Benelux Risk Forum2017 post event report

Contents & colophon

Introduction 5Ron VerhulsdonckCountry President, Benelux at Chubb

Is there a cure for future shock? 6Thierry MalleretEconomist and Co-founder of The Monthly Barometer

Strategy in an VUCA world 10James MoncrieffProfessor of Practice in Strategy at Ashridge Executive Education

Panel debate: Political risk insurance - work in progress 14Panel members:Rosalie André - Head of Insurance & Risk Management at Philips LightingAdam Stanley-Smith – Regional Director at The Ackerman Group Piers Gregory – Head of Terrorism & Political Violence at ChubbMurray Ross – Head of Wholesale Political Risk & Credit at ChubbStéphane Baj – Regional Director of Accident & Health at Chubb

Forewarned is forearmed 18Richard JacksonDirector of Research at IHS

Demystifying Global Insurance Programmes 22Rémy MassolMultinational Director for Continental Europe at Chubb

Defining moments in the evolution of multinational insurance programmes 22Suresh KrishnanHead of Global Accounts Division Europe at Chubb

Interview: Risk managing a moving target 24Bernard van den BergDirector of Insurance at Royal BAM Group

Whilst every care has been taken in publishing this report neither the publisher nor any of the contributors accept responsibility for any errors it may contain or for any losses howsoever arising from or in reliance upon its contents.

Text: Garry Booth, Zigzag Publishing • Design: USEcc.nl • Published by Chubb

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Introduction

Political risks are more dynamic and difficult for businesses to identify than ever before. They frequently top lists that rank the issues most likely to keep risk managers awake at night. So the main topic under the microscope at Chubb’s multinational risk forum, held in Brussels earlier this year, was particularly timely. It’s not surprising: political risks take different forms and have the potential to hit corporations and other organisations when and where they least expect them to.Political actions can lead to assets being expropriated or non-payment on big contracts. Political violence and terrorism can have a direct and profound effect, with employees being kidnapped or killed, for example. Or it can have costly side effects, such as business interruption.In both cases, a risk manager’s job would be much easier if it were possible to effectively forecast adverse political risk events. In his presentation, Thierry Malleret, founder and chairman of the Global Risk Network at the World Economic Forum, explained how we first need to stop thinking in silos and examine the interconnections that result in crises.On a similar theme, James Moncrieff, professor of practice in strategy at Ashridge Executive Education, explored the new systemic approaches that risk professionals use to make sense of the tell-tale signals that foreshadow events.A lively panel discussion revealed how the evolving terrorist threat is creating new enterprise risks that present a challenge to insurance underwriters as well as to insurance buyers.Richard Jackson, director of research at IHS Markit, demonstrated how collecting risk data in a structured way can inform judgments and greatly improve decision making.Political risks weren’t the only item on the programme, however. A question and answer session with Suresh Krishnan, Head of Global Accounts Division Europe at Chubb, was devoted to the subject of multinational insurance programmes - not least because they are becoming increasingly popular with big corporations. It fell to Suresh to demystify what can seem a complex proposition and explain why one size doesn’t fit all. Our expert speakers in Brussels shared many such valuable insights and we hope this report answers some of the difficult questions that risk managers face in today’s challenging business environment.

Ron VerhulsdonckCountry President, BeneluxChubb

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Surveying the global risk landscape to predict where the next crisis might take place is fraught with problems, according to Thierry Malleret. As founder and chairman of the Global Risk Network at the World Economic Forum, he should know.

Very few people, including the hundreds of experts that attend the World Economic Forum every year, saw the subprime crisis coming in 2008. Nor, more recently, were the problems in the Eurozone widely fore-cast and, before that, the 2014 Russian annexation of Crimea. Speaking at the Chubb Multinational Risk Forum, Malleret identified two obstacles to accurate forecasting. One is the fail-ure to distinguish between risk and uncertainty.

“As we know, risks can be measured. We can assign probability to them, therefore they can be priced. Uncer-tainties by contrast are not measur-

able currencies. And when we deal with systems which are driven by human beings and human emotions, we are dealing with complex non- linear systems which are, by nature, unforecastable,” he explained.

The second obstacle is to do with silo thinking among forecasters, where specialists tend to ignore the fact that geopolitical trends cannot be considered in isolation from other

macro trends, including non-geo-political trends. All of the big risks – economic, geopolitical, societal, environmental and technological - are interconnected to a greater or lesser degree, Malleret said.

“And when we try to understand how geopolitical risks are going to evolve in the coming five years, we have to put this into the context of a global governance vacuum: today, we live in a world in which nobody’s in charge,” Malleret said. “And the greatest deficit that we face in the world is a discon-nect between the demand for global co-operation, which has never been higher than it is today, and the supply - which is declining.” u

Geopolitical trends

Thierry MalleretCo-founder Monthly Barometer

It’s impossible to disentangle global geopolitical risk from other macro risks, argues Thierry Malleret, economist, author and chairman of the Global Risk Network at the World Economic Forum. And that’s why we don’t always see major upheaval or disruptive events coming until it is too late.

Is there a cure for future shock?tMalleret said it is crucial to consider the five non-geopolitical risks and how they can impact geopolitical. According to the Global Risk Network, they are:

• rising inequalities leading to populism;

• climate change and extreme weather;

• the increasing polarisation of societies;

• global ageing differentials between countries;

• cyber dependency and cyber risk.

