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1 Risk Consulting I F S R I S K M A N A G E M E N T J O U R N A L 2 / Insurance and Risk Management in the Baltic states Contractual Risk Management: not just a matter for lawyers!

2 Contents Editorial Tallinn tourist board Uncertain times Sprinklers save lives 6 A transformer's age has an impact on probability of damage 13 Insurance and Risk Management in the Baltic states 28 Best in risk Sprinklers save lives Losses prevented through high safety levels at Domsjö Fabriker The Chief Risk Officer is multi-talented A transformer's age has an impact on probability of damage Packing an important part of the transportation of goods Occupational accidents in the forest industry Captives an additional risk financing tool Contractual Risk Management: not just a matter for lawyers! Benefits, risks and insurance of genetically modified organisms, GMOs Insurance and Risk Management in the Baltic states RM resources have been significantly streghtened is the insurance market heading? or Where Where is the stock market heading? or What about interest rate levels and credit spreads? Today, the insurance and many other industries are facing many uncertainties ahead. Actually, it is fair to say that future has seldom been so unpredictable. First, the insurance industry is now beginning to face sharp increases in claims cost inflation, in particular driven by high inflation in the motor repair industry as well as the construction industry. This inflation stands in sharp contrast to the continued low general consumer inflation in the Eurozone. Insurers are also experiencing rises in operational costs, mainly as a result of increased salary inflation, fuelled by fierce competition in the talent market. Secondly, insurers future investment returns are becoming more uncertain. In the summer and autumn, we experienced turmoil in the equity markets, and the global bond market was shaken up by turbulence in the US sub-prime debt market. Interest rates are still generally increasing (which has a negative effect on investment earnings short term, but a positive effect long term depending on the duration of the bond portfolio). However, lately we have observed interest rate reductions in the US. Thirdly, we are now seeing a stream of M&A transactions in the financial services industry. Most insurers are still very well capitalized and their financial strength is lending them strategic flexibility. Consequently, the Nordic P&C insurance landscape is changing as is the strategy of many companies, with a generally increased focus on geographical expansion in an attempt to benefit from economies of scale. So where is the insurance market heading? In search of an answer to this question, most insurance companies attend the yearly Monte Carlo Rendezvous. This year again, all the important players were present and, as always, many questions were raised. However, this year very few answers were given. Perhaps we just have to learn to live with more uncertainty? Morten Thorsrud Publisher If Vattuniemenkuja 8 A, Helsinki IF industrial Editor-in-chief Juha Ettala Editorial board Olav Breen Ken Henningson Lars von Hertzen Harry Nordqvist Inkeri Salin Anna Maria Vähäkuopus Production Markkinointiviestintä Dialogi Oy Printing PunaMusta Oy Changes of address Risk Consulting is also published in Swedish and Finnish. ISSN Frontpage Tallinn tourist board IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/2007

3 After a period characterised by relatively few industrial claims in the Nordic countries, a number of more extensive losses have occurred during the last year or so, such as the dramatic fire at Danish Crown in Denmark. Intensified efforts to prevent losses and set premiums more carefully will be the result, says Torbjörn Magnusson, If s CEO, below. Best in risk During the most recent years, international claims discussions have focused on the huge natural disasters that have occurred, not least in the USA. Here, in the Nordic countries, storm Gudrun was a major subject of discussion between risk specialists a few years ago. Nothing much has been said about major industrial losses, traditionally the most dominant type of major loss. Naturally, the reason for this is that the Nordic countries have been relatively free of such losses during recent years. However, the trend seems to point toward the Nordic countries reaching the same level of major losses as at the beginning of the 21st century. During last year, a few really major loss- es occurred. The major fire at the Danish slaughterhouse, Danish Crown, is probably one of the ten largest industrial losses in the Nordic countries ever. Another loss that has received a great deal of attention was the fire at the Porvoo cathedral in Finland. For some actors, this can result in an awakening which means that they have to recalculate their risk assumptions. This will most likely result in an adjustment of premiums in certain risk groups, explains Torbjörn Magnusson, CEO of If. In parallel, a very careful analysis must be made could these losses have been prevented using reasonable loss prevention measures? As a professional insurance company, we know that there is an element of chance in major losses. Anybody can suffer a loss. What is crucial to us is how our customer handles its risk management. Those who take the right actions to limit their exposure, perhaps in cooperation with us, stand a good chance of being on the right side of reducing their number of losses and in terms of premiums. To be the best on risk comprises If s sustainable, future strategy. It also forms the basis of our efforts to strengthen our developing position as the leading actor in risk consulting for industrial customers in the Nordic countries and in our work based on the analysis and prevention of losses together with our customers. For industrial companies, risk management is basically about balancing preventive efforts and finances, says Magnusson. A leading insurance company such as If has broad international experience of the customer s line of business. We have sector experts covering practically the entire field: the paper industry, the metal industry, the service industry... This means that we can advise the customer on what is approximately the correct level of measures to engage in when preventing losses in areas like fire, project, employee benefit and liability risks. As major losses have increased in the Nordic countries, we are simultaneously witnessing increasing signs of improvement in the American situation where, first and foremost, liability losses have been subject to intensive court trials, thanks to measures taken at both federal and state level. One of the problems has been that administrative costs of legal disputes have become unreasonably high for companies and insurance companies, Magnusson explains. We now have an ongoing discussion in the U.S.A on how a more sensible balance between legal rights and expenses can be achieved. The Best in risk strategy within If is not directed only at industrial customers but permeates our entire operations. For example, for small businesses If has launched a web-based security test available in tailor-made versions for some 90 various lines of business. This test is the first of its kind and represents a new way of disseminating information on loss prevention quickly and efficiently to a large number of corporate cus- Overview business area Industrial Business area Industrial is a market leader in industrial risk solutions in the Nordic region. Customers are primarily Nordic companies with sales exceeding MSEK 500, and more than 300 employees. The business area has approximately 1,500 customers. tomers. The venture has been a success, with over 20,000 tests taken in Finland alone. The test has immediate and concrete relevance to our customers. Our followups show that those performing the test have suffered fewer losses than others, Magnusson reports. Even for private customers, a number of new initiatives have been taken, ranging from the pioneering launch of If Tracker some time ago, a GPS- and GSM-based alarm for boats that enables the quick recovery of stolen boats, to the rather substantial risk guidance on the net now offered to private customers. The Best in risk approach constitutes today s corporate culture at If, says Magnusson. Ulf Bäckman 4 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/2007 5

4 In fire death investigations certain risk groups like the elderly and people living in care facilities are idenfied. On the other hand, the proportion of men is remarkable, and ordinary families are also represented. The reasons for fire deaths and means of reducing them are known. Various measures are required, but a considerable reduction in the number of fire deaths is possible. Industry A large number of people are killed by fires in the Nordic countries compared with other industrial nations. Recent years we have seen an annual The automatic sprinkler system was developed in the 1860s within the textile industry. Gradually, it became a necessary form of protection in manufacturing and commercial buildings with high fire frequencies, fire loads and large fire compartments. It presented a means of controlling fire hazards and personal risks. As a result, fire deaths in industry are rare today. The greatest risk factor lies in the smoke generated by a fire. In a fire incident, employees can generally exit the building in time if the fire detectors are in order and if emergency exit systems are functional, even under abnormal lighting. Large-scale industry production facilities and warehouses are generally Sprinklers save lives average of fire deaths per million inhabitants in Sweden, Norway and Denmark. The Finnish annual average is 20, rising last year to as high as 23, which is most probably among the highest in Western Europe. sprinklered, which significantly increases personal safety. Generally, the basis for risk management thinking in companies is that a fire s likely rapidity of development has been taken into consideration when determining safety levels: if the estimated fire development at the plant is so rapid that fire-fighting forces would be unable to limit or extinguish the fire, the plant must be equipped with an automatic fire-extinguishing system. In this way, actual flash-overs and related property and personal risks can be avoided. As a result, in industry the safety level is usually better than that required by authority regulations. Dwellings The risk of fire deaths concerns us all, since fatal fires often occur in dwellings. Victims are usually killed by the carbon monoxide and toxic combustion gases, not the flames or the heat. Carbon monoxide is a dangerous gas because it lacks odour, flavour and colour. Burns may also lead to death. In fatal fires, careless handling of fire and a large number of flash-over fires are typical. Many of the victims are drunk and nearly half of fire deaths occur between midnight and eight in the morning. Most fatal fires are started by cigarettes. At times, candles are also a common cause of fires entailing human fatalities. Moreover, deadly fires often begin from electrical appliances used counter to the related user instructions or, for instance, due to a kitchen stove being left on. The majority of lethal fires occur in low-rise, family houses. In a residential flat, a fire can become lethal in approximately 2 to 3 minutes. The majority of fire victims are men. Elderly people also form a kind of risk group, fire deaths being on the rise to an alarming extent within this group. The proportion of elderly citizens is increasing significantly while, for example in Finland, the number of beds in institutional care facilities has been reduced and the elderly are becoming outpatients. Other special groups include the disabled, drug addicts and alcoholics, who are unable to act appropriately when a fire occurs. However, fire deaths also concern ordinary people and families. For some reason, the approach and risk management culture applied to property risk management by companies and industry has not been applied in dwellings, although the value of a human life cannot be compared to the value of property. A corresponding starting point and requirement for housing safety could read as follows: In dwellings, it must be possible to limit or extinguish fires using various means (smoke alarm, automatic fire-extinguishing systems, operational units, structural solutions) so that no lethal gases or flash-overs can occur, and rescue in case of fire is possible. Means of reducing fire deaths In the Nordic countries, studies have been conducted on fire deaths and strategies created to reduce their number. Some years ago, a study was performed in Norway on the operations of smoke alarms and their influence on fire deaths. Smoke alarms have been compulsory in Norway since Based on surveys performed in Skien and Oslo, it was concluded that education works but is not sufficient. According to the Norwegians, the aim of raising the share of smoke alarms to over 90% may have been successful only thanks to chimney sweepers or house managers making personal inspection visits to apartments. In Finland, where the situation is worst, a government-level project has been launched to reduce the number of fire deaths in five years to a fraction of the current numbers. What can we do now? With the correct attitude and behaviour and by employing various protective measures, we can already extensively influence our own safety: Ensuring fire safety. Everyone can improve fire safety through his/her own behaviour, so that fires will not ignite and threatening situations will thus not arise. Be careful when using an open fire. Do not leave candles or an open fire unattended and remember to place them so that they cannot ignite flammable structures or textiles. When using electrical appliances, observe the user instructions and do not overload them. Heat dwellings safely: if heating with fire, do not leave it unattended and do not close the dampers before all of the flames are out. Air chimneys must be swept regularly. Do not cover electric heating devices. Observe the notified safety distances between heating devices and flammable materials. All residents must be familiar with the exit routes of the dwelling in case of fire and know how to act correctly. Whether at home or spending a holiday at a cottage, it is always of the utmost importance that everybody be familiar with the exit routes from their dwelling in case of fire. If the normal exit cannot be used, family members must know alternative fire escape routes, such as other doors or a rescue ladder by a window or balcony. Escape routes must be left unobstructed. In apartment buildings, it is important that If recommends residential sprinkler systems and grants in many cases a substantive discount on the fire insurance premium to homes and flats sprinklered in compliance with the Regulations for Sprinkler Systems (CEA 4001). Kuvapörssi Oy / Jupiterimages the residents know how to act safely in case of fire. Large amounts of toxic smoke easily spread into the stairwell from an apartment on fire. During a fire, it is therefore safest for the neighbours to stay in their own apartment with the doors shut. Apartment buildings have been constructed so that fire does not easily spread from one apartment to another. Do not attempt to exit through a smoky stairwell, as the smoke can quickly make you unconscious! Dwellings should be equipped with a sufficient number of functioning smoke alarms, and carbon monoxide alarms are also recommended. Smoke alarms must be kept in order by e.g. changing their batteries at intervals and testing their operation. For summer cottages and other houses in which open fires are used, carbon monoxide alarms are recommended in addition to smoke alarms, or a combination of a carbon monoxide and fire alarm. Mains powered smoke alarms are already available on the markets, equipped with an emergency power battery in case of a blackout. The system automatically keeps the emergency power battery charged. Activity in one smoke alarm automatically sets off the alarm in the others. A smoke alarm system such as this can also be equipped with a robot telephone, which will call a specified number. The system should be installed during a construction or renovation phase, when all detectors are connected with inter-chained cable tubings and a cable tubing from both ends of the chain to the switchboard. The benefits, reliability and easy maintenance of the system are indisputable. Kitchen stoves can be equipped with a time switch with overheat protection. When a stove heats up to a temperature at which fire can ignite, the time switch will disconnect the electricity supply to the stove. An electrical appliance can be equipped with a so-called fire guard device. Such a guard will disconnect a television, washing machine or other electrical appliance when a smoke alarm goes off. A dwelling can be equipped with an automatic fire extinguishing system. The use of sprinklers, i.e. automat- 6 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/2007

