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TRANSFER THE RISK
WHAT IS THE BEST ?
October 1st, 2013
1
Introduction
One of the most relevant particularity of a risk manager’s activity is
its responsibility to imagine and set up the transfer of risk.
The transfer of risk may assume several aspects or possibilities.
The transfer of risk must start with an internal evaluation and
preparation by the company which intends to do so.
The transfer of risk obviously affects the organization which accept
to receive it as well as, potentially, the organization to whom the risk
could be retransferred
The transfer of risk implies that all the parties involved must be
aware about what they are doing and what are the consequences
for themselves and for their correspondents
We will study the link between insured, insurer and reinsurer and the
importance of risk management to succeed on it.
2
Introduction of the speakers
Gilbert CANAMERAS
Group Risk & Insurance Chief Officer, VP Finance
Chairman AMRAE
Gaëtan LEFEVRE
Group Risk & Insurance Manager
Group CMI
Chairman BELRIM
Michel JOSSET
Insurance, Prevention and Real Estate Manager
Goup FAURECIA
Emmanuel FIERENS
Chief Underwriting Officer, Head of Business Solution
3
Information People Property Finance Liability
RISKS
Property loss Business
interruption
Accidents, Illness
Theft, fraud
Product & Environnement
claims
Currency, Credit & other
risks
What could go wrong ? Risks, incidents and accidents
External world
Internal world
External world
Suppliers Business profile Customers
Investors, competitors, ...
Legal, ...
Society
Weather,...
LIABILITY LIABILITY
People
Property
Results
Information
Transfer the risk – where is it ?
6
Example of a loss due to a supplier
1st experience, the 1st day as Faurecia risk manager :
A staff of the external security company in charge of the watch service
in Audincourt bumpers plant considered that his skills were insufficiently
rewarded and wanted to be noticed by his hierarchy
He ignited a fire on plastic parts in a large bumpers warehouse, failed to
extinguish the fire … but fully achieved his goal to be noticed by his
bosses
As a result :
Warehouse + 6000 bumpers destroyed : loss of 2.2 M€
Propane bottle storage affected. Luckily, no injury.
Insurance status & Legal procedure
Faurecia property insurer indemnified the loss above the property damage
deductible (400k€)
The responsible was found legally incapable and had no resources
Faurecia & its property insurer started a recourse against the security
company (small company with limited liability insurance) and collected
1.1M€ from the security company liability insurer
The recourse was shared between Faurecia and its property insurer
This event emphasizes the importance of the exposure due to
suppliers and the importance of contractual prevention
Liability : The (re)insurer experience
«The scene »
The liability insurance market is segmented by domain : (Comprehensive) General liability, Professional Indemnity (E&O),
Stand- alone Products liability, Motor liability, Marine liability, Aviation
liability, Pollution liability, Directors & Officers liability, ect..
Depending upon its activities, to protect against its liabilities,
each Insured is required to purchase several of those insurance policies
The “responses” of those insurance policies depend upon their nature
12
Without full knowledge of the contracts signed by the Insureds,
to provide the appropriate insurance solutions for both parties,
the (re) Insurer must solve an equation at five factors :
3 factors iro Insured’s exposures
( U + A + E )
2 factors iro Insured’s contractual approach
( C M + C P )
13
The (re)Insurer must well assess
the Insured’s exposures
14
Products vs Services, Underlying risks &
potential perils
Markets of Insured’s clients
Geographical scope,
activity scope
Impact on exposure level
Growth rational: Organic, acquisition, diversification,..
Prevention & mitigation capabilities
Business model: own operations ; use of
Partners/ contractors –
Joint Venturers, …
Development
plan
Strategic objectives
Understand the Insured’ activities Assess the risks inherent to the scope
Evaluate the reduction of
risks by the Risk Management policy
Products vs Services, Underlying risks &
potential perils
Geographical scope,
activity scope
Markets of Insured’ Clients
Growth rationale: organic,
acquisition, diversification, …
Prevention & mitigation capabilities
Business model: own operations ; use of
Partners/ contractors – Joint Venturers, …
Development plan – strategic objectives
Impact on exposure level
U +
A + E
The (re)insurer must well understand
the Insured’s exposures
15
The (re)insurer must well understand
the Insured’s contractual approaches
16
Parties to the deal: definition of the
Insured(s)
Jurisdiction
Contractual
culture, contractual discipline,
legal support
Position towards performance guarantees, financial loss bearing
Retention vs Transfer of liability
Position towards:
hold harmless /
waiver of subrogation
Contract Management Contractual Policy / Practices
Stability of contractual
relationship with Insured’ business Partners (“repeat risks” vs
“transactional risks”)
Parties to the deal: definition of the Insured(s)
Contractual culture, contractual discipline,
legal support
Jurisdiction Position towards performance guarantees, financial loss bearing
Retention vs Transfer of liability
Position towards: hold harmless /
waiver of subrogation
The (re)insurer must well understand
the Insured’s contractual approaches
Stability of contractual relationship with
Insured’ business Partners
(“repeat risks” vs “transactional risks”)
C M + +
CP
17
Illustration : Main current technical issues by Occupancy
Electro Magnetic Fields (EMF) : Telecom
Nanotech : Manufacturing
REACH – Registration, Evaluation, Authorization and restrictions of Chemicals : Chemicals
Occupational Diseases : Mining, Manufacturing
Genetically Modified Organisms (GMO) : Food, Agro
Mould, Chinese drywall : Homebuilding
Pollution – Environment Impairment : Oil& Gas, Manufacturing
Silicosis : Mining
Workers Compensation, Employers Liability : Manufacturing
18
Risk analysis
Faurecia depends more and more upon suppliers (supply of
products, service,... including presence on Faurecia sites)
Faurecia is seriously exposed in case of damage due to
suppliers if the latter is insufficiently insured or if a limit of
liability of the supplier exists in the contract.