‘Systemic Connectivity’ is the Name of the Game

u The five geopolitical risks identified by the Global Risk Network, and their interconnections, are:

• Unemployment and under employment/social instability;

• Large scale migration/state collapse;

• Failure of climate change mitigation/water crises;

• Government failure/social instability;

• Interstate conflict/large scale migration. Vincent St. Thomas / Shutterstock.com

1000 Words / Shutterstock.com

Martchan / Shutterstock.comJohn Gomez / Shutterstock.com

axz700 / Shutterstock.com

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Artificial Intelligence

It is impossible to disentangle geopolitical risk from macro risks, Malleret said, identifying some ‘obvious’ interconnections: “For example, it’s critically important to think about one aspect which is likely to drive structural unemployment over the next few years: automation and artificial intelligence.”

Citing the example of driverless vehicle technology, Malleret pointed out that three million people are directly employed in the US trucking industry and five million employed indirectly: “Two months ago, for the first time ever, a big load of Budweiser beer was delivered to Nevada by three trucks driven throughout the United States without any drivers. These trucks were loaded and unloaded by robots,” he said.

“Artificial intelligence and automation are going to be a tremendous source of social and, by ricochet, geopoliti-cal instability over the years to come because they are moving very fast,” Malleret said.

Populism and interstate conflict

The most significant geopolitical risk facing the world today is populism, Malleret believes. Characterised by a dislike of elites and hostility towards established institutions and main-stream politics, populism rejects immigration and has a strong nationalistic tone. “Populism can now be seen as a global phenomenon. It’s Trump in the US, it’s Duterte in the Philippines, it’s Erdogan in Turkey, it’s Putin in Russia, it’s Modi in India and I could go on and on,” he said.

Linked to populism, interstate con-flict is an emerging threat: “Countries in which you find the greatest con-centration of risks, be that economic,

geopolitical, societal, or environmen-tal, are in Asia,” Malleret said. “Asia is the only continent in the world where every single country has at least one border conflict with a neighbour. And that’s also true for Singapore by the way.”

Overstated risks?

Malleret concluded by offering his views on which risks are over- estimated and which are under- estimated. He doesn’t think protec-tionism per se presents a significant risk because de-globalising the world is virtually impossible: “It’s too late. We can’t deconstruct, even though we might try very hard; we cannot de-construct the way in which countries and global supply chains are com-pletely intertwined with each other today,” he said.

But Malleret believes that trying to trade in a way that’s detrimental to your neighbours is bound to have an effect, particularly on export- oriented countries in Asia, and heighten existing tensions. “The South China Sea is the one region in the world where you have the highest proclivity for ‘black events’ because of history and because of the tension that exists between countries that surround it,” he said. n

Geopolitical trendsGeopolitical trends

“Who would have thought two years ago, except for science fiction writers or novelists, that the Russian Intelligence Services would be seen as interfering in the elections in the US, Germany and France,” Malleret said. “You know, that’s cyber warfare and it’s bound to have an effect on geopolitical stability.”

Some of the geopolitical risks that are underestimated according to Malleret:

In today’s world, 5 years is a long time...

overestimated

underestimated

Some of the geopolitical risks that are overestimated according to Malleret:

De-globalisation Eurozone disintegration Russia/NATO collision

US policy dis-functionality Consequences of mercantilism South China Sea and Asia black swans

fifg / Shutterstock.comChameleonsEye / Shutterstock.com

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James Moncrieff’s first experience of risk came about when he was working at a microwave telecommunications station in Australia. The station carried about two-thirds of Australia’s voice and data traffic to the inter-national world - and he managed to accidentally put the whole system off the air for fifteen minutes, briefly isolating two-thirds of Australia from the outside world.

Today, working as a consultant with Ashridge, Moncrieff’s work is focused on corporate strategy. It’s becoming a more challenging activity for businesses than ever, he told dele-gates. When uncertainty and com-plexity are low, strategising is akin to solving puzzles, where there is a correct answer, Moncrieff explained. Unfortunately, the real world is usually characterised by considerable uncertainty and complexity. “The world of strategy is more like what we might describe as the world of problems, where there is no single right answer, where there is no methodology to help us do it, where we don’t have all the data. It may be incomplete, out of date and ambigu-ous. And so we can’t make decisions based on data when we’re working with strategy and looking into the future,” he told delegates. “What we have to do is to exercise judgement.”

Judgement is what you do when the answer is not implicit in the data: “We exercise our judgement based on our experience and our intuition, and hopefully that of our colleagues.”

Explore, don’t navigate

Organisations tend to gravitate towards certainty when formulating strategy and that means navigating

the way ahead using charts and factors that indicate the direction of travel. It is a flawed approach, according to Moncrieff. “Nowadays we have to work in ways that are much more like exploration: probing, testing, scanning, experimenting, trying things out, learning as we go along,” Moncrieff said. “This world really requires an exploratory kind of approach.”

The business environment today can be summed up by the US military term VUCA: Volatile, Uncertain, Com-plex, Ambiguous. “We have this in-terconnectedness and an interaction of factors and forces that previously didn’t influence each other because the connectivity wasn’t there,” Mon-crieff described the recent emissions scandal which embroiled one major

multinational car manufacturer as a “volatile, unexpected event that has had ripples running right across the automotive industry and will proba-bly run for some time”.

Global disruptors are appearing all the time, he pointed out: the rise of the middle class in China and its appetite for protein is changing land use and leading to water scarcity. In Indonesia land where food was grown is being ploughed up to produce palm oil for bio fuel. The rise of driverless vehicles will create new liability risks for car makers – but could also create a new form of terrorism. 3D printing will

Developing a strategyDeveloping a strategy

James MoncrieffProfessor of Practice in Strategy at Ashridge

Strategy in a VUCA worldThis is a volatile, uncertain, complex and ambiguous (VUCA) world that demands new strategic approaches from organisations, according to James Moncrieff, Professor of Practice in Strategy at Ashridge Executive Education.

revolutionise the world, from sectors such as construction to medicine. Crowd funding platforms are now out-stripping venture capital as a source of corporate funding.