5 This is a follow-up of an article published in issue 1/2006 of Risk Consulting, available on the Internet. (http://ifnews.if.fi) Domsjö Fabriker ic fire extinguishing systems, in residential buildings is a very effective way of reducing fire deaths, simultaneously diminishing property damage. Safety measures are generally examined from the point of view of cost-efficiency. It is advisable to keep fire detectors in good working order, since they provide cheap life insurance. They have saved many lives, and by developing their use, they will continue to do so. However, fire detectors alone are not enough; other technical protective measures must also be taken. One technical protective measure which has risen to a decisive role in the reduction of fire deaths is residential sprinkler systems. Residential sprinkler systems In the USA, residential sprinkler systems have been available for more than 25 years, and in some parts of the country, all dwellings are sprinklered. In Canada, all new dwellings in the City of Vancouver, slightly bigger than Helsinki, have been sprinklered since 1990 and, by 2005, 37 per cent of all residential houses were already sprinklered. The results have been convincing: for example, in the early 1970s, some 30 to 40 persons perished in fires in Vancouver every year, whereas in the 2000s, fire deaths practically never occur. In the Nordic countries, the use of sprinkler systems in residential buildings has not got off the ground yet, but in service homes, various care facilities, hospitals and hotels, they are already common. For example, in Finland, sheltered homes have been diligently sprinklered in recent years, but not many private flats have been sprinklered, with the exception of those in 3-4 story-high wooden buildings, where sprinklers have been obligatory. This is the case even though there is evidence that sprinklers save lives. Modern technology is suitable for homes: the installations use quickly reacting detectors, which means that once the temperature attains a certain point, the sprinkler quickly goes off and extinguishes the fire, minimising water damage. At the same time, toxic fire gases descend to floor level, enabling people to escape. Fire deaths and serious burn injuries have decreased considerably in sprinklered homes: 98-99% of fire deaths and 90% of burn injuries have been eliminated! In June of this year, the Federation of Finnish Financial Services completed the Regulations for Sprinkler Systems for residential buildings according to standard CEA Compared to the original, some national additions have been made to the Finnish version, through which the residential sprinkling usage area has been extended to include small hotels, motels, holiday homes and bed wards at healthcare centres. Similar residential sprinkler regulations are also valid in the other Nordic countries, all of which are based on standard NFPA 13 R. The purpose of sprinklers installed in residential buildings is to detect a fire and extinguish or contain it in one room so that the residents can safely evacuate the building. The sprinkler regulations do not set the same demands on water systems in residential buildings as on those in industrial property, thus enabling the cost-efficient installation of fire-extinguishing systems in residential buildings. In new buildings, small houses included, sprinkler systems only make up 1 to 3 per cent of the construction costs, i.e. equal to the installation of a parquet floor. A sprinkler system can also be installed in a dwelling afterwards. If recommends residential sprinkler systems and grants in many cases a substantive discount depending on the case and country on the fire insurance premium to homes and flats sprinklered in compliance with the Regulations for Sprinkler Systems (CEA 4001). Pentti Kautto Chief adviser, Inspecta Ari Ahonen Domsjö Fabriker at Örnsköldsvik has developed a traditional forestry pulp factory into a biorefinery that engages in complex wood chemistry. Today, the company is embarking on a massive development stage for its refinery, with investments amounting to half a billion Swedish kronor. The largest of the nine investment projects comprises two dryers for lignosulphonate. However, the investments include much more than the development of the chemical process. They partly concern the further training and development of co-workers in, for example, security and safety issues, something in which Domsjö Fabriker has strongly invested. For example, fire safety training forms part of the personnel development of all safety representatives. Since fire safety forms part of our systematic development of our working environment, safety representatives must learn to identify fire risks, says Christer Larsson, Protection and Safety Manager at Domsjö Fabriker. Training is carried out by Örnsköldsvik s rescue services. We also employ a co-worker from the rescue services on a part-time basis. Flexite follows-up and monitors The polishing of Domsjö s Systematic Working Environment, internally termed Samba, continues non-stop. To improve, among other things, the follow-up of reported accidents and incidents, an investment has been made in web-based software Flexite which handles all kinds of deviances. This system provides a good overview of the handling of all loss reports. Flexite can also be utilised for production monitoring by entering reports on deviances in production into the database and running new statistics. The Systematic Working Environment and Fire Protection work will be performed using Flexite, explains Christer Larsson. This means that, as soon as a deviance is reported, those concerned Losses prevented through high safety levels at Domsjö Fabriker and those in charges will receive direct information through . The person in charge will create an action plan and assign a final date by which the actions must be completed. The program will monitor the action plan and send out reminders via . A report on a deviance cannot be archived unless the person in charge affirms that all measures have been taken. The program generates statistics and those in charge can continuously monitor that working environment and fire protection work is carried out non-stop and systematically. In the wake of these investments, Domsjö Fabriker will also install an upgraded system for fire alarms, says Christer Larsson. We will receive the latest state-of-the art alarm system available on the market. Close co-operation with rescue services Anders Tjärnberg, a risk engineer at If, has followed the developments at Domsjö Fabriker over several years and is a member of the group that annually inspects the Domsjö works in Örnsköldsvik from an insurance viewpoint. He concludes that the continuous improvements and alteration work over the last seven or eight years have been very successful. What characterises the safety work of this plant in particular is the willingness to identify all incidents, near-accidents, deviations and accidents and handle them in a professional and efficient manner, he says. Close co-operation with the Örnsköldsvik rescue services is unique and has contributed towards increasing safety levels and risk awareness. There is also an industrial fire brigade at the plant, which naturally contributes towards active risk-based thinking. Professional risk management work Tjärnberg further emphasises the company management s engagement and interest in safety and environmental issues. Professional risk management work at Domsjö has strongly contributed to the excellent safety culture of the works. Safety thinking has become a natural part of daily operations. In connection with all projects, new acquisitions etc, safety issues are also taken into consideration. All entrepreneurs working at the plant participate in thorough safety training. A high safety level costs money, but also saves a lot of money since we avoid accidents and having workers on sick leave. The management has been exemplary in opting to invest in safety and has demonstrably made the right decision. Anders Tjärnberg sees a weakness in the factory s safety organisation: it is, to some extent, dependent on certain personnel. A few enthusiasts run large sections of the safety operations, which leaves the company vulnerable if these people should be absent. At the same time, I am pleased to note that work has been done to reduce this dependency on certain individuals, Anders Tjärnberg concludes. The continuing development of systematic working environment activities, including investments in Flexite, are steps in the right direction. In a biorefinery, the raw wood is utilised in a resource-effective and environmentallyfriendly way. The constituents of raw wood cellulose, hemicellulose and ligning have been developed into special cellulose, ethanol and lignosulphonate. At Domsjö Fabriker, energy, resin oil, soil improvement substances, carbon acid and methane are also produced. The number of ancillary products is increasing alongside the development of the biorefinery. Anders Kumm 8 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/2007

