Trust and teamwork

On the eve of becoming chairman of Airmic, Peter Berring tells Lynn Rouse what he hopes the Association will achieve in the coming 12 months

As buyers of insurance, corporate risk managers have made a number of calls on the industry in recent years for fairer deals and changes in working practices. Their collective voice has become noticeably more audible, in tandem with the expansion and sophistication of risk management as a profession. Only last week for example, Lloyd's chief executive Nick Prettejohn heaped praise on the Association of Insurance and Risk Managers for its "positive engagement" on the market's project to deliver contract certainty by the end of 2006 (PM, 2 June, p3).

When risk managers do level constructive criticism at insurers, the industry would do well to listen. After all, these are not uniformed customers with unrealistic expectations. A significant proportion of senior risk managers' CVs continue to detail years, if not decades, of experience working on the insurance side of the fence. Peter Berring is no exception.

As incoming chairman of Airmic, set to take the reins next week at the association's annual conference, he notched up 20 years of underwriting experience, predominantly on the liability side and in several countries, before moving to De La Rue where he is now director of group risk.

Mr Berring's first-hand experience of insurance is evident from the delicate balance he strikes between urging the industry to change and his unwavering appreciation of insurance as an essential industry. He is only too aware that, by its very existence, insurance allows others businesses to evolve, innovate and expand through the taking of calculated risks.

"I personally feel it's extremely important that industry supports the process of insurance and protection of the balance sheet because the result of not supporting it properly, and not prudently looking after the process, is that we wouldn't have an insurance industry. And I think asking yourself how you would run a business where the fall back hits your own balance sheet every time a fortuitous loss occurs would probably change a lot of present day working methods."

When asked whether the insurance industry today is better in terms of service delivery than the one he left a decade ago, he gives a very measured answer. "The insurance industry has evolved but it is difficult to answer whether it is better than it was. Without a doubt it has undergone a very difficult period over the last 11 years: we've had the end of one of the longest soft markets, if not the longest, in history and we are exiting one of the hardest markets, if not the hardest, in history. And, like every other industry, insurance has had to undergo an enormous amount of internal reviews to try and make itself more efficient."

Positive thinking

Rather than hark back to the 'good old days' of high investment yields supporting loss ratios well in excess of 100, coupled with the inevitable highly competitive pricing, he points to the positives to emerge from insurers' inability to depend on the stock market and interest rates to bolster their performance. "On the buying side, I believe one of the key things people are having to learn to deal with is the true cost of risk - something they had little need to pay attention to before," he comments.

However, as a buyer now himself, Mr Berring is under no illusions as to why some of his fellow risk managers would struggle to see this as an 'improvement'. "There has been a major kickback from the insured industry, with people saying 'In the past you had a loss ratio of over 100 and we still had reductions in price; now you've loss ratios under 100 and we are seeing increases in price'. That's very difficult for people to stomach.

"What we are seeing today is the need to understand the risk more and to buy appropriate cover at the appropriate price structures." And Mr Berring for one sees this as no bad thing. "So to answer your question about service, I think yes, it has improved, although in some areas it has done so in a way that people clearly don't yet notice."

When it comes to his chosen theme as Airmic chairman, Mr Berring's 'Trust and Teamwork' sounds strangely similar to outgoing chairman Andrew Cornish's 'Progress through Partnership'. But there is a good reason for this. "We all believe in Airmic that taking an annual approach, where everything is geared up to happening within 12 months, is a little bit beyond the reach of reality. Last year, it was agreed that having a longer-term strategy was probably a good idea. So we unfolded a three-year plan, which was fully endorsed - a strategy that I will be continuing to drive through this year.

"We hope that by doing this it will generate a better result and one where all those who partner with us, on all sides of risk management and insurance, will see we are trying to deliver consistency and a real voice in the market place."

In terms of the year ahead, he points to a number of issues that have to be "bottomed out", including terrorism and policy wordings. On mentioning the latter, he lists the outstanding issues: "The speed at which they are generated, the value of the wordings themselves, the amount of coverage that is available and affordable."

Contract certainty

With regard to the specific and highly topical issue of contract certainty, he cites slowness and inefficiency as the two aspects that distance the industry from normal business practice. "Where the standard contracts are concerned, I see no reason why these things shouldn't be issued immediately, why they shouldn't follow normal business practice and why we are left waiting. And, to be fair, I do think this is already changing - Andrew has done a lot of work to move that forward.

"It may be argued that a price can only be set after coverage and conditions are agreed but price and coverage are part of the same evaluation, and you need both to make a proper assessment."

Again, however, his personal experience of underwriting tempers the extent to which he is willing to criticise the industry's practices. "When you get into the more tailor-made contracts, this process inevitably becomes more difficult because, while the concepts are easy to agree on, the lawyers agreeing on how those concepts are formalised don't find it quite so straightforward. In some cases, my view is that if it's worth doing properly, it's worth waiting for."