Faurecia would get its indemnification from its Property or
liability Insurer but would lose its deductible and may suffer
increase of premium due to loss record if the Insurer can not
file recourse against the supplier.
Training set for purchasers
established with our broker
How to review & negotiate the liability & insurance provisions
in a supplier contract :
Avoid a waiver of recourse or a too low limit of liability
from Faurecia side
Obtain a sufficient level of liability coverage from the
supplier’s side
How to review the insurance certificates provided by the
suppliers
Level of liability insurance for the
supplier
Guidelines given to the purchasers. The level of insurance will
depend on :
The type of supply : on site service, products (safety
subcomponents or not)
The type of liability : professional liability, products liability
The size of the supplier (local or worldwide)
The country of origin of the supplier depending on the
maturity of the local liability insurance market
Faurecia minimum required covers versus
Local Insurance market offer by country
Pure servicing (cleaning, security, …) Equipments (transfer, conformity, IT, maintenance)
Products (sorting, retouche, interim work)
Faurecia Minimal required covers
General Liability including Professional Liability : 15 M EUR from which Pure Financial Loss/ Professional Liability : 5 M EUR
CHINA General Liability including Professional Liability 1,5 M EUR
From which Pure Financial Loss/Professional Liability 1 M EUR
Idem Idem
MEXICO General Liability 15M EUR OK from which Pure Financial
Loss/Professional Liability : 5 M EUR: OK
Idem Restrictions for
security equipment
Idem
- - - - -
LESSONS LEARNT
In a large corporation where thousands of contracts are signed
yearly with suppliers, the insurance department can not review
each and every contract :
Training of the purchasers is the key
Absence of waiver of recourse is the main point to be
achieved
Level of insurance of the suppliers : the expertise of the
brokers is needed to give realistic objectives to purchasers
All should be well-received by the Insurer
The underwriting
by the liability (re)Insurer :
From the review of the parameters of the “Insured’s specific risk equation:
( U + A + E ) X ( C M + C P )
When the (re)insurer is satisfied with its risk mapping
When the (re)insurer has established loss scenarios of different scales
When the (re)insurer has identified what he does not know !
The (re)Insurer can come up with the Appropriate Solution,
negociated with the Insured and its Broker
24
Accumulation between policies
Reinstatement: Around The Clock or side by side
Full Prior Acts, Retro Date at Inception, Continuity Date
Aggregation: Batch or Serial Clause
Extending Reporting Period
Underlying Erosion and Drop-down
Additional Insured, Joint-Venture
Aggravating items in a liability insurance policy
from an underwriter ‘viewpoint : Each and Every versus Annual Aggregate
Single year versus multi-years policies; Duplication of Limits versus anti Stacking
Defence costs outside limits of indemnity
25
From our claim experience in liability classes ,
the risk transfer from the Insured’ viewpoint ….
Success Factors
• Adequate procurement policy • Regular re-assessment of business
partners • Alignment between contractual policy
and self financing capabilities + liability insurance market capacity
• Regular gap analysis and remedies embedded in the Risk Management policy
• Knowledge of capacity levels available in the concerned liability insurance segments (class/country)
• Opening to Alternative Claim Resolution before litigation
• Existence of monetary caps in contracts
• Recognition of which size matters to access adequate insurance solutions
Failure Factors
• Inadequacy between risks conditions faced and contracts wording
• Insureds accept contract conditions
that he does not master • Lack of knowledge of legal
environment where Insureds have operations or sales of products/services
• Insufficient awareness of
globalisation impact
26
Risk Management Standard Process
C O M M U N I C A T I O N
P I L O T A G E /
M O N I T O R
Define Strategic, Organisation and Risk Management Context
Identify
Analyse
Evaluate
Treat
How to manage the identified risks ?
Prevention Reduction
Transfer
the risk
Keep
the risk
•Workmen compensation
•Vehicles
•Property
•Liability
•Insurance
•Contractual aspects
•Subcontractor
•Outsourcing
G
O
A
L
SPECIFIC ACTION PLANS
•Prevention / Protection programs Incident Management
•Self insurance
•Deductible
•Waiver of recourse
Risk Assessement committee
Risk Management Standard Process
Define Strategic, Organisation and Risk Management Context
Identify
Analyse
Evaluate
Treat Transfer Protection/
Prévention
Q & A
THANK YOU
FOR YOUR ATTENTION
30
31
Appendices
PI: Written on claims-made basis GL: Written on occurrence basis
PI: Financial loss claims GL: Bodily injury and property damage with consequential financial loss
PI: Costs included within limit of indemnity GL: Costs in addition to limits
Illustration : key features of
Professional Indemnity (PI) vs General Liability (GL) PI: Damages arising from professional services breach GL: Damages arising from operations
PI: Allow additional Insured clearly determined GL: Can provide additional Insured on blanket form basis
32
Illustration : main items of vigilance today for tomorrow
anticipated manifestation (Sourcce Marsh Mac Lennan doc)
33