6 Kuvapörssi Oy / Jupiterimages The Chief Risk Officer is multi-talented The Chief Risk Officer (CRO) or Risk Management Director is now an established position in Finnish companies and is responsible for a wide range of tasks, the emphasis of which is moving from property risks to business risks. The most significant challenge for these professionals is considered to be establishing risk management as an integrated part of the management system and business process. In order to be successful, the CRO must first convince line managers of the importance of risk management. At the same time as enterprise wide risk management (ERM) has become more common, a new group of professionals the CRO:s has evolved. The views and opinions of these professionals and the challenges they have experienced were studied in a research project during the spring of The research was organized by Ernst & Young in co-operation with the Finnish Risk Management Association. The target group was the risk management professionals working in Finnish companies and associations. The professional background of individual CRO:s varies a lot (figure 1). This may be due to the relative newness of the position and that risk management in its entirety is quite an extensive area, covering many different sectors. The risk management professionals who answered the questionnaire represented 15 different educational and experience backgrounds in total. When asked, only 17 % of those who answered stated that their education and experience were specifically connected to risk management. The vast majority, i.e. over 80%, have therefore moved to risk management work from another sector, the most common of which is insurance. The other common backgrounds are corporate safety, accounting and financing. Risk management seeks security The objectives that an organisation sets for risk management form an important starting point for the work of a CRO (figure 2). The most common objective that the organisations participating in the research work identified for risk management is ensuring the achievement of targets. Three-quarters of those who answered the questionnaire stated that they had set this objective. Setting objectives is a fundamental part of ERM. According to this, hazards are all those factors that can put the achieving of business targets at risk no matter which risk class they represent. Other objectives, which have been most commonly set are connected with improving risk awareness and the risk management function within the organisation, loss prevention and securing continuity of business operations. In contrast, the objectives connected to economy and financing, such as reducing the fluctuations in profits or cash flow, or ensuring the achievement of the forecasted profit are only rarely set. Thus the dogmas of business economics and financing do not seem to be applied to any significant degree in practical risk management work. This is despite the fact that business economics and financing are well represented in the backgrounds of risk management professionals and that risk management directors or CRO:s very often report to the Chief Finance Officer. Chief Risk Officers participate in many activities and must work in several areas of risk in order to meet the objectives. Typical areas of work cover physical as well as intangible risks, technical as well as commercial risks, together with risks that are internal as well as external to the organisation. However, this does not mean that the CRO would be responsible for all of these risks; according to an established model, the Group Risk Management operates primarily as a coordinator and internal consultant for the managers of the business units, who in practise are responsible for the line risk management. Based on the research results, it is clearly more common for the CRO to participate in developing and co-ordinating risk management activities rather than to be completely responsible for the work. According to the survey, property risk management is the area for which the CRO bears most responsibility for developing risk management strategies. It has been estimated that nowadays property risks occupy most of the time of the CRO (figure 3). Property risks represent the traditional area of risk management, as do health and safety risks, which also demand a substantial portion of the CRO s time. Furthermore risks related to marketing, client contact, competitors and supply chain management have recently emerged, to broaden the scope of CRO s area of responsibility. In the future the emphasis will be on strategic risks The results of the survey suggest that this trend will be further strengthened in the future. When asking the question; which types of risk the CRO:s will put the most effort into during the next three years, it is clear that the risks connected with marketing, clients contact, competitors, partners and networks are clearly expected to rise above the others. It seems that the focus for risk management work in the future will be concentrated towards the strategic risks of business operations. This is an area in which the CRO:s have not traditionally been involved. Only a few of those who answered the questionnaire were of the opinion that in the future the focus should be on property risks. It was also considered that the risks connected to health & safety and economic reporting will demand less consideration in the future than is currently the case. However, this does not mean that these risks will disappear. But so much effort has already been put into these risks, that in the future it is anticipated they will demand less consideration, relative to the newly emerging areas of risk. The main risk management activities for which the CRO:s are responsible include the development of risk management principles, reporting practices and Figure 1. Figure 2. Figure IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

7 Picture 1. tools and insurance (figure 4). However, only one in four of the CROs are responsible for identifying and assessing risks. The survey indicates that this task belongs primarily to those who are directly responsible for the risk, being typically found within the sphere of the specific business operations management. However, it would be beneficial if Figure 4. Figure 5. those working in risk management, actually participate in the risk assessment and provide the necessary methods and tools to carry out the process. Thus it is alarming that almost 40 % of those who answered the questionnaire advised that the risk assessments of investments are carried out without the participation of the CRO, although, it is more common for the CRO to participate in due diligence processes. The challenge is to take risk management to the business operation units The biggest challenges for CRO:s are in connection with introducing risk management to the organisation (figure 5). As many as 80% of those who answered the questionnaire felt their main challenge was to integrate risk management into the management system and business processes. The second most important challenge the questionnaire highlighted was marketing risk management and proving its benefits to line management and business operation units. One third of those who answered also felt that the maintenance of defined operating methods in the organisation was a significant challenge. These three issues are closely connected to each other. To ensure that the organisation maintains the risk management processes, it is necessary that risk management is integrated into practical management and that the benefits it brings are clear for the business operation units. The selling of risk management to senior management in a company seems however, to be a lesser challenge, only stated by 25% of the participants. Using the words of one of those who answered the questionnaire: Senior management has already begun to understand the significance of risk management, however, how do we increase the understanding of the next management levels? The most significant challenges when communicating with senior management are connected to understanding their expectations, clarifying their targets and meeting their targets, i.e. proving the operating ability of risk management to them and the board of directors. The operating environment of companies is constantly changing and developing and the new phenomena that are emerging in addition to familiar risks must be understood and managed. The world of risk is continuously expanding, so that the challenges facing the Chief Risk Officers will not decrease. On the other hand, the same development might ensure that the services of the CRO in greater and greater demand in the future. Fredrik Åström Manager Advisory Services unit of Ernst & Young Oil-insulated Power Transformers The significance of maintenance and automation in preventing transformer damages The average age of Nordic and other European countries power transformers will significantly increase during the next few years and decades. The life span of oil-insulated transformers can be continued significantly through competent monitoring. The history of oil-insulated transformers dates back 100 years. Over the years, alternative types of transformers have been developed, but it seems that the life span of oil-insulated transformers will continue well into the future. Power transformers with an upper voltage of more than 100 kv, are necessary for the undisturbed operations of 12 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

8 a developed society. In electricity generation plants, power transformers transform the voltage of the generator to a higher level for the transmission of electricity in the main grid. The voltage of the main grid must again be transformed to a lower voltage, so that the electrical energy can be utilized in numerous purposes. Nowadays we know how oil-insulated power transformers, which can contain many tens of cubic metres of oil as insulator and coolant, can be safely located from a fire risk point of view. They are also often equipped with an automatic fire extinguishing system. This prevents the fire from spreading outside the transformer area, even though the transformer itself will probably be destroyed in the fire. In these cases, an oil-insulated high voltage transformer can be considered as a competitive choice instead of more fire safe but more expensive alternatives. Anyhow, damages that are limited purely to the transformers are so expensive that they must be prevented through the help of proactive maintenance and modern automation. In 2003, the International Association of Engineering Insurers (IMIA) presented a research, which contained an analysis of transformer failures, which have occurred in IMIA member countries. During the period a total of 94 failures occurred. The total amount of property damage was 150 million, i.e. an average amount of 1.6million/damage. The total value of the losses resulting from business interruption was 114 million, i.e. an average of 1.2 million per loss. One business interruption loss resulting from the destruction of a power plant s transformer totalled 80 million. This single loss increases the average value of a loss resulting from business interruption almost fourfold. The impact of transformer's age on failure probability The 94 failures included in the previously mentioned IMIA research have been divided in Table 1 below according to age. 26 of the failures occurred in transformers that were more than 20 years old. 35 of the damages occurred in transformers the ages of which are unknown. Presumably most of these transformers were extremely old as even their year of manufacture was not known. IMIA s previous research from 1996 and other research carried out in this sector provide similar results. The failure probability of transformers which are more than 20 years old clearly increases. Table 1. Division of failures according to age of transformers (IMIA clarification 2003) Age at time of failure Number of failures 0 5 years years years years years 10 Over 25 years 16 Age unknown 35 An oil transformer is made up of a steel tank, which includes windings and the transformer s iron core. During the manufacturing phase, the windings are covered with insulation paper and electrical insulating board. The steel tank is full of transformer oil and it impregnates the insulation paper, during which time the combination of paper and oil and the electrical insulating board form a necessary electrical insulation. To ensure that the transformer can operate without failure for at least 30 years and that the life expectancy of the transformer can be correctly estimated the properties of the transformer oil and insulating paper must be kept at a specific level. During the normal use of a transformer, oil and insulation paper becomes old and at some phase they are no longer able to fulfil their tasks concerning electrical and mechanical strength. The damage data-bases provide clear observations that transformer damages often arise due to defects in insulation that originate in the interior of the transformer. It is therefore necessary to monitor the ageing phenomena so that reliable information concerning potential faults can be obtained during the earliest phase possible. The most reliable method for obtaining this information is to take oil samples from the transformer oil and carry out a so called Dissolved Gas Analysis (DGA). Certain gases are formed in transformer oil as a result of the transformer s age but they are also formed as a result of different over-loading situations, partial discharges and electric arc phenomena, etc. Normally the first signs of a potential fault occurring are; increases in the levels of hydrogen (H 2 ) and carbon monoxide (CO). When an extensive gas analysis is carried out the following are also examined; the oxygen- (O 2 ) content, nitrogen- (N 2 ) content, methane- (CH 4 ) content, ethane- (C 2 H 6 ) content, ethylene- (C 2 H 4 ) content, acetylene- (C 2 H 2 ) and the carbon dioxide- (CO 2 ) content. Frequency of Dissolved Gas Analysis and interpretation of results A Dissolved Gas Analysis that is carried out in a laboratory should be carried out at least once a year and the received results should be compared with the previous results, so that slowly developing defects can also be discovered. It would be beneficial for the buyer of a new transformer to take samples more frequently during the guarantee period (i.e. before commissioning and at intervals of 1 month, 3 months and 6 months after commissioning and at the end of the guarantee period). A DGA should also be carried out in smaller distribution transformers if they are located in critical places. In such circumstances, it is also possible to use a portable analyser and if the received result is not completely clean then a more extensive analysis should be carried out in the laboratory. The interpretation of the gas analysis results is based on the 1999 IEC standard On the basis of fault types, the most typical gases found from the gas analysis results of oil samples in different fault circumstances are: Fault type Partial discharges Electric arc Thermal fault( warming up of a coupling or other such similar item) Disintegration of insulation paper Typical gas Hydrogen Acetylene Hydrogen carbons, such as methane, ethene, ethane Carbon monoxide, carbon dioxide, furfuraldehyde During recent years, continuously operating gas analysers have come onto the market. These have been installed in the main power transformers of higher voltage transmission lines and in the transformers of generators in large power plants, where special attention has been paid to the prevention of damage to transformers. Automated Protection of Power Transformers Power transformers normally have specific measurement limits and relays, which will provide an alarm in potential disturbance situations and also provide the possibility of disconnecting the transformers from the network. These protection measurements are e.g. - over-voltage - over current - differential current - oil temperature - gas detector i.e. Bucholz relay Picture 2. The temperatures created in an electric arc are extremely high (3 000 C) and can evaporate e.g. metal parts which as the result of the created heat ignite combustible materials. Protection relays should be tested at least every 3 years, to ensure their operation during a disturbance. If the automated protection does not operate during a disturbance, the result can be a breakdown of and/or a fire in the transformer and other equipment. The destruction of equipment and the fire caused can spread extensively in the electrical network, if the electric arc, which is created as the result of the short-circuit is able to propagate due to the failure of the protection equipment in different parts of the electrical sub-station (Picture 1). The temperatures created in an electric arc are extremely high (3 000 C) and can evaporate e.g. metal parts (Picture 2) which as the result of the created heat ignite combustible materials. Damage can also occur to the property of electrical users if it has been connected to the electrical network. The failure of automated protection always significantly increases the probability of serious personal injuries. Major Overhaul of power transformers The reliability of power transformers can be improved and their life-span can be lengthened through the carrying out of major overhaul, when a transformer has reached the age of years. It is possible to restore the original level of the transformer's short-circuit strength by tightening the windings, which become loose during operation and by tightening other active parts of supporting structures. Damage which the iron core and windings have possibly suffered from during use should be repaired and the conductor joints of the internal circuitry should be checked. Dampness from the surrounding environment will always get into the transformer if it is not a hermetic model. The volume of transformer oil varies as a result of variations in temperature and as a result of the transformer breathing open-air in and out. The dampness in the air dissolves in the transformer oil and it is carried along with the oil to the insulation paper. The damp cellulose of the insulation paper begins to disintegrate as a result of the dampness. By Measures for the risk management of power transformers 1) Provide for the safety of personnel by ensuring that only the necessary personnel in the electrical branch have access to the electrical rooms. 2) Plan the location of the transformer and its distances from other structures in such a way that any potential fire will be limited to the transformer itself. If this is not possible, then the construction of the transformer area must be fire resistant. 3) The point of departure must be that the transformer is always protected by an automatic fire-extinguishing system. 4) Carry out regular examinations of the transformer area many times during the year and ensure the tidiness of the transformer area, check for possible leaks and other hazardous factors caused by the surrounding environment (such as vegetation and animals) and check factors which are connected to the temperature and dehumidification of the transformer. 5) Carry out a high level Dissolved Gas Analysis (DGA) once a year and compare the results with previous corresponding information. 6) Test the protective relays at least once every three years. 7) Carry out major overhaul on the transformer well in advance if you are not planning to renew the transformer. 8) Consider other alternatives to traditional oil transformers, such as the use of more fire safe special oil transformers or dry transformers for improving fire safety. drying the insulation paper during major overhaul this phenomenon can be significantly retarded. The transformer s oil becomes dirty during use and its properties are weakened. That is why during basic maintenance vacuum treatment and filtering are carried out on the oil so that the ageing of the oil will be retarded and its cooling ability is improved. In addition, during a major overhaul, the bushings will be checked, seals will be renewed, the protection equipment will be overhauled and the transformer s protection will be supplemented etc. The implemented measures should be documented for following-up the serviced transformer in the future. VILLE VALTA 14 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