This is not to suggest he will not be campaigning hard on Airmic's behalf to secure improvements in the year ahead. And he believes that risk managers must also play ball to achieve the desired aim. "We need to get more efficient and work on renewals well in advance. But I also recognise the difficulties of the competitive market in which the insurers operate and the ability to put all their efforts into finalising the contract - without feeling it is going to be re-marketed and someone is going to take it away at a lower price when all the hard work has been done. So that has to be born in mind when looking at this issue."

Broker remuneration

The second big issue of the moment is broker remuneration. Does Mr Berring believe the repeat of Airmic's member survey, the results of which will be revealed at conference, will show buyers still demanding more transparency from brokers? When the survey was first conducted last autumn, it found 66% of buyers would require greater disclosure of information from brokers when renewing their policies.

"It is always difficult to crystal ball-gaze but I believe transparency is the answer. Some things in the whole process of contingent commissions have been exaggerated and some things have been abused. The suggestion of bid-rigging is the most damaging issue that has come out of the process (of investigation) and these allegations are the ones that have really concerned me."

Mr Berring firmly believes effective resolution of this issue can only be secured it if is dealt with at all levels of seniority. "It is incredibly important that the industry demonstrates it has rid itself of any people who are prepared to, effectively, break the law. The insurance industry is populated by people who are hard-working, honest and intelligent and it's one of the most competitive industries in the world. So I find it really disappointing that we have gone through what we have.

"But there is no smoke without fire and the best way to get rid of the smoke is to quench the fire. That means not just making sure the blaze is extinguished but that the embers are also put out. And I hope the industry will make sure that actually happens."

The elimination of all forms of contingent commissions is, in Mr Berring's view, the best way to avoid any repetition of this problem in future.

"What is incredibly important is the ability for the broking industry, together with the insurance industry, to demonstrate that all revenues are properly identified to the buyers - in such a way that insureds recognise what it costs to provide the services that they need.

"The simplest way to eliminate anybody asking questions as to whether or not untoward actions have been taken regarding the way people direct insurance, which way people price insurance, what coverages are required, what coverages are necessary, and whether the right people are involved, is to eliminate revenue coming from the insurance providers to the brokers who are actually agents of the insureds. Legally an agent has to identify to their principal, all of the conflicts of interest and all of the revenue sources. I'm sure that happens but I think it's probably something that has to be re-emphasised."

So does he believe the new broking models will achieve the required level of transparency? "In the short term, I'm not sure that the models are the answer - they are an answer - and we'll have to wait and see how the principle unfolds. My personal preference is that we go back to proper fees with no forms of contingent commissions, particularly for the size of company that Airmic represents."

Inclusiveness

Another area Airmic intends to focus its efforts on going forward is that of inclusiveness. It wants to broaden its appeal as a trade body to small and medium-sized enterprises, as detailed by Mr Cornish last month (PM, 26 May, p10).

"We are looking to become more of an organisation that can be approached by the SMEs; where people who aren't working under the title of group risk manager or director of risk management can feel comfortable in coming to us and becoming part of the process because they in fact deal with these aspects of their business," explains Mr Berring.

Although he admits it would be easier for Airmic to focus purely on companies large enough to warrant employing a risk manager, Mr Berring explains why changes in business structure necessitate a wider agenda.

"In today's world, with outsourcing becoming a stronger norm and the evolution that goes with that, it is in a large company's interests as much as small company's that risk management is enhanced throughout the process. And I believe a lot of companies that outsource will begin to look at how that outsourcing is managed, both in terms of loss prevention and risk awareness plus what impact their activities may have on the principal's balance sheet."

Looking ahead 12 months, what does he want to see achieved by the end of his time as chairman? "I hope by then we will have put the negatives the industry has faced this year behind us and that we are in a position where people are back with a feeling of trust - that buyers are getting services and prices that they can believe in.

"If I could make one thing happen it would be to return the market to stability and bring back its innovative qualities. By that I mean we have seen pricing go up and start to correct but we haven't seen an awful lot of extension of coverage; we haven't seen a great deal of interest in the longer-term processes. The insurance industry per se is still taking a nervous approach."

Does that mean he has already compiled a list of key meetings and priorities to kick-start his year at Airmic's helm? "I don't see there is any need for me to start jumping up and down - at least I hope there isn't," Mr Berring replies. "And I hope nothing will happen in the next few weeks that necessitates me doing so. I'd like to think this is a year where the chairmanship goes unnoticed because it's a year where everything gets back to normal."

BIOGRAPHY

- Born in Copenhagen and educated in the UK, Peter Berring worked in the international insurance industry for 20 years in both reinsurance and insurance specialising in the non-marine liability area.

- He joined De La Rue in 1994 and is responsible for the facilitation of risk management practice throughout the group.

- He has lived and worked in Denmark, Belgium, New York and London, and has had assignments in Spain, France and Germany.

- He is a member of the Institute of Risk Management, RIMS - the US risk management society, and will become chairman of the Association of Insurance and Risk Managers at next week's conference.

- Within Airmic, he co-chairs the Environment, Health and Safety and Liability Special Interest Group.

- In 1999, he won European risk manager of the year award for the best use of insurance.

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