“Change is disruptive rather than incremental these days and that gives rise to unforeseen consequences. It is further complicated by the inter- connectedness of risk. This is the world that we’re facing, and we have to learn how to be able to work in it,” Moncrieff said.

Picking up signals

Business leaders and strategists need to develop their ability to pick up the signals of what’s changing in their world, according to Moncrieff, or at least listen to the people that can.

“We’re bombarded with stimuli all the time as humans. If a cloud goes over, the light will dim slightly. We may not recognise it consciously but our eyes and our brain will pick that up. Sometimes some of these stimuli will come to the fore. Then we concentrate on it and it becomes the focus of our attention,” Moncrieff said.

“What we were experiencing there comes from the field of Gestalt psychology: it’s known as the Gestalt cycle of experience. It’s how individ-uals respond to internal or external stimulus. It starts with sensing: just picking up the signals subconsciously at first. But eventually it comes in to our conscious awareness.”

Moncrieff believes that there is a sim-ilar process at work in organisations when it comes to picking up signals of change and working with change. The Gestalt cycle could be applied to the organisational energy wave that starts with picking up the signals of change and raising awareness in order to make sense of them. u

Global disruptors

Ageing population – Global warming – Industrialization & urbanization in emerging economics – Political uncertainty – Economic uncertainty

“The ability to halt a strategy and go in a new direction is one of the greatest challenges for any organisation. But it’s one of the secrets of being able to survive and thrive in a VUCA world.”

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Business disruptors

Crowd funding – Airbnb – Uber

Technology disruptors

Big data analytics – Internet of things – 3D printing – Autonomous vehicles – Cloud computing

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Developing a strategy

But whose job is it to pick up the signals of change in a big organisa-tion? Who is making sense of those signals? “Very often, the people at the top and centre are the last ones to pick up the signals of change because they get their information through reports from analysts and consultants and specialists. And there’s always a delay,” Moncrieff said.

“In reality, it’s the boundary workers in the organisation interacting with the world outside, with customers, competitors, suppliers, that are very often the ones picking up the signals,” he went on. “With the bigger geopo-litical and other issues we’re looking at today, it is more likely to be people further up in the organisation.”

Talk about change

One of the most difficult challenges that organisations face is getting organised to be able to pick up the sig-nals of change, make sense of them, and bring them in. “How do you create a sense in everybody that part of their job is to pick up the signals?” he asked.

The challenge doesn’t end there: having recognised change, the organisation has to be able to make decisions and mobilise. “If we’re able to do that, then we’ll be able to make the impact that we want and move that strategic issue into an operational status,” Moncrieff said.

The ability and willingness of business leaders to rise above the day to day details regularly and look for patterns and trends is increasingly important. Opening up communica-tion channels so that people can talk about change and challenge some of the thinking that permeates the organisation, as well as influencing people who take these decisions, should be a priority.

“With all the books on strategy and all of the courses and all the MBAs, why do great companies still fail? I think this quote from Lou Platt, former CEO of Hewlett Packard sums it up entire-ly: ‘These companies did not make gigantic mistakes. They were not led by stupid people. The only mistake they made was to keep doing what had made them successful for a little too long.” n

BusinessModels

Mental Models

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Hidden Cultural Beliefs

Plan Review

Traditional Planning Horizons

Planning Horizons in a VUCA world

Organisational Energy Wave

Mental Models

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Scan Plan

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Picking upsignals ofchange

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Political risk insurance – work in progress

Mike Jones: What are the most challenging aspects of managing political risk from a multinational organisation’s perspective?

Adam Stanley-Smith: It used to be possible to review a country every six months, or once a year, and that was fine. Look at Northern Nigeria: in the past little changed over a five-year, even ten- year period. That’s not the case anymore. Nowadays, if you’re not checking in on a country every week to find out what’s going on, you risk missing something very important.

Syria is another classic example. Over a six month period, Syria went from being a very stable, very safe country to becoming a war zone. So the amount of time between when a problem is first visible to when it

goes really downhill, has accelerated rapidly.

But for a lot of companies it’s very difficult to be involved on a daily basis, checking in on these countries, looking at the different problems that people are facing there and thinking about how the situation could develop in a week from now, two weeks from now, a year from now.

Mike Jones: What about from a kidnap & ransom point of view, specifically?

Adam Stanley-Smith: Ten years ago, 80% of the kidnappings around the world were in Latin America. Nowadays, it’s only 50%. So where are we seeing more kidnappings? Africa, Asia. And it’s changing every day. Every hour almost.

Panel debatePanel debate

Mike Jones: We’ve seen some really appalling terrorist incidents in France and also right here in Brussels in the last two years. Mass casualties, panic and fear clearly remain key objectives for terror organisations, but the mode of operation for these groups is changing in its own way isn’t it?

Piers Gregory: The ideology of terror groups has been decentralised and diversified across multiple territories. We’ve seen the threat emerging in different ways and in Germany, in France, lone wolf type attacks are becoming more frequent. They’re perpetrated by individuals and as such are more difficult to police and stop. The challenge to businesses is understanding how that type of incident could affect their revenues. They should be mainly focussed on business interruption because the type of attack tends to be at a lower level than a large scale bomb, for example. So that brings the supply chain into focus and with that the concept of non-damage business interruption. It’s causing buyers to focus on wordings and on coverage, how they interact and potentially trying to bridge any gaps.

