very so� markets – where a tactical
decision is made to purchase from the
commercial market, or where covers cannot be
put through a captive for technical reasons –
that a captive owner may look elsewhere.
“The trend is towards a broader range of
risks being written by captives,” Wheatley says.
“Traditionally, if you go back to the foundations of
the captive industry, it would have been writing
deductibles on fairly conventional covers like
liabilities, property and so on. Now the
captive programmes are involved in a much
more diverse range of risks.”
By underwriting a diverse book of business,
captive insurers should be able to make better use of
their capital. Because short-tail lines of business, such as property
insurance, are typically not correlated to longer-tail lines such as
medical malpractice, they should create a diversifying eff ect by
being grouped together. The better diversifi ed a book of business –
both in lines of business and geography – the more business a
captive can underwrite without increasing its capital requirements.
But part of the reason parent companies are more comfortable
with greater risk retention is down to an increased capability in
modelling and analytics, thinks Wheatley. “There is a wider trend
whereby companies are looking strategically at their retentions
across the whole of their business, using o� en sophisticated
analytics.” They then use their captive to co-ordinate and fi nance
the retention on a global scale.
One area that continues to be discussed is the use of captives
for employee benefi ts (such as pensions or health insurance).
While employee benefi t captives have been a relatively slow
burner, the concept is gaining traction. Onshore in the USA, the
use of a captive for third-party business such as employee benefi ts
can bring tax advantages as well as off ering the all-important
diversifying eff ect. For a volatile area like healthcare, self-
LOOKING AHEAD, SOLVENCY II WILL CONTINUE TO
shape the European captive scene over the next two
years as parent companies reassess their self-insurance
arrangements. Heineken’s Bloem does not think
Solvency II will change the role of the captive as it is a
“very effi cient and powerful tool”. But regulatory capital
requirements could increase three- or four-fold for
EU-based captives and overall the situation is likely to
favour larger, more diversifi ed captive organisations.
“Some parent companies will have to reassess
their captives’ roles, consider innovative structures
such as protected cells, or ultimately plot their exit
strategies,” predicts AM Best in a recent report.
“In a few cases, where EU admissibility is not an
issue, redomiciling to a third country may be a
short-term option.”
These regulatory challenges come at a time of
change in the general insurance market. The Japanese
earthquake together with other recent catastrophes
should spell an end to the so� ening market for
property catastrophe reinsurance. This could
reinvigorate captive formations despite Solvency II.
OUTLOOK FOR CAPTIVES
insurance also provides
greater long-term stability.
And there are compelling
reasons for European captive owners. “The
issues with pensions over the last three years have
really changed the focus on employee benefi ts and how they’re
viewed in the organisation,” explains Kane Group director Clive
James. “Rather than being a purely HR issue, it’s become more of
an insurance spend issue. As a consequence, I think over time
more and more employee benefi ts will move into captives. It’s not
going to be overnight but I’d expect the growth to be fairly
consistent year on year.” SR
Special Report
34 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
INTRODUCTION
E STABLISHING A CAPTIVE INSURANCE FACILITY IS NOT AN exercise to be taken lightly. Apart from the costs involved – and
in Europe these could be considerably increased if those drafting the Solvency II insurance regulations do not take a lighter stance towards captives – a captive must add demonstrable value to its parent’s risk management strategy and corporate objectives.
Having said that, companies that embark on the captive route can derive considerable benefi ts. Taxation issues are no longer the honey pot that they were in the past as most countries have now introduced legislation to ensure that captives cannot be used as a way of evading national taxes. But captives can be a very valuable risk management tool, particularly for those companies that take a global approach to insurance and risk management.
One of the stumbling blocks for global insurance programmes is the problem of trying to fi nd a ‘one size fi ts all’ solution when it comes to diff erent operating entities throughout the world. Most notably, some subsidiaries are extremely unwilling to embrace the large insurance deductibles dictated by the corporate centre. A captive can accommodate this issue, ensuring global buy-in and that subsidiaries are not clouding the central risk management vision by making their own less than obvious reserves for risks they feel could materialise and bite them – and their management bonuses.
As well as producing higher visibility of the risks and claims, the savvy parent will also use the captive as a way of encouraging good risk behaviour. With control over the premiums charged, deductibles and coverage, the parent company can administer some fairly short sharp shocks to subsidiaries that don’t appear to be taking risk management seriously enough.
A captive can also be used to cover hitherto uninsurable risks and build up information on the frequency and cost of these. As well as taking these risks off the corporate balance sheet, a captive gives its parent the opportunity to develop greater understanding of these risks and their impact, which helps global risk management and the company’s negotiating position should it wish to try to place these risks on the conventional market in the future.
This greater control over group risk management should ensure that the captive pays its way, costing less despite set-up and ongoing costs, than conventional insurance transfer. The usual cheaper alternative to a fully fl edged captive insurer is a protected cell facility but large companies are unlikely to welcome the lack of full control that this demands. A comprehensive feasibility study from an appropriate professional organisation will provide
guidance on structure, as well as a view on where the captive should be located.
Choosing an appropriate domicile can be diffi cult at a time when an increasing number of countries and US states are vying for captive insurance business. Cost does not enter into the equation as much as factors like good regulation and a high-quality supportive infrastructure of professional advisers.
In the current and very long continuing ‘soft’ insurance market, characterised by relatively low insurance premiums, forming a captive may not have been at the top of many companies’ risk agendas. But the benefi ts can reach far beyond protection from insurance cycle volatilities.
Contents
[ CAPTIVES ]
35 The case for captives
What are the main incentives for an organisation
setting up a captive?
36 Going for the hard cell
There is no single best way to own a captive or
cell facility
36 Location, location
How do you decide which domicile is best to situate
your captive?
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H ISTORICALLY, COMPANIES tended to consider forming a captive
insurer when premiums were high in the conventional market. But increasingly they now view captives not simply as an answer to a hard insurance market but as part of their overall risk management strategy.