9 Packing an important part of the transportation of goods When a product is delivered to a client, it must normally be protected and packed in such a way that is survives the rigours of transportation. Packing is generally taken care of by the sender of the goods. In previous times, it was possible to transfer the responsibility for packing to the consignee by using the incoterms ex works delivery clause. Nowadays, the clause has been amended so that the sender always retains the responsibility. The sender is often the manufacturer of the product and as such is in the best position to have an influential effect on the proper packing of the product and in this way ensure that the product is delivered undamaged. The best method of packing a product depends on many things. Packing is influenced by e.g. the mode of transportation and the rigours of the journey. It is not beneficial to use sturdy packing for short distances and lighter packing can be used in container transportation as compared to transportations which involve handling the product many times. In addition, consideration must be given to the product s susceptibility to damage, the mode of transportation and other factors in the transportation chain such as routes, geographical conditions, the duration and even the time of year. Even though decisions regarding the details of packing have been left in the hands of the sender, clear parameters have however been imposed, e.g. in transportation law. The packing must last the rigours of the transportation The packing of the goods must good enough to last the normal rigours caused Kuvapörssi Oy / Jupiterimages by the transport chain during transportation. The rigours of transportation are in addition to impact and inertia also dampness, variations in temperature caused by the climate and biological strains such as mould and other bacteria. These might cause problems for e.g. the delivery of clothes and leather products as well as feed and foodstuffs. Damage to goods during transportation, which is caused by inadequate packing, generally releases the freight transporter from liability for damages. The insurer of the goods also requires that the goods are packed properly. If the product, due to defective packing causes damage to its surroundings, it is possible that the sender could be liable for substantial damages. This matter must be given particular attention when transporting hazardous substances or materials. Protection from the climate is essential especially when the product is not packed. Large, pressure tanks made of stainless steel were to be transported from Europe to North America in the cargo hold of a vessel. However, during loading the vessel s cargo hold became overcrowded and it was decided to locate the tanks on the vessel s weather deck. The matter was agreed upon between the shipping company and the manufacturer of the tanks. After the journey had already started, some doubts arose about the durability of the tank s material: what effect would the layer of salt that has collected on the surface of the steel during the two weeks have on the A container is a good mode of transportation because it is possible to move the goods that are contained in it from door to door without any of the intermediate handling that places stress on the product or its packing. material? However, this situation had been anticipated by the sender and the surface of the tanks had been protected by an anti-corrosive agent even though this measure would not have been necessary if the tanks had been transported in the vessel s cargo hold. Stainless steel is a corrosion resistant material. However, the abundant amount of salt that collects during a long sea voyage can cause a weakening of the steel structure. When the ship reached its destination, it was immediately rinsed with fresh water to remove the sea salt. The product must be able to last the inertia which is created during transportation. This means that the structure s equipment must not break or change during the transportation. Small objects can be wrapped in padding, which absorbs shocks but the structures of larger objects might need to be supported. Typical examples of larger objects are harbour cranes and ship compartments, which are towed by transportation pontoons. The transportation might last many days and even though weather and sea limitations have been imposed, the goods being transporting suffer from continuous jerking, rocking and buffeting movements. Ship compartments must at the place of destination fit into their correct places, because any changes of form that might have occurred during the voyage could cause significant difficulties for the completion of the ship s project. Easy handling ensures a successful transportation A container is considered to be its own transportation package. When it is a question of a dry cargo container, the goods that it contains can be considered to be in the same conditions as goods that are located in the cargo hold of the vessel, even though the container is actually located on the weather deck. A container is a good mode of transportation because it is possible to move the goods that are contained in it from door to door without any of the intermediate handling that places stress on the product or its packing. Goods should be able to be handled by forklift trucks. Easy handling ultimately ensures a successful transportation. High enough and correctly fastened supporting timbers are one of the most important issues. Damage to the sides of the packing, which is caused by the forks of the forklift trucks, not only indicates bad storage work, but also provides indications of something defective in the planning of the packing. Axles, cylinders and rolled products packed into long boxes are a particular problem. The loading and unloading of these kinds of products into and out of 40 foot containers requires special forklift truck driving skills. Accidents occur. The cloth of a paper machine was torn when the forks of a forklift truck penetrated the end of the packing. The crankshaft of a large diesel engine was damaged when the package fell during handling by a forklift truck. The damages could have been avoided if the packages had been equipment with a sturdy back plate, from where the package could have been pushed into the container. The box could have been taken out of the container by drawing it out as far as possible using loops which are attached at the end of the box and then lifting it either using belts or the forks of a forklift truck. Solutions are not often complicated. However, it requires some deliberation about and preparation for possible problems in the next phase of the transportation chain. A successful transportation and a satisfied client at the end of the transportation chain are reflected as a benefit for the entire transportation chain and above all for the deliverer of the goods. ILKKA KALPIO 16 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

10 VAPO A lot of work has been done in the forest industry to improve occupational safety. Even though the situation has generally improved there is still a long way to go before a satisfactory level of safety is achieved. Individual examples in the sector show that it is possible to reach the so called zero accident level. The challenge is to change the operating culture and environment to such an extent that no accidents occur. Accidents must never become acceptable and through determined effort they can be prevented. When examined from an international perspective, Finland in terms of occupational safety lags behind not only in particular Sweden but also Germany. In 2006, the number of actual accidents in the Finnish paper industry was 38 per every thousand employees, while in Sweden the corresponding figure was 16 and in Germany it was 32. Comparison of figures can to some extent be affected by the various countries different methods of reporting. The best comparison is achieved when an individual company s statistics and their development are compared to the statistics of the sector in question and the entire country. In international statistics, reporting practices and differences in social security can cause even significant differences. Overall, the number of accidents which result in more than three days absence from work is decreasing in the pulp and paper industry in the European Union area, excluding Sweden. It is estimated that in Sweden, only about 55% of the total number of occupational accidents end up in the statistics. Many occupational accidents in the mechanical forest industry In the chemical forest industry, i.e. the manufacturing of pulp and paper, the number of actual occupational accidents is approximately in line with the average number for Finland s industry as a Occupational accidents in the forest industry whole. However, in the mechanical forest industry, which includes in particular, sawmills, plywood factories and further processing the number of occupational accidents is extremely high. Older people have more accidents than others In both the mechanical and chemical forest industry, the number of occupational accidents is greater for people aged over 55 than for any other age group. The number of accidents for this age group has steadily increased, while at the same time the number of accidents for people under 20 years of age has remained the same. However, the number of accidents occurring in other age groups has decreased over the years. The risks for older and more experienced workers are blindness to the hazards of the working place and well-being at work. Inexperience is a major risk factor for young employees. Older age groups can be influenced through continuous education and by e.g. rotation of working tasks. Guidance and induction training for young and inexperienced employees have a major role to play in the prevention work of accidents. Figure 3 includes occupational accidents which have occurred in the mechanical forest industry in the whole of Finland according to year of occurrence and per age group. The age groups have been combined together and the average number of occupational accidents and the range of variation have been calculated for them. The long-term trend shows a decrease for these groups. The development for the pulp and paper industry is similar. How do the occupational accidents in the forest industry occur? The most common reasons for occupational accidents in the forest industry are slipping and stumbling. The most effective way of combating these events is the improvement of house-keeping in the working place. Typical hazards are also the use of hand tools and in the factory environment when workers injury themselves on machinery, equipment and structures. Consideration about the structures should already be given during the planning phase particularly when the machinery is modernised or ancillary equipment is installed in them. When accidents occur they are often serious or quite serious. In the forest industry sector occupational accidents cause considerably more often absences lasting from one week to 2 weeks duration than 4-6 days. Accidents which cause periods of absence that are less than this occur the most often. The effects of full cost liability are seen in the statistics of the mechanical forest industry as increasing the number of accidents which result in absences of 0-3 days when the years 2004 and 2005 are compared. A corresponding increase can not be seen in the pulp and paper industry. In 2005, the most serious accidents (an absence of over 30 days) in both the mechanical as well as the chemical forest industry were mostly caused by unprotected blades and a roll nip or gap. Accidents often occur in connection with trying to repair or correct a malfunction or disturbance during the operation of a machine or during maintenance work and in the paper industry in connection with threading. In some cases stumbling or falling was a contributory factor. Stumbling and slipping in general cause many accidents. Serious accidents happen in the internal traffic of a factory. In most of the cases, a forklift truck had either collided with walls or pillars or had hit a pedestrian. In pulp and paper factories hot pulp or alkaline spillages cause prolonged periods of absence. The use of outside employees has not proved to have had any effect on increasing the number of accidents but it has brought new challenges concerning the flow of information and for finding agreement on common operating methods. Outside contractors, which often use foreign workers, also brings something additional to the work place. This increases the number of matters, which must be taken into consideration, i.e. the translating of instructions into different languages and the need for interpreters. Future areas of focus Based on the compiled accident statistics it is necessary to further improve the safety of machine lines. For example, by analysing hazardous situations and by conducting risk assessments, it is possible to identify hazardous places and dangerous working practices before accidents occur. The internal traffic should be surveyed and the routes which are used by pedestrians should be separated from the routes that are used by machines. An important means of reducing occupational accidents is the prevention of the creation of dead zones. By investing in good management and safe operating methods and culture it is possible to prevent accidents and operate in a preventive way to improve Figure 1. Figure 2. Figure 3. safety. It is important that the management and employees together commit to these targets. The improvement of safety in the mechanical forest industry is a particularly important development target. Pekka Sarpila 18 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