Mike Jones: The attacks in Paris and Brussels made people think very differently about business disruption issues?

Piers Gregory: Yes, it’s put a lot of pressure on the insurance market in terms of innovation and considera-tion of the business interruption risk element. There is a lot more insur-ance product in the market available now to address that type of ‘loss of attraction’ threat, or prevention of access, and how an insurance product responds to it. The challenge that we have as insurers is how we under-

stand and control that risk, given that the scope of the risk is a lot wider.

Mike Jones: Murray, moving away from terrorism and more towards political risk, a lot of uncertainty has been triggered by the rise of populism in different countries. What risk issues are coming to the fore?

Murray Ross: When we talk about the rise of populism that brings protectionism with it as well. That has implications, not just for relation-ships between two countries, but also for how others will react: will they react with sanctions, will they react with trade embargoes and the like? Another example of the problems created by populism is the recent row between the Netherlands and Turkey. The Netherlands refused to allow two Turkish politicians in to the country to debate and Turkey reacted to that. A Dutch investor in Turkey could be impacted by this spat that seemingly came out of nowhere and I think there is going to be an increase in these kinds of skirmishes. Mike Jones: Rosalie, what are the biggest challenges that you as a risk manager face in terms of multinational risk?

Rosalie André: The biggest challenge is the diversity of risk across the political risk spectrum. It’s very important to try to define what you are going to try to manage and not try to do everything. As a preparation for today, I chatted with colleagues of mine within Philips Lighting. My colleague who is responsible for financial risk came up with a whole list of political risks that are complete-ly different to the ones I was thinking about. As regards insurance, we often strug-gle to find insurance products that u

Political risk insurance has moved up the agenda for multinational organisations. But how is the market responding: is the PRI product evolving to meet the needs of businesses operating in an ever changing world? A lively debate among panel members at the Chubb multinational risk forum revealed how much is being done to help companies manage their political risk exposures. But it also highlighted how insurers can raise their game.

Rosalie AndréHead of Insurance and Risk Management at Philips Lighting

Adam Stanley-SmithRegional Director at The Ackerman Group

Piers GregoryHead of Terrorism & Political Violence at Chubb

Murray RossHead of Wholesale Political Risk & Credit at Chubb

Stéphane BajRegional Director of Accident & Health at Chubb

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Panel debate Panel debate

fit our exposure. It means that a big part of my job is to communicate effectively on what is protected and what is not from an insurance point of view.

Murray Ross: We aren’t able to cover all the political risks that we’re asked to cover. And sometimes we’re asked to cover risks somewhat late in the day - for example, after sanctions have been imposed on a country. That’s clearly the wrong time to bring in those sorts of risks.

That said, we’re in a soft market, therefore there is abundant capacity and more players in the market than there’s ever been. As a result, insurers are willing to push the boundaries a bit more, write wider products. So po-litical risk insurance has grown more flexible, there is more potential for negotiation, and it is an increasingly bespoke coverage.

Mike Jones: Piers, is terrorism/political violence (TPV) insurance coverage also evolving?

Piers Gregory: TPV is essentially a property damage business interrup-tion (PDBI) type product, but I think the market has moved to provide more clarity. Improvements in word-ings provide more clarity, so the client knows with more certainty how the policy will respond to an event. We have a traditional PDBI policy with a TPV extension as an additional option. It gives buyers peace of mind around claims payment because you have all those perils with the one carrier. That has really helped our clients.

We are working hard with our clients to understand their risks better. We are in the process of developing a tool that will allow us to offer risk engineering capabilities around TPV exposures and map their risk. Rosalie André: Are you are also plan-ning to integrate cyber BI into TPV?

Piers Gregory: Not yet. But the ques-tion of cyber is obviously very topical.

We have a cyber product and we have a cyber business unit in-house that analyses all aspects of cyber risk. It’s different from bricks and mortar, so it is a little more challenging.

Mike Jones: Stéphane, how do you keep up with some of these chang-es in the context of accident and health?

Stéphane Baj: First, we are expanding our cover more and more from purely medical risk to include security and crime. We increasingly cover the consequences of security events - be it terrorism, political violence or more sporadic government changes. And we are also addressing the conse-quences of crime.

Second, we are moving more and more from pure indemnification and response to prevention and preventa-tive advisory services. So for instance, we have invested in new added value services that help companies prepare their business travellers and their ex-patriates. That means training them in terms of wellness, travel, medical and security risk. We are also trying to improve the capacity of companies to track where their travellers and their expatriates are, through mobile applications that allow us to geolocate them. And we are helping clients build their internal emergency plans and put together policy and procedures that better in-tegrate the roles of assistance provid-er and insurer.

Adam Stanley-Smith: Clients tend to focus on a single issue, like kidnap-ping, and they forget about all the other problems that they might face. For example, they send employees to Lagos in Nigeria, which is a high risk kidnapping area, but you’re still far more likely to die in a car crash than be kidnapped. But clients forget because nobody’s telling them other-wise.

The other thing is that clients tend to focus on one or two bad areas. You

know, they tend to think Europe is safe, Africa is dangerous. It’s not the case. There are different problems in different countries. Even in a country like Belgium, we’ve seen terrorist attacks. So it’s a question of consider-ing the whole spectrum of risk from everyday travel incidents all the way to kidnapping and how we can deal with these risks and how we can miti-gate them.

