A new study, conducted by Insurance Times’ sister magazine Strategic Risk, reveals the realities of the professional life of a risk manager and how they rate the service providers that they do business with. Peter Joy reports.
A new report based on a pioneering study of 150 risk and insurance managers at major companies across Europe, conducted by Insurance Times’ sister title Strategic Risk, in association with Airmic, is being launched at this week’s Airmic conference in Edinburgh.
The study – based on extensive, detailed online questionnaire responses from 73 risk managers in UK businesses and 77 from the rest of Europe – delved deeply into the realities of professional life for today’s risk manager, including the powers, frustrations and challenges of the role; relationships with the board and business units; risk financing responsibilities; the struggle to make enterprise risk management (ERM) a reality; and companies’ key vulnerabilities.
Equally important, however, were the ratings and frank comments risk managers gave for the service providers with which they do business. These resulted in a clear set of performance benchmarking data and rankings for Europe’s leading firms of ERM consultants, brokers and insurers.
We’ll look at specific companies’ ratings shortly. But first, does service quality – as risk and insurance managers perceive it – actually matter? How strong is the link between poor service and lost business? We asked respondents: “To what extent does the quality of a broker’s or insurer’s service – as opposed to factors such as pricing and brand reputation – influence your company’s decision on which broker or insurer to use?”
With insurers, 28% said service quality was a very heavy influence and 49% quite a heavy one – while 23% said it mattered only moderately, or hardly at all. Overall, the quality of an insurer’s service certainly matters with risk managers. But premium levels, financial stability and quality of cover will also be key factors.
Where brokers were concerned, service quality was vital. Given a range of options, 59% said brokers’ service counted very heavily, another 27% quite heavily. Only 14% – scarcely one in seven – said it counted moderately or hardly at all. By comparison with insurers, it seems, brokers have little to offer but their service (See tables 1 and 2).
Service providers should be under no illusions here. When it comes to hiring and firing decisions, risk and insurance managers have clout. Seventy per cent of our risk manager respondents claimed complete authority or the major influence over which insurer to use, while 78% said the same where brokers were concerned (see table 3).
We’ve established that service performance matters to risk managers – and that risk managers’ views on hiring and firing certainly ought to matter to service providers. How, then, do Europe’s risk managers rate the many outfits that compete for their budget?
Respondents were asked: “In the past 18 months, has your company used any of the following to advise on ERM: Accenture; Deloitte; Ernst & Young; KPMG; Oliver Wyman; Protiviti; PWC? If so, how do you rate their performance?”
Of our 150 respondents, 28 UK and 36 continental risk managers had used such consultants. Of these 64, 36 had used two or more. For each firm they had used, respondents had a choice of five ratings: ‘excellent’, ‘good’, ‘satisfactory’, ‘mediocre’ and ‘poor’. To each of these ratings we assigned five, three, one, minus one and minus three points, respectively. Each ERM consultant’s total points score was divided by the number of respondents rating it, to give an average per firm.
The result? Marsh-owned Oliver Wyman came out top, with an average rating of 2.80 – albeit on only 10 ratings. In second place, on 2.49, was Deloitte, whose 35 ratings appear to make it the largest ERM consultant in the market. Scores for PWC, KPMG, Ernst & Young and Protiviti were all fairly comparable. But Accenture, rated by 16 respondents, lagged behind with an average score of 0.50. While three risk managers rated Accenture good and six satisfactory, seven rated it mediocre. (see table 4).
We asked for any comments they might have on these consultants’ ERM advisory service. While some respondents clearly held ERM consultants they had used in fairly high regard, many focused on their limitations. Companies needed practical, flexible advice, but several respondents criticised their tendency to the theoretical. “Anyone can consult,” said one UK risk manager. “What we need is advice and hard facts, which consultants aren’t willing to do.”
As one risk manager remarked, ERM consultants are naturally tempted to try to sell a standard ‘one size fits all’ solution, to minimise the work involved and maximise profit. And corporate management needs to have a clear sense of the direction in which it wants to go before engaging them.
Temporary visitors to an organisation, remote from both shop-floor and board, consultants often fail, it seems, to make a lasting impression. “When they are gone, the issue fades away,” said one Dutch risk manager, “because of the day-to-day, more specific, more sexy subjects people are working on.”
One UK-based operational risk consultant reckoned that ERM consultants wrongly assumed that companies’ own risk functions did not have the knowledge to develop the function, and were not simply short-handed. The result, he said, was that risk managers spend too much time with the basics and too little in progressing.
Some suggested that ERM consultants were conditioned by their own corporate background – consultants from audit companies, for example, seeing every risk primarily as a financial issue.
These supported accounting and auditing needs, he said, but were rather less helpful in applying risk management to the decision-making process. “I am still looking for a scientifically-founded risk mapping system,” said one Belgian-based chief risk officer. “None of the above can supply this, despite what they say.”
How about brokers? Again, respondents had a choice of ‘excellent’, ‘good’, ‘satisfactory’, ‘mediocre’ and ‘poor’ and to each of these ratings we again assigned points scores and calculated an average per firm.
Top of the league came Lockton, rated by 17 respondents, with an average score of 2.65, followed closely by Jardine Lloyd Thompson and Heath Lambert. Aon, Marsh and Willis were fourth to sixth, with virtually identical scores.
Risk and insurance managers rated HSBC and Gras Savoye, markedly lower, however. According to the average risk manager who had used the firm, Gras Savoye’s performance didn’t quite clear the ‘satisfactory’ bar.