“The captive is above all a risk management tool,” Adageo principal Chris Lajtha says. He explains: “The primary reason for having a captive is to provide a method for a company to recognise the diff erent risk appetites of its various activities round the world and their varying abilities to retain risk.”
It is quite common in global programmes for the parent company to wish to assume a high deductible in its insurance covers. However, its operational business units may not want to self-insure to the same extent.
“Local management with responsibility for generating a certain level of profi t, and with a bonus structure linked to that target, will often wish to buy insurance with a low retention to cover what they perceive as non-core risks that could have an impact on their operating result. If they are forced to take a large deductible and then suff er a signifi cant loss, bonuses will be aff ected, with the possibility that key personnel will leave the business,” Lajtha says.
“A captive provides a vehicle to allow subsidiary operations operating in diff erent parts of the world and with diff erent exposure profi les to protect themselves at a commercial price for the insurable risks, with the company clawing back insurance premium into the captive vehicle.”
Hugh Rosenbaum, retired principal from Tillinghast-Towers Perrin, and acknowledged ‘guru’ on captive insurance, believes the primary reason for companies taking the captive route is the imbalance between the cost of external insurance and
STRATEGY
The case for captivesAsk not just what your captive can do for you in terms of avoiding higher premiums but also how it can work as a central mechanism for controlling risk across the whole organisation
Lajtha also supports this view of increased visibility. “Companies within large complex groups can often fi nd ways of ‘squirrelling away’ reserves in case of particular losses that aren’t insured. If that money is paid into a captive, the parent can see what is really going on,” he explains.
Once a company has established its captive, it can use it to encourage behavioural change in respect of risk, encouraging and rewarding best practice, Lajtha adds. “It can remove or add coverage, raise or lower deductibles, charge more or less premium. All of these strategies can infl uence the behaviour of subsidiary operations.”
He also stresses that captives can generate real operational effi ciencies. “For many years, HR departments have been responsible for employee benefi ts programmes. But they have also been managing the fi nancing of these benefi ts – and by and large they have not done this particularly well. The captive can be used to reinsure employee benefi t pools, producing signifi cant effi ciencies,” Lajtha says.
PricewaterhouseCoopers global actuarial leader Bryan Joseph believes companies must view captives as part of their risk management strategy. “When deciding whether or not to form a captive, they should ask how it will contribute to their risk management and provide real value in the long-term.” SR
the corporates’ perception of their risk management. “They believe that their risk management is better than that for which they’re being charged.”
Controlling from the centre Kane Middle East managing director Shaun Brook sees captives primarily as facilitating risk management in order to provide a central mechanism to control risk within the organisation. “It’s also about control of costs. Companies have a better handle on the risks in their organisation and the total cost of risk.”
Brook explains that captives can be a mechanism for covering risks that are currently uninsured or uninsurable. “Risk managers transfer a certain amount of risk through conventional means but there may be other risks that they understand but do not transfer. A captive can provide a way of holding that risk off the balance sheet.
“Captives provide the ability to retain risk that is already on balance sheet in a more formalised way, with subsidiaries paying appropriate premiums. It’s a way of managing and monitoring risks in the business that are currently uninsured. If required at a later stage, the company can go into the conventional market with a track record that demonstrates that it understands and manages these risks, and negotiate coverage and terms that might not have been available before.”
• Reduction and stabilisation of premiums.
• Insuring the uninsurable.
• Controlling your own insurance
programme (in other words stability of
premiums).
• Positive impact on risk retention, risk
management and loss control.
• Cashfl ow benefi ts.
• Direct access to the reinsurance markets.
• Diversifi cation into a profi t centre.
• Potential tax benefi ts.
• Consolidation of deductibles.
• Reducing dependence on commercial
insurers and insulating from market cycles.
Source: Royal Bank of Canada fact sheet ‘Understanding Captive Insurance Companies’
WHAT’S IN IT FOR ME?
34_35_SReport_SRJul11.indd 35 27/05/2011 12:07
SPECIAL REPORT [ CAPTIVES ]
36 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
‘There is no single ideal means to own a standalone captive or cell within a captive’Dixcart
themselves but leave it to the experts. And they also need to consider the quality of the additional professional advice available in the location, such as accountancy and legal.
“The fl exibility and strength of the regulations – and the reputation of the domicile – are also key factors,” he adds.
Brook, based in the Middle East, expands on the subject of domiciles in the region and why these are growing in importance. “It’s a matter of geography – the position that they have in relation to local markets – plus the fact that they are looking to create an attractive regulatory climate.
“For example, Qatar is working hard to create legislation at a level on a par with the best in the world, implementing conducive capital and solvency requirements, as well as a framework to attract the professional fi rms needed to provide the right infrastructure.”
As well as providing a natural location for the fast-growing companies in the region, Brook believes that a Middle East captive presence may also appeal to global companies that have expanded into this area and are considering a multi-domicile strategy.
GEOGRAPHY
Location, locationChoosing the right domicile and management for a captive can be crucial for its success and thus its ability to meet corporate strategic objectives. What are the main selection criteria?
P RICEWATERHOUSECOOPERS global actuarial leader Bryan Joseph
says that what companies want to do with their captive generally drives the choice of whether they locate on or off shore. “If the company intends writing any compulsory lines directly through its captive, it will prob-ably look to have it located onshore. If it will be writing reinsurance or will not be cover-ing any compulsory lines, off shore domiciles lend themselves. There are a number of jurisdictions which are onshore to the EU and which are favourable from a regulatory tax point of view, for example Luxembourg, Malta and Gibraltar,” he says.
Consultant Hugh Rosenbaum believes the main criteria are regulation, accessibility and expertise. “Regulation is probably the number one and comes way before cost,” he says.