11 Captives an additional risk financing tool The literal definition of the word captive is kept in confinement. This is perhaps apt, because for most captive insurance companies the idea is to keep the risks of the parent company in one place and to extract the best insurance terms available based on the parent company risk profile. Captive Insurance Companies are not a new phenomenon and companies such as I.C.I., Lufthansa and Unilever can trace the routes of their own insurance subsidiaries back to the 1920 s. Interest in the benefits provided by wholly owned subsidiaries started to increase quite dramatically in the USA in the late 1950 s and early 1960 s. It is quite widely accepted that a risk engineer by the name of Fred Reiss discovered that by setting up an insurance subsidiary, US companies could manage their insurance costs more effectively than by utilising the markets available at that time. The implementation of risk management controls and procedures was the key to lowering the cost of claims and consequently also to reducing the costs of premiums. At the same time, new risk management organisations were springing up and conferences such as RIMS were being held in which presentations explaining these benefits were being given. What are the benefits? Once again captives have started to appear on the risk manager s agenda. Previously, the main reasons for using a captive were connected to the potential for saving money by moving from local insurance arrangements in a number of territories to global programmes. The revised interest today seems to come more from a desire to create optimum risk financing programmes using a captive as a tool as part of the change in approach and philosophy. The question most often asked by Chief Financial Officers who are being approached to provide capital to support the formation of captive insurance companies, is what are the benefits? The answer to this varies depending upon the circumstances of each company considering this proposition but it will typically include some of the following: Cornerstone for the formation and administration of Global Insurance programmes Good cost savings can often be obtained by consolidating all programmes with one front insurer with a captive retention sitting behind taking all anticipated losses. Reinsurance for the captive can be provided by the same insurers or a panel where applicable and appropriate. Kuvapörssi Oy / Jupiterimages Non Traditional Insurances Where there is no traditional insurance market product certain risks can prove to be difficult or even impossible to insure. Captives can often create a product and sometimes by demonstrating a commitment to risk management procedures and processes, reinsurance can be found in non-traditional markets in excess of the captive retention. Direct Access to Reinsurance Markets In some cases it is more effective to access reinsurance markets through a wholly owned insurance subsidiary than via traditional insurance markets. Many captives have been formed, particularly in the UK and the USA to gain direct access to specialist insurance pools such as TRIA in the USA and Pool Re in the UK. There are a number of these pools worldwide. Corporate Governance Setting up a captive has always been one method of providing a robust process around insurance buying and risk management particularly where companies have been seeking to consolidate various local policies into a Global programme. The captive has proven to be an ideal vehicle in controlling this process. Ability to create reserves that are not available to non insurance companies General trading companies can create tax deductible reserves for known and quantifiable losses. Only insurance companies can create tax deductible reserves where the quantum is unknown but estimated and more importantly, where it is also known that claims have occurred but have not ever been notified. This is particularly relevant in connection with liability business and these reserves are known as Incurred But Not Reported (IBNR s). This ability to create tax deductible provisions can be particularly useful in smoothing out profit and loss expenses in connection with insurable and sometimes non traditionally insurable losses. Unearned premium reserves, unexpired risk reserves, and profit commission reserves can also be useful in long term financial planning. Long term risk management Reasons relating to individual circumstances are usually acknowledged as the principal benefits of using captive insurance subsidiaries. Today, however, a more holistic view is starting to take shape using captives as a tool as part of a long term risk management and risk financing programme. There are a number of different ideas emerging with varying alternatives depending on the philosophy and viewpoint of the parent company. Examples of these new ideas include: Risk Management Sponsorship The risk prize Profits from the captive are used to invest in risk management and loss control procedures. This can be as simple as paying for seminars for staff or paying for equipment such as sprinklers to be installed. There are various different approaches on how this should be done. The most popular of these is to ask operating units to come up with a plan on how they would spend money to prevent losses. The Directors of the captive would then review them all and award the prize to the best plans each year. No Claims Bonus Rather than pay dividends to the parent, profits from the captive are used as no claims bonuses on future years premiums for operating units promoting an interest in risk management and loss prevention at a local level. A reduction in expenses is always attractive to the operating unit s financial officers. A reduction in future years premiums will also mean a corresponding reduction in Insurance Premium Taxes. However, the tax issue is complicated and has to be studied in depth before deciding to use this solution. Providing insurance covers not otherwise available For some risks, there are no conventional insurance market products or solutions. This often occurs where there are insufficient risks of a similar nature to make it possible for an insurance company such as If to provide insurance. Here a captive can assist by creating a dedicated product tailor made to meet its parent company s needs and requirements. Multi Year Policies Sometimes, particularly where there is an expectation of claims occurring only in one year out of five or perhaps even longer, it is beneficial to have multi-year policy arrangements where the premiums over a number of years are used to pay the claims that arise in one year. Whilst arrangements of this nature are available in the conventional market place, captives can be more flexible in their approach and will often compliment a conventional solution. Captives and Corporate Governance The supervision and control of a captive is the responsibility of the Board of Directors. This creates a robust approach to the control of the insurance and risk management process which is becoming increasingly important with the shareholder s interest in Corporate Governance. It has been reputed that many of the recent captive formations have been driven by the ability to use a captive as part of the Sarbanes Oxley reporting requirements. This list is not exhaustive and there are very many more benefits that have been discovered and used by individual companies. If improves services to the captives FinnCap Oy Finnish Captive & Risk Services Ltd. which is a 100% owned subsidiary of If P& C, has been assisting mainly Finnish Groups in starting up their captives, and also in running them together with their captive management companies i.e. in Guernsey or the Isle of Man or other domiciles. In this work FinnCap is cooperating with the management companies in the domiciles. With Aon Insurance Managers FinnCap has a history of almost twenty years of cooperation in captive work. Furthermore, If has made a strategic decision to try and help the captive clients by improving the services rendered to the captives. A Captive Competence Centre has been formed, and one of its tasks is to come up with ideas on how to improve If s services to captives. Through training and continuous work with captives, If has built up a dedicated team of specialist personnel who have a number of years experience assisting companies and their captive subsidiaries and is uniquely positioned in the Nordic market place in understanding the various issues and the benefits available. Paul Wakefield Aon Insurance Managers, Guernsey Lars von Hertzen Oy Finnish Captive & Risk Services Ltd. 20 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