Rosalie André: Doing business inter-nationally brings many different chal-lenges in a rapidly changing environ-ment. It would help if insurers could share their expertise with us so that we can share it with our colleagues in our company. And then let’s try breaking the rules. Why do we need to have so many different insurance products? I know it’s nice for the insurance business, but it makes our life complicated.

Piers Gregory: I agree with you, Rosalie, on the point about sharing data and I think that’s a key take away. The other thing I’d emphasise is claims scenario planning. It’s really important with the larger accounts, on a quarterly or an annual basis, to sit down with your insurer and your broker and identify gaps in cover, movement of money around ‘admit-ted’ versus ‘non-admitted’ and really understand what happens in different scenarios in terms of what’s covered and not covered. I think that’s some-thing that we could do a bit more of in the insurance community.

Mike Jones: How does Chubb work with clients on risk assessment?

Piers Gregory: Within the PDBI world, we have a robust and sizeable risk en-gineering product. Our risk engineers undertake site visits, do surveys and make recommendations from a PDBI perspective. From a terrorism and political violence angle that means we look at onsite security, barriers to access, for example. I think it helps the risk manager get an appreciation of that risk. And for me, it gives me

the reassurance that the risk is being managed.

The other part of it is sharing the mapping and the global analytics tools that we use; we could share the information that we’re seeing as an underwriter that’s affecting our underwriting decisions in terms of deployment of insurance capacity and price. We could be more trans-parent and help you understand what the flashpoints might be in a 12, or 18 month period.

Stéphane Baj: For us, the best way to make sure that there is loss preven-tion in place is to be able to partici-pate in meetings where the client and the value stakeholders within the clients, such as the security manager and travel manager, for example, are present together with the assistance providers.

Rosalie André: We heard earlier that the market at the moment is very generous in terms of capacity. We also notice as clients that prices are quite competitive. How much of a role does the quality of loss prevention and se-curity influence premium rating? Or are we at a point in the market where it really doesn’t matter anymore and it’s just capacity?

Murray Ross: The business continuity plans that, as an underwriter, we’re able to gather from you as the client and how you’re able to mitigate your BI loss, is a big factor in our under-writing. So with a large bank or a financial institution, for example, their ability to mitigate their BI loss by having a sophisticated contingency plan, whether it’s more offsite prem-ises, whether it’s remote access, that is absolutely a factor in the underwrit-ing decision. n

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It’s more important than ever for busi-nesses to understand the political risk environment they’re operating in. But the reality of gathering, assessing and acting on political risk intelligence is daunting.

Richard Jackson, who works in the country risk team at IHS Markit, specialises in providing political and terrorism risk analysis and forecast-ing services to businesses. He shared some of the tricks of his trade with delegates attending the Chubb Multi-national Risk Forum.

Dealing with the vast quantity of data, including fake and real news, from social media, traditional media, broadcast media and human sources presents a challenge in itself. “How do you cut through the noise to find the signal? How do you identify what’s important to understand the risk environment you’re operating in? And even more important than that, how do you do it in a timely enough fashion that you can make those judgements, make that analysis and make those forecasts such that the people who have to make decisions based on them, have enough time to make those decisions?” he asked.

Jackson explained the need to collect data, identify and analyse it - and then provide an understanding of how the risk environment looks, without bias.

“As human beings, we look for in-formation that backs up our view of the world. If you see something that doesn’t fit in with your world view, the tendency is to ignore it. Or to interpret it in a way that makes it fit your world view,” he said. “It’s not a criticism, that’s how human beings have been shown to work by scientific studies.”

Key elements

There are several key elements to setting up a risk management data system, Jackson said. The first involves identifying the intelligence needed to assess threats or risks and to inform critical decisions.

The key questions are: • What is it you want to know? • What risks are you worried about? • What sectors are you worried

about? • What countries are you worried

about? • Where are your assets? • What’s your exposure? • What’s your risk appetite?

“The more detailed your questions, the more precisely you can collect in-formation against that requirement,” Jackson said.

Once the questions have been identi-fied, the next step is to find the most efficient and effective way of collect-ing the intelligence required to ensure early warning and crisis prevention.

“Take the specific question, ‘What is the risk posed by fighters returning from Iraq and Syria?’. Where do I start collecting data about that? I can’t really. But which other groups have pledged allegiance or support? Well, I can collect that. I can collect statements. I can collect statements put out on Jihadist web forums. I can

Political Risk Mapping

Forewarned is forearmedIt is possible to design a structured approach to risk forecasting, according to Richard Jackson, Director of Research, Economics & Country Risk at IHS Markit.

Richard JacksonDirector of Research at IHS

find out from official police reports how strong or what their capabilities are. I can start to piece together use-ful intelligence that’s going to let me answer this question,” he explained.

The intelligence should be moni-tored over time rather than acted on immediately, to avoid jumping to any conclusions. “A group has to obtain explosives. A group has to get a trigger. A group has to get a timer potentially. A group has to get the knowledge to be able to pull all those bits together. A group has to do all that without being caught or identified,” Jackson said.

It is possible to break down these hypothetical steps into individual elements that data can be collected against, Jackson explained. “How many arrests have there been for people trying to buy large quantities of bleach? How many arrests have there been for people posting things on Twitter?“By setting up a structure, it’s not perfect and you don’t get rid of confir-mation bias, but it gives you a better chance of doing it well.”

Terror threat identified

To illustrate the effectiveness of a structured data collection process, Jackson used the real life example of a shipping client who wanted to know if its risk exposure in the Bab Al-Mandab Strait between Yemen on the Arabian Peninsula and Djibouti and Eritrea in the Horn of Africa would grow or reduce over the next 12 months.