Kane Middle East managing director Shaun Brook considers an important issue is the depth of expertise that exists in a potential domicile. “Generally, in most cases the signifi cant consideration is the management of the captive by a third party. Companies usually prefer not to manage it
W HEN A COMPANY BELIEVES that a captive insurance facility will
add value to its corporate risk management strategy, a feasibility study is generally the next step. In order to be objective, this should cover not just the impact of the captive but also assess alternative risk funding solutions. Setting up a captive can be expensive, so it is important to justify the decision.
According to the Royal Bank of Canada, the study can include:• a review of coverages and whether they
are appropriate for captive inclusion;• an analysis of deductibles and loss trends,• the preparation of estimated pro forma
fi nancial statements relating to the proposed captive;
FACTORS
Going for the hard cellA captive insurance facility can add value to a risk management strategy, but there’s no ‘one size fi ts all’ solution. Issues of control and taxation must be considered before making an expensive decision
between a fully fl edged captive company dedicated to one enterprise or a protected cell captive insurance company.
According to professional advisers Dixcart: “There is no single ideal means to own a standalone captive or cell within a captive; each proposition has its own specifi c characteristics and needs to be examined individually.” Factors that come into play here include control. The ownership of the captive vehicle and its share capital will determine the
• a review of possible captive domiciles; and/or
• general commentary on the ‘fi t’ of a captive in the parent’s risk management strategy/philosophy.Normally the company will appoint a
professional adviser to conduct the study and it will have to supply them with a fairly comprehensive amount of information relating to its current insurance and self-insurance programme, claims data, and its strategic objectives and risk management philosophy.
As well as ascertaining if a captive is the best option, the study should also give some guidance on the way that it should be structured. Generally, this involves a choice
36_37_SReport_SRJul11.indd 36 27/05/2011 11:19
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 37
According to FiscalReps chief executive Mike Stalley, the lack of a uniform EU insurance premium tax code is a particular headache for captive insurers. “Insurance premium tax (IPT) is an often overlooked source of risk for captives and their parents. Now that the tax benefi ts of self-insuring through off shore parties are generally eroded, the captive industry is largely dependent for its success on a high level of risk transfer and risk management expertise.
“The requirements of IPT payment in the EU complicate these processes and can be an unwelcome and time-consuming distraction for captives not adequately informed or prepared.”
He explains that complying with EU IPT tax laws is an issue for all captives – and traditional insurers – that insure risks within the EU, regardless of where they are domiciled. This is because EU law determines liability for IPT according to location of risk – the specifi c country where the insured risk is situated.
But there is no harmonised system of IPT settlement and collection within the EU itself. Individual countries are free to decide how and whether to tax insurance premiums. SR
“It’s a way of giving their local risk management – who may fi nd it diffi cult to communicate with and understand a captive based in say, Bermuda or Europe – greater control over the signifi cant risks in the region. They can also then organise their own reinsurance purchase with reinsurers that they feel completely understand the inherent risks in the Middle East,” he says.
Wherever companies decide to locate their fi rst, second or even third captive,
level of management control the owner can exercise over that captive vehicle, says Dixcart.
Consultant Hugh Rosenbaum comments: “With a cell captive, a company can lose some of the control in the sense that it may not have its own board of directors and will be subject to the decisions of the underwriting committee, which considers every risk submitted to the cell. In terms of management and regulation, the costs may be less with a cell, but I think they are only really attractive for companies that have a low premium spend. Generally, big companies will look for ownership and control.”
Dixcart also makes the point regarding businesses with a diverse shareholding: that the accumulated profi ts of the captive vehicle will be required to fl ow back directly to the insured business. “Shareholders of this insured business will consider the potential profi ts from the captive vehicle to be part of their total investment return. In such a situation, the shares in the captive vehicle would most eff ectively be held by the insured business.”
Dixcart adds that owner-managed businesses also have an option where, rather than the insured business owning the
there seems to be fairly widespread concern about the impact of the forthcoming Solvency II insurance regulations. Brook believes existing and potential captive owners are concerned about a possibly onerous requirement that might be placed on captives and the cost associated with managing a captive within a Solvency II regulated environment.
Joseph believes that Solvency II could encourage captive owners to go off shore
captive vehicle, the captive vehicle is owned by the various shareholders. “This enables an eff ective split between the ownership of the economic benefi ts of the business and the captive vehicle, with potentially diff ering initial capital contributions and ongoing investment returns.”
Rosenbaum points out that group captives, jointly owned by a number of companies, can be very successful. However, he admits that they can be diffi cult to establish and that there can be friction, for example relating to the standards of risk management employed by the diff erent owners.
Companies also need to take taxation considerations into account. These are usually complex and are aff ected by the choice of domicile.
ONE OF THE CORE BENEFITS OF CAPTIVES – OVER TIME
– has been their ability to allow organisations to manage
their insurance risks and costs with more certainty and
predictability, despite sometimes erratic insurance market
cycles. This allows risk managers to be consistent in
underwriting and risk retention, and permits them to
adjust pricing internally to better support their business
units and ensure these business units can focus on
improving market position and profi tability. The captive
allows the risk manager to adjust to insurance market
demands more effi ciently, responsibly and proactively.
Captives have proven over time to be highly
adaptable, with great survivability. Among all the
economic gloom, there are other factors that encourage
the use of captives. For example, in more than 50
domiciles worldwide – spanning nearly every continent
– and in emerging domiciles like Qatar and Dubai, the
economic recovery will defi nitely stimulate risk-taking and
captive formation and usage.
Source: Darwinism at Work? How the current economy and the market impacts captives and risk managers, by Carol A Frey and Linda Kane,
December 2010, ACE Progress Report
VALUE OF CAPTIVES IN A HARSH ECONOMIC ENVIRONMENTbecause they will not want to provide capital to the level that is required by the solvency regulations. Rosenbaum is even more outspoken, referring to the “heavy-handed and negative infl uence of Solvency II”. “Captive insurance companies were always considered a means of do-it-yourself risk fi nancing. Solvency II looks as though they will be regarded as true insurance companies, which was never the intention when they were established.”