12 Kuvapörssi Oy / Jupiterimages Contractual Risk Management: not just a matter for lawyers! Today s organisations demand more and more from each other when selling and buying goods or services. They are increasingly dependent on each other s success and on contracts. Contractual risk management is becoming an integral part of organisations operations and management. Claims and contract disputes have increased. Deficiencies in contracts or in contract management easily result in misunderstandings and delays. When problems arise, services and payments slow down, morale suffers and relationships turn sour. The losses to all parties can be significant. Quite often the losses are not covered by insurance. Good contractual risk management can improve a company s profitability, clarify the allocation of tasks and costs, and minimise problems and litigation. Contract risks: what and why? Tasks that used to be handled within an organisation are increasingly outsourced, both by the public sector and by businesses. When shifting from internal operations to vendor relationships, the details of the collaboration, the services to be performed, scope of work, fee structure and other matters must be specified more closely than before. These details must be reflected in contracts. Business must take risks, but the risks that are taken must be in proportion to the expected benefits. Good contracting processes and documents help keep risks at an acceptable level poor processes and documents can endanger a company s finances and future. Contract risks are sometimes seen as part of legal or liability risks. The organisation may face liability if it breaches its obligations. It may incur harmful consequences if it fails to implement its contracts, if its contracts are invalid, or if documentation is defective or lacking. Contract risks can be caused by the other party, for example its inability or unwillingness to pay or to fulfil its obligations. When an organisation operates in the middle of a supply chain, its sellside and buy-side contracts may not support each other. When this happens, both the contract chain and the liability chain may break and result in loss. Competition laws may also add to contract risks. Contracts always have a legal dimension. Yet contracts and contract risks are not just about legal issues, such as damages and remedies for breach. Contract risks may lead to disputes and litigation more often; they threaten business relationships, reduce margins and may prevent the parties from achieving their business objectives. Contracts are al- so business documents, and they should control the causes of potential problems. Contract risks may be caused by unrealistic expectations or too tight timelines. Disputes frequently arise from questions as to whether what is supplied is what was expected. If the customer or client is for one reason or another disappointed in his or her expectations for example an investor with the profits made, or a buyer with the goods or services supplied, a discussion about who is liable may follow. If the contract is unclear, the probability of problems will grow. If these risk factors can be eliminated early, many problems and disputes can be avoided. Contract risks can be caused by attitudes and a failure to appreciate the importance of good contracting practices. Some people consider contracts as a necessary evil and don t pay attention to their content any contract will do just fine. Even in best practice organisations, contracts may be accepted without anybody reading them. No one seems to care about definitions of requirements, standard terms and conditions, or the other documents that are attached to or referred to in contracts. When a contract risk has materialised and a loss has occurred, it is too late to change the risk allocation. However, it is possible to learn for the future, provided that someone makes sure that the lessons learned are shared. Good contractual risk management requires collaboration Contracts direct the flow of cash, information and materials in organisations. When a contract has been made, it provides the parties with a framework for managing the relationship between them. It also establishes the foundation for the allocation of costs and tasks. Once the contract is made, neither party can unilaterally change this foundation. Yet contractual risk management is not just about contract drafting tactics or techniques. It cannot be built on contract language or legal matters alone. Contract documents or the law do not tell anything about the probability, impact or significance of risks. Understanding of the subject matter and the environment is required. Contract risks need to be assessed together with the technical, financial and operational risks of the project. The identification, evaluation and treatment of these risks require collaboration between all members of the organisation who have a stake in the implementation of the contract. Before a contract is made, good contractual risk management involves specifying what the contract is about: the scope of the services or solution, its implementation, and pricing: who will do, arrange and pay for what, where, when and how. It is important that the parties have an overall picture and a common understanding of what it is that is being bought and sold, what is included in the price, and how tasks and costs are allocated. It is in the interest of all that the offered solution meets the needs and expectations of the users. Goals must be concretised and articulated so that needs and expectations can be translated to operational and technical characteristics, requirements and obligations. To ensure that these are understood as intended and in a uniform way, clear and understandable specifications, performance indicators and task lists are needed. The budget and profitability of the project are also built on them. A good contract works as a visible script for the project. In addition, it acts as a contingency plan answering the questions what if (e.g. what if the collaboration ends or the performance of either party is prevented) and what if not (e.g. what if information, payments or services are not received on time or what if they do not conform with the contract). Contracts must contain provisions that anticipate the possibility of a breach by the other party or by a party s own organisation; such provisions can clarify and limit liabilities and remedies and contain time limits and procedural instructions. They should also provide processes by which any problems or potential disputes are controlled so they don t erupt into liability claims. In international contracts, provisions related to the applicable law and the choice of dispute resolution forum can strengthen a party s negotiating position. However, the most valuable contribution of a contract towards risk management is connected to the clear definition of the desired performance and incentives that promote performance on-time, within budget and to the required quality. Effective procedures can also be provided for managing situations where disturbances or problems occur or where either party wishes to exit from the contract. Experienced companies prepare for this possibility, too, during the planning stage. The foundation for good contractual risk management is the merger of technical, financial, legal and implementation knowledge and skills through crossprofessional collaboration, with business objectives as the starting point. A contract can support this collaboration, but the contract alone can not build it. Interaction across professional groups, functions and often also across different organisations is needed. Collaboration among the members of the planning team helps identify risks: what, why and how problems can arise, what is essential in contracts and what alternatives are available for managing risks. By assembling the pieces of the puzzle so that they fit together, a clear, complete, and well aligned picture will be created: a contract which serves operational and user needs and helps implement the project so that the parties reach their goals. Well thought-out contracts and good collaboration also help to clarify the interfaces between different projects and contracts (such as contracts for supply, financing, transportation and insurance) and to synchronise the terms of the contracts that are connected (such as back-to-back arrangements, or passing through obligations and liabilities in subcontracting). In this way, disturbances and risks can be maintained at an acceptable level. Good collaboration and communication at the planning stage help to reach desired outcomes and to agree on the relevant roles, success indicators and incentives. In this way, the parties are better prepared for a smooth collaboration and also for future problems and risks. After all, the contract is not the goal: successful implementation is. 22 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

13 Successful collaboration: who is in charge? Contracts have become important risk management and governance tools. Organisations possess a wide range of contract-related skills and capabilities, yet these are quite often fragmented. Conscious efforts are needed to transform the skills and knowledge of individuals to organisation-level competence. Who then is in charge of the contracts a business makes? And who is in charge of managing the risks related to them? Who is their owner? Is it wise if, first, the sales or account manager is in charge, then during negotiations the lawyers, and after contract signing the project manager takes over, along with production or operations manager, and eventually field or support services? This sometimes seems to be the case in supplier/sell-side organisations. The right hand does not always know what the left hand is doing. Roles and responsibilities related to tasks, costs, and implementation may remain unclear and may not be passed on to subcontractors, and supply contracts may not be coordinated with insurance. Responsibilities and the extent of authority are not always completely clear for the procuring/buyside organisations either. As the number of people who work with contracts grows, it needs to be asked how the contract portfolio is administered and used and how its risks are managed. If the organisation operates multiple facilities in different locations and countries and its units are independent, the difficulties increase. The organisation is not always aware of the contracts made in the different units and whether the units contract processes and documents are up to date. Purchasing power is hard to use if the units do not know of their common suppliers or the value of their total acquisitions. On the sell-side, payment terms, warranty periods, liabilities and other terms may vary If is a trailblazer in the training Contractual risk management skills are needed in an increasing number of tasks. These skills cannot be learned at school, only through hands-on experience. If has been a trailblazer in the training in this field: alongside its predecessors, it has been arranging interactive contractual risk management workshops since According to impact evaluations, the training case studies for these events create a safe environment in which contractual risks can be significantly between the different units and also between the different product and service groups within one unit. Information about aggregate liabilities or risks is not necessarily available quickly. But centralised contract management solutions offer notable opportunities for improvement. They can automate certain tasks along with the management of contract data and documents. Once an organisation has common contract principles and a toolbox ensuring easy access to real-time data, checklists and templates, it is able to use its contracts effectively to manage its business, performance and risk. In this way, the organisation is better equipped to identify situations which require action and to minimise disturbances, disputes and risks. On the business operations level, somebody must ensure that the interests of the different units, functions and professionals are aligned. Contracts must be easy to use and effective, and they must be legally valid. Risks must be reasonable in relation to the anticipated benefits, and the costs of contracting must not become excessive. Operations and resources need to be managed, and processes need to be replicable. Healthy bureaucracy is needed but at the same time, creativity and flexibility also. The strengths of different professional groups must be merged and the various roles and responsibilities must be coordinated. The answer can be a matrix in which each group or function has its own area of responsibility. Yet somebody must be in charge of integrating the different areas. Who then is this somebody who is in charge of integrating the various skill sets, actions, documents and interests related to contractual risk management? The answer varies from one organisation and one from project to another. The sales, procurement, project, risk or contract manager can be in charge of a major part of the whole. However, business leaders and executives are ultimately responsible for business results. So the responsibility for business contracts and for organising the management of contract risks will normally fall on the shoulders of business leaders and executives. In any case, their attitude towards contracts determines how the opportunities offered by contracts are used or whether they are used at all. Executive management can delegate the responsibility for contracts and contractual risk management, as long as it ensures that this is visible in the job description of the person(s) to whom it is delegated. Responsibility is connected to the question of authority: a common understanding is needed regarding both. What matters most is that it is clear to everybody involved. Helena Haapio Master of Laws, Master of Quality (MQ) Lexpert Ltd (www.lexpert.com) Helena Haapio is a Contract Coach for Lexpert Ltd. Before starting her career as an entrepreneur, Helena worked as an industrial lawyer for the Wärtsilä Group in Finland, Sweden, Norway and the USA. She has designed and conducted If s Contractual Risk Management Workshops in Finland and abroad and has received the Export Educator of the Year Award. She also acts as an arbitrator in contractual disputes which can not be resolved through negotiations. Helena is a member of the International Association for Contract and Commercial Management s (IACCM, Advisory Council and acts as the coordinator of its Finnish section. She is actively involved in the development of the ProActive ThinkTank (www.proactivethinktank.com) and the Nordic School of Proactive Law (www. proactivelaw.org). identified and staff trained in their management. Participants have reported that the workshops have equipped them with an overall view of contractual issues. They have also stated that their professional competencies have developed and that they have become more efficient in handling their tasks. Furthermore, they are no longer prey to unnecessary fears relating to contracts: When you are presented with a contract, you know on which issues you can go solo and for which ones you must rely on the help of a lawyer. The company-specific workshops can be designed to provide a forum for new operating models and tools, alongside the opportunity to practice their use. In this way, a reform can be launched that will be firmly established within the organisation. Contractual risk management is a focal point in the concepts of ProActive Think Tank and Proactive Law. The latter is based on Preventive Law, developed in the U.S.A. in the 1950s. Further information: Index Open Benefits, risks and insurance of genetically modified organisms, GMOs During recent decades we have witnessed numerous technological breakthroughs resulting in unprecedented new opportunities for developing products. The first applications of genetic engineering were in the area of pharmaceuticals in the 1970s. One milestone was the decoding of the human genome which was finalised in In the Eurobarometer survey conducted in 2005 the Europeans appeared to be suspicious about agricultural biotechnology which is contrary to their general attitude towards many other new technologies. What are GMOs? In genetic manipulation, the genetic material (DNA) of an organism is altered in a way that does not occur naturally by mating or recombination. The most striking thing is that individual genes can be transported between species, even between animals and plants. The new techniques can also be complementary to traditional cross breeding and other methods. Genetic engineering is often divided between red (health care applications such as drugs, diagnostics, vaccines and gene therapy), green (plants, agricultural products, animal breeding) and grey (industrial processes). The green applications and their risks are mostly dealt with in thisarticle. Most of the commercially used GM plants have been varieties of soybeans, maize, rapeseed and cotton but also rice, sugar beet, potato and even flowers with new colours have been developed. Typically the aim has been to get varieties that can resist either directly pests or diseases or are able to tolerate herbicides. Genetic modification or genetic engineering is part of the biosciences that have been booming recently. The techniques seem to have promising possibilities for enhancing our living conditions. However, the industrial manipulation of the food production chain has in particular also generated concerns and protests against the new products. The positive visions also include agricultural products that are more productive, but still need less chemicals and fertilizers, can withstand poor soil conditions, drought and low temperatures and mature during short growing seasons. The developers of genetic engineering see it as an important sustainability supporting survival tool for the world s growing population. The production area of GM crops has been growing steadily since1996 This is when the USA accepted the first soybean variety commercially grown according to the policy adopted by the country to support GM plant production. The production area is now over 100 million hectares, more than the size of Germany and France together. Soybeans represent about 60% of the area and maize some 25%. Over half of the 24 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