Having researched rebel groups in Yemen, IHS set up a very simple five indicator per-scenario model to monitor in the categories:• risks to commercial shipping

increase; • risks to commercial shipping

decrease; • risks remain at the current level. u

Terrorism Risk 2014 Q4

Terrorism Risk 2016 Q4

Geospatial mapping

low moderate elevated high very high severe extreme

Location Risk Terrorism

“If you don’t do the structure upfront, you end up reacting to events as they happen and you pick information that you want because it confirms your original ideas of what the risk is.”

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In July 2016, all of the risk indicators for the ‘risk increasing’ were triggered and then remained the same through August and September. Then, at the end of October, three months after the main indicators tripped, there were two RPG attacks on tankers off the Yemeni coast.

“The example shows that with a structured approach that tells you when risk is changing, you can do something quite impressive,” Jackson said. “The shipping client effectively had three months to make a judge-ment on the risks involved in using the route that was based on intelli-gence.”

Looking towards 2017

Asked for his opinion on what is likely to drive political risk over the

coming years, Jackson picked out the growing role of technology and automation in particular. “One of the building blocks of change is going to be automation and the increased use of technology to do jobs that humans do today,” he said. “There are knock-on implications for employment, under-employment and societal change, even driving the movement of people from one part of the world to another.”

Jackson said that the potential for au-tomation is no longer limited to phys-ical or manual jobs and will extend to other areas of employment, including analysis. “So automation is not just a blue collar issue, it’s potentially going to be a white-collar one,” he said. n

Political Risk Mapping

Intelligence Requirement

• What? Identifying the intelligence needed to assess threats/risks and to inform critical decisions

• How? Risk indicator design based on professional

intelligence methodologies and infrastructure.

Intelligence Analysis

• What? Accurately assessing the intelligence gathered to enable an appropriate and timely response

• How? Indicator-based forecasting, analysis

techniques for auditing logic and testing bias.

Collection Plans

• What? Identifying the most efficient and effective way of collecting the intelligence required to ensure early warning and crisis prevention

• How? All Source OSINT, HUMINT, SOCMINT, GIS and ability to leverage existing IHS resources alongside internal client resources.

Early Warning and Decision Support

• What? Ensuring best practice internally for forecasting risks, including for use in strategic planning processes and other decision making processes.

• How? Use of intelligence infrastructure and horizon scanning processes to generate forecasts, early warning of change and scenario analysis. Understand global exposure.

Structured Intelligence Infrastructure

Early warning & decision support

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Multinational insurance programmes are growing in popularity among cor-porate clients so it wasn’t surprising that the Young Insurance Masterclass on the topic proved popular this year. Covering practical examples and in-cluding a quiz, the event was attended not only by young insurance profes-sionals but by some experienced risk and insurance managers as well.

“Even people who have been in the industry for a long time found it useful to revisit some of the important concepts that characterise global programmes,” said Chubb’s Rémy Massol, Multinational Director for Continental Europe.

Multinational programmes are not for everyone – and none are the same – so the training session started by exploring the possible options avail-able to businesses to cover foreign exposures. These range from a stand-alone, non-integrated policy to a fully fledged global master programme (or a freedom of services policy for clients whose activities are in the EEA). Each has their own advantages and constraints:

• A decentralised approach with one policy issued in each country: the cover matches local needs and market practices but is hard to coordinate and control;

• A global approach with a single policy covering the world: simple to implement but presents challenges around claims and compliance;

• A multinational programme with master policy and local policies: offers good control and cover consistency but needs coordination between client, broker and insurer.

Focussing on multinational master programmes, attendees heard about the importance of understanding the relationship between the local poli-cies and the master policy on different issues, such as: local limit vs master limit, restriction on the ability to issue certificates, premium allocation and taxation, for example.

The presentation generated some interesting questions from the audi-ence, Mr Massol said: “People wanted to know about how the claims process works when a central policy is used, for example. We also discussed the advantages and disadvantages of having local policies, using a lot of different examples.”

There is no one size fits all solution with global programmes and cover-age always has to be tailored to the client’s needs and corporate struc-ture, Mr Massol stressed. “If you try to impose a central programme on a decentralised company it could be a disaster; we aim to build a pro-gramme around the client’s u

Multinational Masterclass Multinational Masterclass

This year’s Young Insurance Masterclass looked into the nuts and bolts of global insurance programmes. It proved to be a hit with attendees.

Demystifying global insurance programmes

Rémy MassolMulinational Director for Continental Europe at Chubb

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objectives and constraints,” he ex-plained.

Global insurance programme terminology can be puzzling to the uninitiated, so the training session was a good opportunity to demystify expressions like “non-admitted insur-ance”. With non-admitted insurance, the main question is whether a local country allows a foreign insurer to cover the local risk from the home office policy or not. In some countries it is necessary to issue a local policy through a local company.

Commonly used acronyms like Difference in Conditions (DIC) and Difference In Limit (DIL) clauses were also unpicked. The purpose of DIC/DIL clauses is to allow the client the specific and uniform cover that was negotiated for the worldwide pro-gramme. In other words, the DIC/DIL clause exists to close any gaps in cover or limit between the local policy and the master.

Growing popularity

But despite the challenges, global pro-grammes are growing in popularity, according to Mr Massol. “The potential advantages of multi- national programmes are well recog-nised by big global corporations who use them for their property-casualty risks,” he said. But now they are also looking at the possibility of covering some of their specialty lines - like cyber, terrorism and D&O – within large programmes.”