Adageo principal Chris Lajtha takes a diff erent view. He does not believe that Solvency II will put people off from domiciling in Europe. “It’s too early to say because we have not heard enough about how captives are going to be treated in Europe. We need to see how the proportionality principle will be incorporated in the fi nal guidelines,” he says. “Overall, Solvency II makes good sense and should encourage better practice.”
Lajtha believes that Solvency II will not be fully implemented by January 2013 and that there may be a phase-in period. “Hopefully Solvency II regulations for captives will be supple and light enough to allay fears,” he says. SR
Asia Pacifi c 2007
UK and Ireland 2007
Asia Pacifi c 2010
UK and Ireland 2010
Continental Europe 2007
USA and Canada 2007
Continental Europe 2010
USA and Canada 2010
$0 $25m$12.5m
Annual average GWP
36_37_SReport_SRJul11.indd 37 27/05/2011 12:07
Standing strong in an uncertain environment
A spirit of trust
– for financial strength by Standard and Poor’s†
| | | |
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† Rating correct as at 25 March 2011 * Sum of net premiums written and life insurance premiums
Governance [ ETHICS ][ COMPLIANCE ][ REPORTING ]
> Risk Atlas Corruption ........... 42Bribery and corruption are rife. Our risk map shows the hotspots
> Compliance Global ............... 39Getting local management buy-in for a global insurance programme
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 39
»
INSURANCE
Get it togetherA global risk management programme can help multinational companies win on cost-eff ectiveness and consistency while building risk awareness
Jam
ie S
ne
dd
on
GOVERNANCE [ ETHICS ][ COMPLIANCE ][ REPORTING ]
40 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
A GLOBAL POLICY CAN PROVIDE SIGNIFICANT benefits for organisations with the appropriate risk manage-
ment philosophy. How do you decide if a global programme is right for you – and what are you likely to gain from this approach?
“One of the best ways is to start from the vantage point of what the company’s risk philosophy is around risk management,” says ACE Overseas General president Michael Furgueson. “It is very important to begin by thinking about how you buy insurance and what you are buying it for.”
Structures, profi t and loss requirements vary enormously between companies, he adds. For example, a property management business that manages property on behalf of investors will have a very diff erent approach to insurance from that of a large globally integrated multinational.
Considerations include the various locations of the company’s operations and the cost of risk, continues Furgueson. “What kind of risk appetite does the company have for local retentions or deductibles? What is its approach to the use of risk fi nancing tools like captives?” he asks.
Certainly, while some companies are keen exponents of the captive approach, the potential implications of the forthcoming insurance regulation, Solvency II, has given some European risk managers food for thought in terms of the types of risk they would place with a captive, and with associated governance and capital requirements.
A company’s risk management philosophy may also be infl uenced by cultural diff erences, says Furgueson. He explains: “Some cultures around the world are very risk-averse. Companies in these regions tend to take very low deductibles, preferring to pay more premium to transfer the risk. Others have more appetite for risk.”
Why go global?An eff ective global insurance programme can produce substantial benefi ts. Karen Gorman, a partner in the Jardine Lloyd Thompson global support team based in London, summarises these as:• assisting with corporate governance;• maintaining greater control and consistency with
comprehensive communication;
» • helping to control cost through economies of scale;• providing a broader scope of cover on a global basis;• enabling inclusion of non-standard covers that may not be
available in some countries; and• enabling standardisation of insurance processes.
Willis International’s global network practice leader, Claude Gallello, says that a group that has a fragmented insurance programme – in other words, allows its local businesses to make all the decisions – can be putting itself at a disadvantage compared to its competitors with global programmes.
“Dealing with diff erent underwriters is likely to produce non-competitive pricing and a lack of uniform coverage,” he explains. “There are some qualifi cations in certain countries but in general you are maximising your buying power when you have a global programme.”
Gorman agrees, although she suggests that it’s a wise move to ensure that the costs associated with the global programme are benchmarked against what it would cost to purchase insurance in the various countries involved.
Gallello also highlights the fact that a company can generally obtain broader coverages through a global programme than it can achieve individually, country by country. “Some countries like Germany may have broader coverage than is generally available, for example in the area of environmental insurance. But, as a rule of thumb, the coverage you can acquire locally by buying your policies individually are not as broad as they are if you buy centrally,” he says.
Consistency is another major benefi t of the global approach. Miller Insurance Services’ Matt Grimwade explains: “Companies that have a centralised approach to insurance will want to try to develop a system where there is as much consistency as possible between the diff erent operations.”
And he says that this is where rolling out best practice across the group can come in.
“If they have very good quality systems and processes in place around risk identifi cation and management in certain territories and other territories are more lax, one of the big benefi ts of the global programme is that they can use best practice to bring the lower standard locations up to the higher level,” he says.
Key points
01: Any programme
must start
with in-depth
knowledge of all the
territories’ risk
appetites
02: More awareness of
global risks benefi ts
the whole group
03: Premiums can
be a tool to
encourage best
practice. Captives can
help here
04: The bigger and more
centralised the
company, the more
eff ective the
programme
05: ‘Wriggle room’ to
woo reluctant
territories is essential
Balanced against the cost and consistency benefi ts are some
considerations that might erode the eff ectiveness of the global
approach for some organisations.
Perhaps one of the greatest of these is the need for local
management buy-in, which is not always easy to obtain.
Gorman says that this is a common problem. She cites the
example of a company that made an overseas acquisition
whose risk appetite was very diff erent from its new parent.
“The parent’s risk management policy was to insure
property against catastrophic losses, so it was taking a
huge deductible. But the acquisition was historically
very risk-averse and had been buying property cover with
a zero deductible. When it came into the global programme,
it insisted on buying a deductible infi ll programme,
eff ectively just pound-swapping with the insurer
concerned.”
Local entities are also likely to have established
relationships in their national markets while their local
brokers may tell them that their existing arrangements are
cheaper than those provided by the global programme. This
is clearly where Grimwade’s “wriggle room” in respect of
premium allocation may help.
