In Europe, Multinationals 'On The Edge' of change

Risk & Insurance, Jan, 2004 by Graham Buck

Europe's risk managers often fail to access insurance markets on a global basis--and their insurance cover suffers from their conservative attitudes as their companies pay more than they need to.

That is a conclusion of London-based insurance broker Aon Limited's latest snapshot in On The Edge: European Multinationals Property Report.

It suggests European buyers accept higher prices and more restrictive terms than are necessary because of their preference for domestic markets. Until recently, most were able to access adequate capacity locally. However, with less capacity now available and rates increasing, they must look beyond their own borders or risk missing out.

Much of the problem relates to culture, said Nick Maher, chairman of Aon's Property Global Practice Group.

"In many European markets, the concept of insurance broking is relatively new, and strong ties have existed for many years between Europe's leading multinationals and the big insurance companies," he said. "As a result, there has been little encouragement to take a more global approach."

"Similarly, there has been little encouragement to consider alternative, less conservative program structures--those that may involve higher levels of self-insurance, for example," he also said.

But the tide may now be turning. German electrical giant Siemens AG has already made waves by going outside the country's strong domestic players to access markets.

The report also suggests their U.S. counterparts enjoy generally broader coverage and more attractive premium levels because of their greater readiness to provide underwriters with comprehensive, good quality data.

But many are reluctant to divulge such information to insurers or to engage in the one-to-one negotiations with underwriters that go beyond simple 'box-ticking' procedures.

Premiums have soared in the past two years, but the report's title reflects the fact that they could now go either way, particularly in the property markets.

"Discipline is holding in the underwriting process and the new capital hasn't entirely replaced that which was lost," Maher said. "But premiums are showing signs of softening, although not all clients will see reductions."

And while terrorism may have headed the European agenda two years ago, it has since moved down several notches. "With the exception of those based in major financial centers, most European companies simply don't regard themselves as terrorist targets," said Maher.