Respondents were also asked to name the best and worst brokers that they had dealt with. Intriguingly, no broking firm seemed to be delivering either a good or a bad service with complete consistency.
Risk managers in the bigger groups were particularly well-placed to compare and contrast. Some had a ‘horses for courses’ viewpoint, though several respondents gave enthusiastic endorsements for their favoured firms – such as one from a UK-based head of risk assurance for Heath Lambert.
“They know our business and seem able to develop the right balance between getting rapport with insurers and extracting maximum value from them.”
There were also the cynics. “Having gone through three major brokers in 20 months,” said an insurance manager, “I would say there’s no differentiation once you get past the honeymoon period with a new broker – which used to be at least 12 months, but issues now seem to arise much earlier.” Much, here, probably depends on staff turnover.
“There is no differentiation once you get past the honeymoon period with a new broker.
But often, strong personal relationships seemed to have bred genuine mutual understanding and a superior service. Like anyone else, risk managers appreciate business partners who are knowledgeable, enterprising, flexible, reliable, detail-minded and proactive – and Locktons, JLT and many others also attracted several warm comments on these points.
On the other hand, plenty of respondents complained about slovenly service, arrogance, poor international capacity and cohesion, a lack of initiative and hard-to-reach contacts.
Several also raised instances of particular brokers, as they saw it, brazenly putting their own financial interests ahead of their client’s (“don’t care about what our concerns are, just focus on what could make money for them”; “still mired in the transactional mindset”). One group risk manager, for instance, described how a large multinational broker, among its other sins, had “worked to insulate us from direct contact with the underwriter/ insurer and did their best to keep the broker, rather than the insured, in the driver’s seat”.
Judging by risk managers’ typical reactions – “so in many territories we sacked them” – this is a very reliable way for a broker to kill a client relationship.
A corporate insurance manager in Austria summed up the reality of brokers’ service as many experience it: “No broker is perfect and they all have to deal with the same issues: lack of transparency and a lack of understanding of the client’s business.” Those, it seems, are the key challenges for brokers.
Finally we asked about insurers. Our 150 respondents were offered a list of 33 European commercial insurers and asked to rate the overall product and service quality of those they had done business with in the past 12 months.
Virtually all leading insurers came out closer to ‘good’ than ‘satisfactory’ as far as average ratings were concerned. It should be noted that RSA and Swiss Re, the lowest-scoring, performed markedly better than many smaller insurers not featured there. FM Global, Allianz Global Corporate and Speciality Risk & Transfer were the top three.
Respondents’ positive comments on insurers focused on expertise, responsive service, competent and conscientious staff, a client-centred approach, flexibility and a hunger – and capacity – for business. For some respondents, a good international network counted heavily. At least a dozen highlighted the importance of efficiency and fair-mindedness in claims.
So what traits distinguished the insurers that risk managers didn’t like? The key points were pretty much the inverse – and again, respondents didn’t hesitate to name the worst performers.
Several highlighted short staffing, inflexibility, slow documentation and a miser’s approach to claims, all of which made such insurers hard to do business with. “We had to fight and nearly start a court procedure to get them to fully pay a claim it was obvious they had to pay,” said one Benelux respondent.
Often, these seemed to be symptoms of short-term financial targets and, as risk and insurance managers perceived it, an almost insulting indifference to the real needs of their business, or to any long-term relationship.
So much for service providers’ achievements and failings. What service innovations do risk managers want to see? Some brokers, it seems, are failing to acquaint their clients with the full range of specialist skills they possess. In one way or another, communication was a near-constant strand through risk managers’ responses.
Several wanted to see more pro-activity, especially from brokers, on emerging risks, trends and legal changes round the world. Others demanded insurers “get beyond the 60s” and use web technology to share, say, benchmarking and loss data, or to let them track claims – above all, to enable busy risk managers to find all their data in one place. “Have an online system in place which is really easy to use,” said one head of corporate insurance, “without restrictions and with real-time value.”
Transparency – both on underwriting methodology and on claims – was another common demand. People wanted to get inside the mysterious black boxes of underwriting to see how they worked. One group insurance and risk manager said he’d like to see insurers rather than brokers providing risk modelling data. “This would give us an insight into their thought process and lead to a more open and transparent renewal process.”
They’d like to be able to compare different insurers’ policies and claims performance meaningfully, too. “I want to pay premiums only to insurers who will pay if a claim materialises,” said one chemicals industry respondent. Where claims are concerned, insureds expect to be treated as valued clients, not opponents.
Several wanted an ‘evergreen’ approach to policies, with stable long-term pricing and near-automatic renewals to free them from the annual renewals process. They wanted insurers to become less fixated on risk-finance and take more account of their clients’ risk management activities.
Brokers, it seemed, could improve their ability to listen – and then use their expertise to make useful suggestions. But the sort of pro-active relationship management people enjoy seems a scarce commodity. “Pro-activity is fast disappearing,” said one respondent, “as people seem to be buried under a growing workload.”
Quite a few comments implied a
lingering suspicion of conflicts of interest among brokers. Some clients clearly wish they had more confidence that their brokers were unambiguously on their side.
Time and time again, respondents mentioned insurers’ and brokers’ process management. It seems to be the key to using time more efficiently – and thus solving many of the issues highlighted above. “Process management in the industry is generally poor,” said one group insurance manager. “Nailing this would make working life so much better.” IT
For information on the three specialised, fully-detailed business insight editions of Today’s European Risk Manager, available to insurers, ERM consultants and brokers, please contact Peter Joy on 0207-618-3481 or peter.joy@newsquestspecialistmedia