Risk managers considering global programmes should
also be aware that there may be considerable administrative
work involved. And Gallello doubts that a company without
central control will be able to make a global programme work.
LOCAL BUY-IN
It’s not for everyone …
39_41_Gov_Global_SRJul11.indd 40 27/05/2011 10:30
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 41
Conversely, companies without a centralised insurance approach are likely to experience greater inconsistency about the quality of risk management across their various locations.
Related to this is the consideration of how a company can charge the cost of risk to its individual subsidiaries in a way that refl ects its risk management focus. “Captives can play a big role in that, helping to highlight the cost of risk and the benefi t of good risk management practices,” Furgueson says.
Premium pressureGrimwade explains that risk managers with a global programme can use their premium allocation model to instil best practice. “Companies generally apply a number of criteria when deciding premium allocation. For example, these can include loss history, the physical protections that are in place and how many historic risk management recommendations have been completed.
“All these criteria can be developed into a model to make the approach to premium allocation more sophisticated,” he continues. Ideally, risk managers should make their premium allocation model as objective as possible, so that there is less basis for local entities to take issue with why they are being charged certain amounts.
However, Grimwade also stresses that risk managers and chief fi nancial offi cers may also be looking for some fl exibility in the model. “They may want some wriggle room to allow them to charge their operations in some territories more or less than the model suggests – for example, a preferential premium because they want to convince them of the benefi t of embracing the global approach.”
Agreeing that a multinational approach helps in implementing a global loss control programme, Gallello also points out that claims can be handled more effi ciently through a global programme.
In connection with this, Oval Insurance Broking director of global accounts Chris Leage says: “A global programme allows you central co-ordination from the country where it’s been issued, which is usually the domicile of the client’s head offi ce. Generally, this means you have greater control of how claims are handled and you would be
looking for a suitable loss adjusting fi rm to be nominated that can provide a global service.”
However, perhaps one of the greatest benefi ts that a global programme off ers is increased risk awareness. Gallello says: “Companies need to know what the risks are around the world, particularly when they are considering acquisitions in diff erent territories. A global approach creates more awareness so that
companies can ensure they have appropriate practices in place.”
FlexibilityThe global master policy that sits above locally arranged covers is usually very fl exible, says Grimwade. “It refl ects the fact that global companies have very diff erent characteristics and will want their insurance programmes to operate in diff erent ways.
“Some are very centralised and want to have their insurance programmes operate in the same way, with central control over coverage retention levels, risk management approaches and how premium is allocated across the territories. Other companies are far more regionalised or territorially decentralised.
“So while company A may want a clear, consistent, rigid and regimented global programme, with every territory included, company B may want more fl exibility to leave some operations to buy locally or to buy insurance at lower levels. Master policies are designed to be fl exible to meet multinationals’ diff erent needs,” Grimwade explains.
Similarly, a global master policy can accommodate the needs of companies with their own captive insurers. The company may have the option of using its captive to underwrite risks directly in the territories where it is legally allowed, with the global master policy acting as reinsurance, or the global master policy can be the direct underwriting tool, reinsuring with the captive and then covering the balance of the risk that exceeds the captive’s desired retention.
Generally, the bigger and more centralised the company, the more streamlined and consistent its global programme will be. And it will enjoy the maximum benefi ts from transparency of cover, consistency of approach and economies of scale. SR
‘Master policies are designed to be fl exible to meet multinationals’ diff erent needs’Matt Grimwade Miller Insurance
[READ MORE ONLINE] For more information on global programmes, download StrategicRISK’s Executive Report at www.strategic-risk.eu or goo.gl/ijG0K
GOVERNANCE [ ETHICS ][ COMPLIANCE ][ REPORTING ]
42 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
RISK ATLASCORRUPTION
Dodgy dealings
C RIME AND CORRUPTION IS STILL A HUGE PROBLEM IN
many parts of the world, and corruption remains an obstacle
to progress, claims Transparency International (TI), a leading
anti-bribery lobby group. According to TI’s latest corruption
perception index nearly three-quarters of the world has a serious
corruption problem.
“These results signal that signifi cantly greater eff orts must go
into strengthening governance across the globe,” said TI chair
Huguette Labelle.
Despite this, most risk managers recently surveyed by
StrategicRISK in the Risk Report 2011 said that corruption is
becoming rarer in large companies because of the need to comply
with legislation, coupled with fears of the damage to reputation
and potential penalties that would almost certainly result from
being found out.
The USA’s Foreign Corrupt Practices Act has been ensnaring
miscreant companies far beyond American shores for years. And
now, with the UK’s even tougher new anti-bribery regime being
enforced, companies have even fewer places to hide (for detailed
information on the Bribery Act go to strategic-risk.eu).
No international trading operation is immune from America’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 FSA, 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 a� er 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,”
says SEC Division of Enforcement director Robert Khuzami. “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.
NB: The CPI is a composite index, drawing on 13 diff erent
expert and business surveys. Source surveys for the 2010 CPI were
conducted between January 2009 and September 2010. SR
Corruption is rife around the world, but larger
companies are no longer turning a blind eye
Spain
30 Europe’s biggest money laundering operation
was found in Spain, where an international network was accused in 2005 of laundering €250m through real estate investments in the Costa del Sol. The money had been illegally obtained from drug traffi cking, prostitution rings, international arms trading, kidnapping, blackmail and tax evasion.
USA
22 One member of Lockheed Martin’s
board of directors earned his position shortly a� er retiring from the US government, where he served as under-secretary of defence for acquisition, technology, and logistics. During his time in this position, he approved the contract to purchase Lockheed Martin’s controversial F-22 fi ghter jets.
Philippines
134 A 2005 survey of 701 companies in the
Philippines asked managers if they had solicited a bribe in the past year. One-fi � h of respondents had when dealing with government agencies, either to request a local government permit (36%), pay income taxes (30%), petition for a national government permit or licence (28%) or import goods (21%).