14 Million hectars 100 area is in the USA, but countries such as; Argentina, Brazil and Canada are following suit. Production in the EU is minimal and the suspicions held by the Europeans about the safety of the GM products and the difficulties in getting acceptance to export GM plants to the EU has caused conflicts that needed to be handled in the World Trade Organisation WTO. The EU has accepted international conventions on the subject and is committed to accepting GM products in its market, when they have been thoroughly researched and found to be safe. What are the risks to human health? The genetically engineered products on the market are highly regulated especially if they are intended for hu Agricultural production area of GM plants in the world Source man consumption. Accordingly, intensive testing and scientific evidence are required on the safety of the products before entering the market. As allergies are quite common and as they are caused by many traditional products as well, they are also expected from GM products.. The scientists do not generally believe that allergies would increase, but some experts still fear that allergies may rise due to the transferring of allergenic genes from other species. Risks may also appear, if there are allergenic features in products, which did not have them before and the consumers are unaware of this. This risk may then be reduced by clear labelling. Basically the scientists say it is quite possible to diminish effects such as allergies through GM. The most renowned accident involving a GM product was the Star- Link maize case in 2000 in the USA. The product included a protein known to cause allergies in humans. It was approved for use as animal feed. However, it was later found in tortillas and many other products intended for human consumption. It had been mixed during production with other maize varieties. This led to the recall of all the products from the market resulting in an estimated cost of over USD 1 billion. The new products may also contain new toxins or the toxins already existing may appear in greater amounts. These are investigated using analytical chemistry and are sometimes hard to find. The majority of researchers consider that the risks of toxins in conventional breeding are similar or greater than in GMOs. In the early development stage of GMOs antibiotic resistant genes were used as marker genes in the process of handling the cells. Marking is important for finding and identifying GMOs. There was a discussion about whether this could lead to the same characteristic being transferred to humans. So far there is no evidence to support that this is possible directly to human cells. The problem of antibiotic resistant diseases increasing is considered to happen due to the excessive use of antibiotics and the use of antibiotics in animal breeding. Maybe the most often mentioned risk in the debate is the neighbourhood effect. The genes may change neighbouring genetic material and it could be difficult to predict the outcome. Also some critics have argued that there One of the Member States performs ERA Public consultation maybe a lack of control when the new genetic material attaches to the receiving DNA. The GM plant cultivation can cause damage also through cross pollination. It is actually impossible to totally prevent the GM crops commingling with other crops being cultivated nearby causing genetic pollution. But the scientists defending the genetic engineering say that the question is rather, whether the cross pollination actually poses a threat and they answer no. One reason supporting this is that only some of the plant species have close relatives GMO risk assessment and authorisation process in the EU GMO application risk asessment Opinion European Comission / Member States EC/MS: Authorisation (or not) Consultation of all EU Member States Risk assesment Risk management Index Open in the environment or that their biological characteristics prevent them from living to the age of breeding. One effect could also be that the resistance to pests could lead to wider unpredictable consequences to the species involved than necessary. Regulation of GMOs in the EU The EU and its member states and most of countries of the world signed the Cartagena protocol on bio-safety in 2000 The aim of the protocol is to ensure adequate safety in the transboundary movement and use of living modified organisms resulting from modern biotechnology that may have adverse effects on biological and human health. The EU legislation which regulates the GMOs have two main objectives: to protect human health and environment and to ensure the free movement of safe genetically modified products in the EU. Currently the main legal bases are Regulation (EC) No 1829/2003 on GM food and feed, and Directive 2001/18/EC on the deliberate release into the environment of GMOs. The basic difference between these two procedures is that the decision concerning the use of GMOs for food or feed is completely centralised and the decision is applied in all member states. The applicant sends the application to the member state, but the material is then forwarded to European Food Safety Authority, EFSA, who will give the scientific opinion before the decision is made by the European Commission. In the case of the cultivation of GMO, the member state in question must also perform an environmental risk assessment. According to the Regulation the food and feed products must not: have adverse effects on human health, animal health, or the environment; mislead the consumer or user; differ from the food/feed they are intended to replace to such an extent that their normal consumption would be nutritionally disadvantageous for human beings (and for animals in the case of genetically modified feed). in the case of genetically modified food and feed, harm or mislead the consumer by impairing the distinctive features of the animal products. As an exception to the above procedure, to get a permit for the deliberate release of GMOs into the environment, either for experimental or production purposes, then a risk assessment is carried out by the member state and sent to the commission and then onward to all member states for input. The member state may then make the decision, unless there are unresolved objections between the member states. In this case EFSA is asked to provide a scientific opinion and the matter continues to the European Commission for a decision. At the moment there are 84 different products either accepted for use in the EU or in various stages of the application process. No products have so far been accepted for direct use for human consumption. In the USA millions of people are eating food products containing GMOs every day. Some consider the American pro-activity in this matter to be the widest experiment with people s health. But so far nothing alarming has been heard from the other side of the Atlantic. The labelling of GMO products is also regulated by the EU. The important element in the regulation is the traceability of all GM raw materials, ingredients or food. Each party in the production chain must keep and pass on information to the subsequent party to ensure that the final consumer receives it. Labelling is not required, if the GMO content in another product is less than 0.9% and the substance is approved by the EU. Unapproved GMOs are not tolerated at all. One controversial issue has been that labelling is not required for food which is produced with the aid of genetically modified organisms such as meat, eggs, milk or other dairy products from animals that have been fed with GM feed. But here again the approved science has the clear opinion, that GMOs can not jump from food to the eater. Liability and insurance of GMOs Even if the research and regulation are very thorough there is the potential for liability. Here are some potential loss scenarios: the GMO seeds contaminate other types of seeds which causes property damage the GMO is transferred to wild species the GMO is cross pollinated with other agricultural plants the fields must be restored allergies or other health effects for consumers a loss in the value of animals due accidental feeding with GM feed The legislation in most of the countries in regards to losses caused through GMOs is based on strict liability. This is because the product liability and environmental liability regimes are already usually based on that principle. The EU directive on environmental liability (2004/35/CE) in regards to the prevention and remedying of environmental damage which is being currently implemented adds GMOs to the list of strict liability for the new liability elements also. These and other risks may be covered by the general liability, products liability and recall insurance or environmental impairment insurance. The attitude in the insurance and reinsurance market has so far been to accept the GMO risks within the normal liability insurance cover. GMO products are also products. There are specific problems in assessing these losses as it may be difficult to estimate the value for example in the case of cross pollination. Additionally as with all new technologies affecting the health a possible latent long term health hazard can not be totally excluded. That forms the ultimate fear for insurers too i.e. that there is the possibility of numerous people getting ill and consequently numerous insurance policies being triggered simultaneously. The GMO risks may also affect property insurance (contamination) and marine cargo insurance. The technical risk management is based on the strong regulation of the activity. In the production, transport and handling of GMOs more stringent procedures are unavoidable. Matti Sjögren 26 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

15 Tallinn tourist board Insurance and Risk Management in the Baltic States The Nordic countries number among the top investors in the Baltic States economies, beginning to invest in the region subsequent to Lithuania s, Latvia s and Estonia s regaining of their independence. Nordic companies have already entered their second decade of such investment activity, and the Baltic States remain a foreign investment magnet, due to the rapid growth of their economies. In 2006, Lithuania alone generated 7 billion euros more in direct foreign investments than in 2005, representing a rise of 48 per cent. If s offices in the Baltic countries coic growth rates in the European Union, with the P&C insurance market skyrocketing every year. In 2006, the P&C insurance market grew by 30 per cent in Lithuania, 32 per cent in Latvia and 16 per cent in Estonia. P&C insurance penetration represented 1.06 per cent GDP in Lithuania, 1.5 per cent in Latvia and 1.7 per cent in Estonia. However, the Baltic States insurance markets remain in the development phase. It cannot yet be claimed that there is a widespread tradition of using insurance as an everyday tool and insurance prices remain unsteady: insurance companies do not, in all cases, precisely evaluate the risks they are taking and often sacrifice profit for the sake of rapid growth. These problems, typical of immature markets, have least effect in Es- In Lithuania, people associate insurance with drivers third party liability insurance or with the generally insufficient Soviet insurance. The reason is that Western type of insurance began to develop only after the achievement of independence in 1990, by which time major foreign insurance companies had entered the market. Around 70 percent of all business companies in the Baltic States use insurance services of various kinds and almost 50 percent insure their business property, which is not compulsory. The popularity of commercial insurance products is growing every year, but it is obvious that huge scope for future growth remains, especially for cross-sales. The Baltic States are currently enjoying one of the strongest economtonia but are very pronounced in Latvia and Lithuania. If P&C Insurance in the Baltics Sampo P&C insurance company opened headquarters in the Baltic States in In 2002, (when Sampo merged with IF P&C Insurance Holding Ltd) Sampo insurance changed its name to If. Today, If has a broad network of offices in all of Lithuania s, Latvia s and Estonia s major towns. The company s headquarters are situated in the Baltic States capital cities Vilnius, Riga and Tallinn. At the moment, the company has almost 700 employees located across all three Baltic States. In the Baltic States, If provides all of its P&C insurance services to business and private clients. It has over 300,000 clients in the region and in 2006 had 121 million euros worth of Gross Written Premiums (GWP). If commands a 16.3 per cent share of the overall P&C insurance market in the Baltic States. Changing attitudes among the clientele For long, many business people have believed that their factories could not possibly burn down, but life has proven otherwise. Last year, the factory of a furniture producer in Estonia burned down, despite being built of stone, bearing additional witness to the fact that there is no such word as never, even when loss prevention has been carried out. Such resonant cases are not the only force making businesses turn to insurance services. As business grows and absorbs the rules of its western equivalent, the situation is in constant flux. Yesterday, the commercial insurance market was mainly driven by compulsory insurance such as compulsory motor third party liability insurance and businesses bearing huge responsibilities such as having to insure their liability as notaries, lawyers, auditors, bailiffs and others. Today, the attitude has changed dramatically. Companies are searching for professional risk management and new advanced products, as business interruption insurance draws more and more of their attention, says Lina Necajeviene, Head of If draudimas MAS department. Services for Nordic corporate clients 28 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