It’s not only the world’s biggest corporations that choose global

programmes. “We also see that SME companies are becoming more multi-national in their activities on the sales and/or production side,” Mr Massol pointed out.

But do global programmes have a bright future amid all this talk of growing protectionism and the end of globalisation? Mr Massol is optimistic. “They will keep growing even if these programmes become a little more dif-ficult to implement, to manage and to explain,” he said. “So it will be more important than ever to choose an insurer like Chubb that has the tools, expertise and local knowledge to get the greatest benefit from a global programme.” n

Multinational MasterclassMultinational Masterclass

“While global programmes used to be exclusively used by big global accounts, there’s more interest in their potential advantages from SME businesses and their SME brokers.”

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As more and more European companies expand their footprint beyond their countries and beyond Europe, multinational insurance programmes are growing in popu-larity and are essential to managing risks across borders. Designing a programme that is fit for purpose, managing it and ensuring it contin-ues to perform as a business evolves demands that risk managers, brokers and the multinational insurer work in a coordinated and collaborative manner.

Based in London, Suresh leads Chubb’s Global and Large Account segment for UK and Continental Europe. He implements business strategy for the segment and oversees the structures, processes and perfor-mance metrics to ensure clients and brokers fully benefit from Chubb’s risk and underwriting expertise and multinational network and services.

In Brussels he explained his views on the three aspects of multinational insurance programmes that risk managers said they most want to explore: admitted versus non- admitted policies; difference in conditions and difference in limits (DIC/DIL); and financial interest clauses.

Mr Krishnan said that compliance is one of many aspects that define a robust multinational insurance programme. “We believe you have to ask where you want a claim to be paid, how you want it to be paid and in which currency? Who’s going to handle the claim? And then finally, where do you want local policies

issued based on local claims needs? When you are satisfied with responses to these questions, the regulatory and tax compliance aspect of the programme will naturally follow,” he said.

Cash Flow must follow Contract

Claims experience has provided some valuable lessons-learned - for example the 2015 explosion in Tianjin port in China, one of the most expensive man-made losses ever. “That has probably given us a lot of lessons learned in terms of what to buy local-ly, how to think about it locally, and what to buy at the parent level. And in terms of having a local claims handler adjust, value the claim, communicate that and then think about how an excess or an umbrella policy pur-chased outside is going to respond,” Mr Krishnan said.

Despite being one of the strictest jurisdictions in the world, if we consider the experience of the Tianjin claims that were paid from insurers in Europe and in the US, it should give us more confidence about the efficacy of the multinational insurance pro-gramme structure, Mr Krishnan not-ed. “Local policies should be a “need to have,” not a “nice to have” in all countries where unlicensed insurers cannot pay claims locally, especially in China. It’s just prudent corporate governance practice for any multina-tional enterprise.

Other big insured catastrophes, such as the Japanese tsunami and the Thai floods, reinforced this view he said. “All of these incidents relied on claims paid from insurance capacity outside of those jurisdic-tions. The question really is: how are insurance proceeds ultimately u

10 years of progress

Suresh KrishnanHead of Global Accounts Division Europe at Chubb

Think beyond compliance when designing a multinational insurance programme, says Chubb’s Suresh Krishnan, start with claims and impact on reputation instead.

Defining moments in the evolution of multinational insurance programmes

Chubb’s five pillars for success in managing multinational programmes:

1) People – to help whenever needed2) Presence – local experts, global partners3) Technology – to make life easier4) Solutions – for unique programmes5) Service – to assist you at any time

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brought into a country when the insurer is not licensed there? That’s a discussion that becomes highly customised for a corporation—for cash flows to match contract—and this is where you need the financial, compliance and tax experts around the table to help you understand the issues before making that decision.”

Mr Krishnan said that although price is a key driver for purchasing decisions, some multinational clients continue to base their programme buying decisions only on price. “We just competed for a global terror-ism programme for a very large European multinational with expo-sures in many non-admitted coun-tries. We offered them a policy that had a local policy with local claims handling in every single country that they were in. However, they chose not to buy that policy but chose to buy one without local policies in non-admitted coun-tries,” he said. “That’s the client’s choice. Of course a programme with local policies will cost a little bit more. But, when a corporate decision has been made to purchase global terror-ism insurance—one with reputational repercussions, performance of the programme, and in particular whether a claim is going to be paid locally should be the first question asked.” He further added that it also shows that the client has ac-knowledged the fact that the claim will be paid at the parent level and that they can manage getting those proceeds to the subsidiary in a cost- effective manner.

DIC/DIL manages global limits efficiently

Turning to the topic of difference in conditions and difference in limits, Mr Krishnan discussed some of the most common misconceptions around DIC/DIL in the context of multinational programmes.

“We believe the most common mis-conception is not realising that DIC/DIL policy is an excess policy with a dropdown feature and the covered claim can be paid either to the parent or, when permitted, locally,” Mr Krishnan said.

At the corporate parent level, a DIC clause in a master policy is designed to broaden coverage for specific perils supplementing local policies that are written by admitted insurers in the applicable foreign countries; a DIL clause supplements the limits of local underlying policies.

He stressed that DIC/DIL capacity is a vital component of every multi- national programme because dynamic capacity provided by strong financial security is simply not available yet in many high growth markets. Dynamic capacity is plenti-ful in the UK and Continental Europe – but few of those countries’ insurers are licensed in Asia or Latin America.

“When you add a global master policy at the European parent level to manage and supplement local policy limits, you get economies of scale as well as local claims handling and other services—this is a prudent way to manage multinational property and casualty risks as well as specialty risks.”