Source: Transparency International
Romania
69 In Romania, the law stipulates that all
high-level government offi cials must disclose – on a website accessible to the public – their fi nancial and property holdings, as well as any positions they hold in associations and businesses, any paid professional activities and their personal investments in companies.
Solomon Islands
110 Since the 1990s, multinational
corporations have allegedly bribed key politicians in the Solomon Islands to create a favourable operating environment for logging and to weaken national-level timber management. This provides advantages such as a decrease in export taxes and postponement the logging export ban.
22
www.strategic-risk.eu [ JULY 2011 ] StrategicRISK 43
Source: Transparency International
Key 9.0 – 10
8.0 – 8.9
7.0 – 7.9
6.0 – 6.9
5.0 – 5.9
4.0 – 4.9
3.0 – 3.9
2.0 – 2.9
1.0 – 1.9
0.0 – 0.9
No data
1 = fi rst place (least corrupt), 178 = last place (most corrupt)
IN ASSOCIATION WITH
Rank Country Score
1 Somalia 1.1
2 Myanmar 1.4
3 Afghanistan 1.4
4 Iraq 1.5
5 Uzbekistan 1.6
6 Turkmenistan 1.6
7 Sudan 1.6
8 Chad 1.7
9 Burundi 1.8
10 Equatorial Guinea 1.9
Top 10 most
corrupt countries
Source: Transparency International
JARGON BUSTER
Source: Transparency International
ClientelismAn unequal system of exchanging resources and favours based on an exploitative relationship between a wealthier and/or more powerful ‘patron’ and a less wealthy and weaker ‘client’.
DebarmentProcedure where companies and individuals are excluded from participating or tendering projects. Governments and multilateral agencies use this process to publicly punish businesses, NGOs, countries or individuals found guilty of unethical or unlawful behaviour.
Facilitation paymentsA small bribe – also called a ‘facilitating’, ‘speed’ or
‘grease’ payment – made to secure or expedite the performance of a routine or necessary action to which the payer has legal or other entitlement.
Grand corruptionActs committed at a high level of government that distort policies or the central functioning of the state, enabling leaders to benefi t at the expense of the public.
State captureA situation where powerful individuals, institutions, companies or groups within or outside a country use corruption to shape a nation’s policies, legal environment and economy to benefi t their own private interests.
30
134
69
110
Theory & Practice [ INSIGHT ][ CASE STUDIES ][ BEST PRACTICE ]
44 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
commodities is encouraging companies to
work in increasingly risky environments
as higher profi ts pay for the increasingly
sophisticated – and expensive – risk
mitigation strategies needed to keep
staff safe.
So, while context is always king in
understanding the threat, what are the
general rules for keeping staff safe in
high-risk environments?
1 CONDUCT A FULL RISK
ASSESSMENT
The entire corporate approach to
kidnapping should be risk-based and a
full assessment is essential. From there it’s
possible to move on and make sure that
eff ort and resources are concentrated on the
key areas, individuals and projects that are
most in need.
SECURITY
Coping with kidnappingNo longer reserved for movies and millionaires, kidnapping is a very real
possibility for executives working and travelling in risky environments abroad.
Make sure you know how to keep yourself, and your staff , safe
2 ENSURE ALL STAFF ARE PROPERLY
TRAINED
As well as conducting regular briefi ngs with
staff to inform and guard against
complacency, security managers should be
making sure any staff that need it have
up-to-date hostile environment and hostage
survival training.
This will help them to develop a ‘survivor
mentality’ by teaching techniques to
understand and limit the psychological
impact of being kidnapped – such as how
trauma aff ects the mind and body – as well
as off ering information about what will
happen: the phases of a kidnap; what support
their family will be getting; and what will be
going on in the outside world.
3 EFFECTIVE JOURNEY
MANAGEMENT
Many kidnappers target individuals in
transit and there is much that can be done to
lower this risk by teaching staff how to travel.
First, choosing the right vehicle is essential.
“We advise a low-profi le vehicle without
corporate logos,” Control Risks’ Alex Martin
says. “Something not too excessive or
impressive – something that will blend in.”
He also advises good vehicle
maintenance and training for drivers:
“They need to know where they are going
and the safe havens en route. Nobody wants
H ISTORICALLY, LATIN AMERICA WAS
the most likely place to be kidnapped,
but the proportion of abductions there has
decreased in recent years as other parts of
the world have begun to see more cases, with
some parts of Africa now seeing increases
year-on-year.
The precise nature of the risk varies
from place to place, with opportunistic
criminal gangs, militants and paramilitaries
all having diff erent modus operandi, which
in turn demand diff erent strategies to
mitigate the threat.
What all kidnappers have in common,
however, is that they want a ransom
payment in cash or kind (usually some
kind of political concession). And while there
is willingness to pay ransoms, the threat will
be perpetuated.
In addition, the rising price of
T HERE ARE TWO BROAD SCHOOLS OF
thought about managing the security of
important individuals (VIPs) in transit through
the war-stricken environment of Iraq.
One of the main proponents of the
concealment approach is Control Risks, whose
non-off ensive tactics rely instead upon
anonymity, and at times, subterfuge. The
security fi rm uses a mixture of personal and
commercial vehicles to disguise VIPs.
The vehicles are all local, second-hand and
armoured discreetly, if at all. The downside of
this approach is that contingency plans (such as
battling your way out of a sticky situation) are
harder to eff ect once discovered, and without
the capacity to go off road, it is harder to
manoeuvre out of the situation. The benefi t is
that this non-military approach can help avoid
confrontation.
In contrast, Blackwater Inc (now Xe) was best
known for, but by no mean the only practitioner
of, the opposite – the ‘all guns blazing’ approach to
managing transit risk. Their conspicuously armed,
armoured vehicles aggressively maintain an
‘exclusion zone’ around the vehicles. If another
vehicle gets too close, they may immobilise it by
fi ring at the engine block. While they can cope
with off -road conditions and therefore accept
riskier assignments than their competitors, they
also have a much higher mortality rate.