16 A-lehtien kuvatoimitus Appointments: Vilnius, the capital of Lithuania, has 540,318 inhabitants. operate with Business Area Industrial. In response to growing business demand, If P&C Insurance is establishing Major Accounts Service units, designed to work alongside the company s biggest clients. MAS units offer our clients tailor-made insurance solutions and risk management services. If s Baltic MAS teams are cooperating closely with each other and with Business Area Industrial, since our target client usually has insurable interests in several countries, comments Janis Sprindzuks, Director of If Latvia s corporate client department. Today, Lithuanian and Estonian IF P&C Insurance already have MAS departments for dealing with major clients. The Lithuanian MAS unit serves more than 500 clients and the Estonian unit more than 400. The Latvian office plans to launch its MAS unit this July, expecting to serve 250 clients at the outset. Providing more The Baltic If P & C Insurance subdivisions seek to retain their strong positions in the business segment without relying solely on price competition. Loss prevention and other additional value programmes are constantly provided for major clients of the company, to make them satisfied with the insurance services. We are active in identifying the unprofitable areas of our client portfolio and analysing them: profitability, loss frequency, burning cost and other factors. Risk selection, risk improvement programmes and pricing are the main tools of our trade. Through risk selection, we avoid clients who do not meet the security or quality standards we have set, explains Sprindzuks. Through risk improvement programmes, If Latvia also involves clients management in issues touching on site fire security, maintenance problems, personnel education and claims frequency. Risk improvement programmes include specific tasks and deadlines, such programmes being an excellent tool for long-term client relationships. Our main challenge is to identify the right split between frequency claims and large losses, and to try to balance the income between them, explains Sprindzuks. According to Lina Necajeviene, Head of If draudimas MAS department, If draudimas is moving into preventive activity, trying to provide additional value to its clients. We are risk management professionals and provide help to companies, not only when accidents occur but also with respect to their operations and in order to prevent losses, states Necajeviene. We can suggest flexibility and clarity for our clients, thus being differentiated from other market players. Even for large companies, we prepare single policies without separately adjusting standardised instructions for every operational subdivision, which helps to avoid problems, adds Necajeviene. In Estonia, the MAS department acts mainly upon the same principles, guidelines and loss prevention policy as all other underwriting and sales units without a different, stand-alone underwriting policy, such as that held by If s Business Area Industrial in Nordic. In general, we can say that our approach of working in partnership with our clients has provided us with unparalleled knowhow in devising practical solutions for risk management issues. At the same time, we have gained knowledge of losses, enabling us to recognise exposures in our clients business, explains Indrek Kass, Head of If Eesti Kindlustus MAS department. Nowadays, the Baltic States are living through a bright insurance era. Hopefully, growing and enhancing the business will lead to greater profit and the insurance market will experience further, successful growth. Much of this growth will depend on the business world, which is beginning to understand demand for insurance more and more clearly. Jurga Lapkaite Baltic States in General: The three Baltic countries, Estonia, Latvia and Lithuania, are often grouped together as the Baltic States, or Baltic Nations. They are located in North Central Europe, on the eastern fringe of the Baltic Sea, and along the western border of the Russian Federation and Belarus. The Baltic countries gained their independence from the former U.S.S.R. in Despite their similar history, these countries are different according to their economical, geographical and cultural nature. The Latvian and Lithuanian languages belong to the old Indo-European language group and Estonian words bear similarities to those in the Finno-Ugric languages. Latvia s capital, Riga, is the largest city by population in the Baltic States, with 725,578 inhabitants. Vilnius, the capital of Lithuania, has 540,318 inhabitants while Tallinn, capital of Estonia, has 396,193. All of the Baltic States are members of the European Union and NATO. At the moment, Latvia is enjoying rapid growth in GDP of 10.4%, while that of Lithuania and Estonia is increasing by 7.8 and 9.1 per cent, respectively. Each of the Baltic countries has its own currency (the Lithuanian Litas, Latvian Lat and Estonian Croon) which are freely exchangeable in local banks). RM resources have been significantly streghtened During this year the RM unit has been strengthened significantly; the latest new recruitments are: Matias Boström, MSc (Eng) Matias who is based in Stockholm, has over 5 years of experience in civil engineering industry specializing in foundation construction matters, now specializing in CAR/EAR risk management. Matti Koskenkari, M.Sc (Chemical Eng) Matti is based in Helsinki and has over 10 years experience in production and property risk engineering, specializing in chemical industry. Bo Grunnet-Nielsen, M.Sc (Eng) Bo who is based in Copenhagen has over 10 years experience of risk engineering specializing in major clients. Håkan Edoff, MSc (Eng) Håkan who is based in Stockholm has over 5 years of experience in property engineering, specializing in technical solutions for fire prevention. Vesa Lieho, M.Sc (Eng) Vesa who is based in Helsinki is experienced in human risk management, mainly health and safety. Currently specializing in health, safety and travel risks. Janne Virki, B.Sc (Eng) Janne who is based in Helsinki has over 5 years of experience in fire engineering, specializing in sprinkler techniques and pulp and paper industry Patrik Fahlström, MSc (Eng) Patrik is based in Malmö and has over 10 years of experience in property risk engineering and is specialized in specializing in wood furniture-, saw mill and paper&pulp industry. Jonas Pehrson, Master Mariner Jonas has over 10 years of experience in cargo and transportation risk management and is based in Gothenburg. Philip Preston, MSc (Hydrology for Environmental Management) ARM Philip who is based in Copenhagen has over 10 years experience within property and environmental risk management specializing in pharmaceutical production companies. Heini Heideman, new UK Branch Manager / Head of International Sales Heini has over 20 years experience within Industrial insurance business and previously worked as Nordic Head of Cargo Underwriting in If. Reija Laatikainen, new Head of International Service and Business Support Reija has over 20 years experience in insurance business, previously worked as Head of Industrial Control Unit in If. Lotta Ogenstam, new Head of Sales and Client Servicing Sweden Lotta has over 20 years experience in broker firms, previously as Chief Operating Officer of Aon Sweden. Erik Bruzell, Eide new Head of Sales and Client Servicing Norway Erik has an extensive background in insurance business. His previous position was Chief Executive Officer of Willis AS. 30 IF S RISK MANAGEMENT JOURNAL 2/2007 IF S RISK MANAGEMENT JOURNAL 2/

17 SWEDEN If P&C Insurance S Stockholm SWEDEN Visit: Barks väg 15 If tel. P&C +46 Insurance (0) S-106 fax (0)8 Stockholm Visit: Barks väg 15 tel. +46 (0) fax. If P&C +46 Insurance (0) Vikingsgatan 4 S Gothenburg If tel. P&C +46 Insurance (0) Vikingsgatan fax. +46 (0) S Gothenburg tel. +46 (0) fax. If P&C +46 Insurance (0) Västra Varvsgatan 19 S Malmö If tel. P&C +46 Insurance (0) Västra fax. +46 Varvsgatan (0) S Malmö tel. +46 (0) fax. If P&C +46 Insurance (0) Box 190 S Sundsvall If Visit: P&CUniversitetsallén Insurance 2 Box tel (0) S-851 fax (0)60 Sundsvall Visit: Universitetsallén 2 tel. +46 (0) DENMARK fax. +46 (0) If P&C Insurance Stamholmen fi 159 DENMARK DK-2650 Hvidovre If tel. P&C +45Insurance Stamholmen fifax DK-2650 Hvidovre tel fax FINLAND If P&C Insurance FIN IF FINLAND Visit: Vattuniemenkuja 8 A If Helsinki P&C Insurance FIN tel IF Visit: fax. +35 Vattuniemenkuja A Helsinki tel If fax. P&C +35Insurance FIN IF Visit: Niittyportti 4 A If Espoo P&C Insurance FIN tel IF Visit: fax. +35 Niittyportti A Espoo tel fax. NORWAY If P&C Insurance P.O. Box 240 NORWAY N-1326 Lysaker If Visit: P&CLysaker Insurance Torg 35 P.O. tel. +47 Box N-1326 fax. +47Lysaker Visit: Lysaker Torg 35 tel fax. If Safety Centre Ringvoll N-1827 Hobøl If tel. Safety Centre Ringvoll fax N-1827 Hobøl tel fax FRANCE AND LUXEMBOURG If Assurances France 4, rue Cambon, 2e étage FRANCE F Paris AND LUXEMBOURG tel. If Assurances France fax. 4, rue +33 Cambon, e 09étage 76 F Paris tel GERMANY fax If Schadenversicherung AG Direktion für Deutschland GERMANY Siemensstrasse 9 If D Schadenversicherung Neu-Isenburg AG Direktion tel für Deutschland Siemensstrasse fax D Neu-Isenburg tel fax. THE +49 NETHERLANDS AND BELGIUM If P&C Insurance THE Boompjes NETHERLANDS 413 NL-3011 AND BELGIUM XZ Rotterdam If tel. P&C +31Insurance Boompjes fax NL-3011 XZ Rotterdam tel fax. GREAT +31BRITAIN If P&C Insurance 2nd floor, 40 Lime Street GREAT London BRITAIN EC3M 7AW If tel. P&C +44 Insurance nd fax. +44 floor, Lime7629 Street London EC3M 7AW tel fax ESTONIA AS If Eesti Kindlustus Pronksi 19 ESTONIA EE Tallinn AS tel. If +372 Eesti6 Kindlustus Pronksi fax EE Tallinn tel fax. LATVIA AS If Latvia Kronvalda bulvaris 3 LATVIA LV-1010 Riga AS tel. If +371 Latvia Kronvalda fax bulvaris LV-1010 Riga tel fax. LITHUANIA UAB If Draudimas Zalgirio 88 LITHUANIA LT Vilnius UAB tel If Draudimas Zalgirio fax LT Vilnius tel fax. RUSSIA CJSC If Insurance P.O.Box 16, FIN Lappeenranta RUSSIA Visit: Malaya Konyushennaya 1/3, CJSC office If B Insurance 42 P.O.Box St.Petersburg, 16, FIN-53501Russia Lappeenranta Visit: tel. +7Malaya Konyushennaya /3, office fax. +7B St.Petersburg, Russia tel fax Relax, we ll help you. Relax, we ll help you.

BUSINESS ASSURANCE VIEWPOINT REPORT. Saving energy today for a brighter tomorrow JUNE 2015 SAFER, SMARTER, GREENER


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