Insurable and Financial interest

Another important and sometimes confusing aspect of multinational insurance programmes relates to in-surable interest. In its simplest form, every parent or shareholder in a joint venture buying insurance to protect

its worldwide assets or obligations has an insurable (or financial) interest for which it is procuring insurance. Mr Krishnan said that the key concept is “insurable interest” of which a subset is a financial interest. “You can insure your contractual obligations and your legal obligations when you are a majority shareholder in a joint venture. You can insure your obli-gations in a shareholding. You can insure your interest in a property,” he said. “These are all insurable inter-ests and taking an insurable interest perspective with an agreed value to coverage between parties makes it possible to quantify the risk and claims consistently and in accordance with the various countries’ insurance laws.”

Looking further into the future and at the evolution of multinational insurance programmes, Mr Krishnan forecasts growing demand for multinational insurance of specialty liability risks to complement multi- national property and general liability coverage, which will require local expertise in incidence and crisis management services.

Increasingly specialty lines, such as terrorism, environmental liability, business travel accident and cyber risk are of greater demand, and a local policy with corresponding loss control and incidence management services are key elements to prevent and manage the reputational impact from losses. Buying local policies for these risks is increasingly important to protect reputation risk, he added.

“Corporate governance in Europe is going to demand that you treat your corporation around the world as you would in your domiciliary country,” he said. “Why would you buy a cyber or terrorism policy only in Europe and not buy it elsewhere? If you were to have a cyber or terror event there, how would you answer that ques-tion?” n

10 years of progress

“The essential question in multinational programmes: where is my claim going to be paid?

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It says a lot about the fast moving na-ture of political risk that the series of horrific terror attacks across Europe could hardly have been anticipated when Chubb was planning its Brussels seminar.

Bernard van den Berg, director of insurance at Royal BAM Group, the Dutch construction company, says that terrorism and political risk has been a growing concern. One of the largest companies in Europe with 19,500 employees, BAM has a turnover of around €7bn. Most of its business is in Europe but its BAM International unit is active around the world.

“Terrorism is higher on my agenda at the moment because it is getting clos-er to our home countries. The human risk and the duty of care element for its employees is very important to BAM, as well as property damage of course,” he says.

Several of Mr van den Berg’s BAM colleagues were in the vicinity of the 2016 Brussels terrorist attacks that left 32 dead. “It’s a risk we all face every day and we need to address it with a wide variety of insurances,” Mr van den Berg says. “My worry, which I think others share, is that the next 9/11 might be just around the corner and could happen in Europe.”

The challenge for insurance managers like Mr van den Berg is fully under-standing how terrorism insurance arrangements work in different markets, including within Europe. After 9/11, many governments around the world followed the UK’s lead and formed state backed terrorism pools.

These pools cover most risks in the home markets of BAM.

“But the solutions chosen by govern-ments to deal with insurers’ accumu-lation risks vary,” Mr van den Berg says. “It is different in the UK com-pared to Germany, and different again in the Netherlands and Belgium.”

Question marks over cover

He acknowledges that there is a wide range of standalone terrorism insur-ance products available in the open market, although the awareness of what’s available is probably quite low among corporations.

“For big companies like BAM there is still a question mark over whether we want to insure certain residual risks or do we want to bear the con-sequences ourselves,” he explains. “At BAM we have not yet determined whether we need to access the private market or not to insure our residual risks. But we have a project underway to find out.”

He believes that Chubb’s Brussels forum was helpful in this context: “Being away from the day to day problems and focussing on the subject helped me think more closely about what’s on the horizon,” he says.

Mr van den Berg thinks that the insur-ance industry could do more to raise awareness of terrorism right across the risk spectrum. “There’s a tenden-cy for insurers to have a silo based approach to the risk whereas terror-ism crosses property-casualty and human resource boundaries. I would like to see a more holistic approach,” he says.

In terms of managing the risk more ef-fectively, Mr van den Berg would also

Interview Interview

like to see better political violence risk mapping for Europe to provide a clearer picture of exposures. “As already mentioned, I would also like to get a better understanding of how different countries deal with ter-rorism risk and insurance,” he says. “By benchmarking what’s available in different countries we can identify where we might have a problem and where there’s a need to take action.”

Having risk information to hand would also help risk and insurance managers raise the awareness of com-pany boards and help inform their discussion around risk management and risk transfer.

Interconnected future

Looking into the future, Mr van den Berg expects to see greater inter-connectivity of risk issues partly driven by societal change but also by continuing technological advances to do with artificial intelligence and the internet of things. This delivers both risks and opportunities.

“When I started in the industry you could reasonably say that 1995 was not so different to 1990. Look at the rate of change in mobile technology since then, for example,” he says. “When the speed of development is so fast it is hard to manage risk and harvest opportunities.”

It used to be acceptable for the C-suite to take a five year static strategic view of their business. But such a static approach is no longer appropriate, he reckons: “Today, businesses need to be agile enough to adapt continuously to reach their strategic targets – the challenge is that the world is always moving,” Mr van den Berg says. n

Risk managing a moving targetBernard van den Berg, director of insurance at Royal BAM Group, says that managing political risks was a very timely theme for the 2017 edition of Chubb’s Multinational Risk Forum.

RISK

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Contact

Chubb European Group Limited

Marten Meesweg 8-103068 AV RotterdamT. 0800 22 55 223 (Nederland)T. +31(0)10 289 35 00

Terhulpsesteenweg 166 1170 BrusselsT. 0800 74 394T. +32 2 516 97 11

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