Concealment versus deterrence in transit
Jon
ath
an
Ed
wa
rds
to have to stop and ask directions in a
dangerous area.”
Security managers need to know who is
in the vehicle, the route they are taking,
when they leave and when they arrive.
4 PERSONAL RESPONSIBILITY
While most new staff will be vigilant,
with time even the best can become
complacent. Personal vigilance of the
environment is an essential defence against
kidnapping. Is anyone acting strangely? Do
staff know where the safe dangerous areas
are? “This can change within a couple of
blocks in many cities around the world,”
Martin says.
Wherever possible, routes and routines
should be varied and drivers should be
aware that most attacks happen near places
of work or residences. “Simple things like
where you park or approaching your car
with your keys ready can be very eff ective,”
Control Risks’ Hannah Clark says.
Security managers can support staff in
this by conducting regular reviews of
popular hotels, and even restaurants and
shopping centres, to ensure everyone is up
to date.
5 ESTABLISH A CORPORATE CRISIS
MANAGEMENT STRATEGY
What happens when things go wrong? “Risks
can be reduced, but not eliminated,” Martin
says. “Every company needs to make sure the
staff and training are in place to spring into
action if a kidnapping happens.”
It’s essential that companies have
well-established crisis management plans
that are reviewed and drilled regularly both
internally and, if possible, using a outside
organisation, to apply specialist rigour and
stress testing. This process must be fully
embedded into in-country management. SR
W ITH THE ASSISTANCE
of Airmic and its
members, StrategicRISK looked at
the various rungs on the risk
career ladder. Insights were
drawn from candid interview
with individuals across the
career spectrum, highlighting
several overarching themes:
1 RISK MANAGEMENT-
SPECIFIC TRAINING IS
NOT ALWAYS THAT ROBUST
Building skills and experience
on the job is essential. You may
have to study hard at the same
time as working. It’s not unusual
for a risk manager to study a law
degree or a MBA while working.
2 RISK RECRUITERS
DON’T UNDERSTAND
THE CORPORATE WORLD
Risk recruiters’ knowledge
doesn’t usually stretch to
corporate risk. In some ways,
they can’t be blamed – risk
management tends to take on a
diff erent hue in each company.
There are also so many facets to
it, it can be hard to know exactly
what a company is looking for.
3 SWITCHING INDUSTRY
IS NO PROBLEM
While the risks might change
between industries, in general
the way a company deals with
those threats does not change.
The core skills of risk
assessment, quantifi cation and
treatment are highly
transferable.
5 MENTORING CAN BE
EXTREMELY VALUABLE,
ESPECIALLY FOR JUNIOR
MANAGERS
It’s fairly common for senior risk
managers to have a mentor of
some description, but it’s not
always that common for junior
risk professionals to have the
same opportunity. The best
organisations today are bucking
that trend. Junior risk
management professionals
benefi t from having a mentor
outside the risk department who
they can discuss sensitive
political issues with.
7 JUST BECAUSE
YOU STARTED IN
INSURANCE DOESN’T MEAN
YOU HAVE TO STAY THERE
The skills that insurance
professionals develop are
highly useful when applied to
the realm of corporate risk
management – particularly in
terms of risk assessment and
quantifi cation. But insurance
risk managers should not be
afraid to expand their horizons
and grow their role to include
enterprise risk management,
strategic and business risks.
Insurance will only ever be a
niche within the business
world. You don’t have to be
stuck there forever.
8 BE BRAVE AND DON’T
BE AFRAID TO MAKE A
NUISANCE OF YOURSELF
Part of the risk manager’s job is
to ask tough questions of
authority. A good organisation
should recognise this rather
than trying to silence the
individual.
9 GETTING THE TOP JOB
IS NOT EASY
Risk managers who have
reached the lo� y heights of chief
risk offi cer have had to walk a
tightrope between managing
the expectations of executive
management and the realities
at the business coal face.
Communication
is king. SR
WORLD OF WORK
A career from start to fi nish
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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
[READ MORE ONLINE] For more insights into the risk management career path, download StrategicRISK’s Career horizons at www.strategic-risk.eu or goo.gl/jonym
THEORY & PRACTICE [ INSIGHT ][ CASE STUDIES ][ BEST PRACTICE ]
46 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
P EOPLE HAVE ALWAYS KNOWN
that the greatest risks in any
system are at the boundaries – and
that’s never been more true than in
today’s interconnected business
environment.
Twelve months on from the BP
Deepwater Horizon disaster, there are
still many lessons to be learned.
Reports from the Presidential Oil Spill
Commission identifi ed the causes as
systematic failures of management
rather than one-off technical
problems, and at the heart was a
failure of the “many ambiguous
dotted line relationships with and
between the companies involved”.
It’s not just the oil sector that has
this problem – consider the recent
Railway Safety and Standards Board
report on the UK’s Network Rail,
which concluded “there is no open
culture” between Network Rail and its
contractors, leading to the under-
reporting of some 500-600 work-
related injuries leading to lost man
hours over fi ve years.
Clearly the nature and quality of
relationships between organisations
can be a source of signifi cant
unquantifi ed and unmanaged risk for
many businesses that now have to
work collaboratively.
There are many reasons why
these relationship risks are not
identifi ed and actively managed.
Principally it’s because the risks are
not under the control of a single
organisation and therefore slip
between the gaps.
Relationship risks are complex
and dependent on the nature,
governance and operation of the
collaboration – and crucially the
behaviour of the leaders involved.
Here are fi ve things you can do to
manage relationship-driven risks.
Some of the solutions are structural,
some procedural and others are
attitudinal.
1 SET UP AN EARLY WARNING
SYSTEM
The key to any safety system is
monitoring the precursors as advance
warning signs of a major incident. But
when a system involves several
diff erent organisations, like the rail
industry or the Deepwater Horizon
well, it’s much harder to identify
cross-organisational warning signs.
Experienced managers pick up
signs intuitively within their own
organisations, but between
organisations these feelings are o� en
dismissed. Indicators of problems
ahead might include diffi cult
collective decision making,
communication breakdowns,
non-attendance at critical meetings,
or public arguments between leaders.
2 INCREASE THE ABILITY
OF LEADERS TO WORK
COLLABORATIVELY
The Presidential Commission
mentioned earlier said that ‘a culture
of leadership responsibility’ was
lacking on the Deepwater Horizon.
They identifi ed the need for a culture
in which ”individuals take personal
ownership of safety issues with a
single-minded determination to ask
questions and pursue advice until
they are certain they get it right”.
These cultures need leaders who
build open relationships, encourage
upwards communication of bad news
and ensure that this communication
happens with partners too.
3 MAKE SURE YOU HAVE
BOARD SCRUTINY OF
RELATIONSHIP RISKS
All businesses have risk registers that
should be periodically reviewed by
the board, but o� en these don’t
focus on the real worries and fears
of the directors.
Issues as complex as the
relationship between organisations are
rarely identifi ed in these documents
so the whole board doesn’t get the
chance to scrutinise this area of risk.
If the future success of the
business depends on building strong
partnerships, then the UK Corporate
Governance Code provides a vehicle
for boards, during their annual board
evaluation process, to check that the
risk register refl ects the need to
manage relationship risks inherent
in the business’s strategy.
4 CREATE THE RIGHT SET OF
INCENTIVES AND SANCTIONS
In a complex system like rail
transport or oil exploration, things
will go wrong. Equipment will fail,
people will make mistakes.
A robust strategic risk system
will incentivise partners to
identify these small failures and
communicate them early to others,
and also have a sanctions regime
that notices when something is
out of expected bounds and acts
quickly to highlight it via a
proportionate penalty.
5 REVIEW AND ACTIVELY
BUILD PARTNERSHIPS
Like any marriage, strong enduring
relationships don’t happen by
accident and they have their ups and
downs. Relationships between
businesses need tending carefully.
This means: clear governance that
identifi es how the parties will work
together (and resolve their
diff erences); a single, agreed dataset
to avoid much of the arguments about
joint performance; and collaborative
leaders who recognise the need to
invest time and resources in making
the partnership work. SR
David Archer and Alex Cameron are
both directors of business partnership
consultancy Socia and authors of
Collaborative Leadership – how to
succeed in an interconnected world.
RELATIONSHIPS
For better and worse: the tricky nature of collaborationMonitoring and nurturing relationships between collaborative businesses is no
easy task, meaning vital – and benefi cial – components can slip through the net
Work together: problems
can be avoided if all
components in a
business relationship
keep communicating
Cre
dit
KNOWLEDGE Risk registers can build a culture of awareness
The dangers inherent in business collaboration cannot be fully
mitigated by one party. But that doesn’t mean that they can
be ignored. Risk registers need to identify ‘relationship risks’
along with actions to mitigate them. This means getting boards
to pay attention to these less obvious – but no less dangerous –
risks and building a culture of openness and awareness.
Re
ute
rs
VIEWPOINTS [ PEOPLE ][ OPINION ][ COMMUNITY ]
48 StrategicRISK [ JULY 2011 ] www.strategic-risk.eu
WHAT’S INSIDE YOUR HEAD?
HeadspaceAirmic chief John Hurrell couldn’t be happier with a nice car, a good pint and his iPhone – but getting this year’s annual conference right would make his summer
What are you thinking about right now? Identifying what the most important issues are for our members at the moment and how we ensure we address these at Airmic’s annual conference in Bournemouth in June.
We’ll have some valuable stuff for members at the conference this time around, on non-disclosure risks, career management, reputational risks and property insurance benchmarking.
At the other end of the scale, we are also looking at all the fi nal details of how the conference will run, down to the choice of lunchtime food, the timing of announcements and so on. These details are important.
What is your greatest fear? A sustained economic downturn, possibly leading to further cuts in resources for risk managers. Many of our members are having to run faster to do more with smaller teams or fewer resources than they had four or fi ve years ago .
This means that the urgent tasks take precedence over the important tasks, and some things just do not get done. Any further threats to resourcing levels would have potentially very negative results for those companies concerned.
What was your most embarrassing moment? Arriving at an Airmic dinner about 15 years ago wearing my dinner jacket but no matching trousers. My blue pinstriped trousers created quite a fashion statement – not one I’d care to repeat. Luckily, that didn’t come up in my interview for my current job.
What is your most treasured possession? My Mercedes SL – now closely followed by my iPhone.
What makes you happy? Spring in the English countryside, a pint of bitter and good company – hopefully all at the same time.
What makes you unhappy? Charlton losing again! But I’m learning to live with it.
Who is your greatest hero? It’s got to be Winston Churchill – surely the best risk manager who ever lived.
What’s the biggest risk you’ve ever taken? Coming to Airmic. But big risks can deliver big rewards – I’m having a great time working with an excellent secretariat and board and with our terrifi c members.
What is the worst job you’ve ever done? Settling household comprehensive insurance
claims for the Royal Insurance Company in Brixton, New Cross and Lewisham
in south London during the early 1970s. I learned a
lot about the real world, dealing with customers and
human nature.
What is your greatest achievement? Managing to stay a part of our great industry for more than 40 years. I have tried to add value wherever I can and to
help the younger people coming through – they will pay my pension long into the future,
I hope.
What is the most important lesson you’ve learned?
In this industry, reputation and integrity
is everything. Any other development requirement
can be fi xed. I think it’s amazing how many times in a career
individual paths cross and re-cross each other. People always
remember the good things – and, therefore, the not-so-good things
– from the last time.
Tell us a secret. Sorry, I did know one once but
I blabbed it. SR
‘In Brixton, New Cross and Lewisham in south London during the early 1970s, I learned a lot about the real world’
Illustration by Richard Phipps John Hurrell is chief executive of Airmic
Visit us at stand 68&69 to see how we can help you!
