Upload
others
View
3
Download
0
Embed Size (px)
Citation preview
COVER OF ENTREPRENEURIAL RISKSIMIA WGP 77
25th September 2012Rio de Janeiro Conference
Benedikt Schermutzki
Table of contents
1. Purpose of Entrepreneurial Risk Management
2. Types of Entrepreneurial Risks Affecting the Engineering Industry
3. Insurability Aspect
4. Specific Risks and Insurance
5. Conclusion and Outlook
Purpose of Entrepreneurial Risk Management
In the Engineering Industry:
25/9/2012 3Benedikt Schermutzki – Cover of Entrepreneurial Risks
Active entrepreneurial risk management to better identify, map, control and ultimately manage this complex risk environment.
The risks that each organization faces have become more complex.
Normally damage related
“Conventional” risk
Risk associated with profit-driven ventureRisk of financial natureTypically non-damage related such as project cost over-run, delay in completion, performance failure
Entrepreneurial Risk
Types of Entrepreneurial Risks affecting theEngineering Industry
4
Stake-holders
General ContractorOwner / Principal
Lender
Subcontractor/ Supplier
O&M
Operational RisksFinancial RisksContractual RisksEnvironmental Risks
Risk types
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
Insurability Aspects I
Text le
5
Is it a bet or an insurance product?
Risk
Refers to a situation where the probability of an outcome can be determined and therefore the outcome can be insured against.
Uncertainty
Refers to events whose probability cannot be known and as such disqualifies for insurability.
Risk ≠ Uncertainty
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
Insurability Aspects II
Text level
6
Risk partneringUnderwriting aspects Actuarial aspects
Must be risk, not uncertaintyAsymmetric informationRisk of changeMoral risk
IndependenceRandomnessMeasurabilityLarge number of risks
Motivation of insurersChance to win
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
SPECIFIC RISKS AND INSURANCE
Sabotage, Strike and Lockout
Text level
8
Underwriting Considerations
Description of Risk Market and Products
Political RiskDepends on political, economical, sociological factorsDelay risk (even without physical damage)Carried by owner, contractor or both
Strike, Riots and Civil Commotions Extension (SRCC)Covers only material damage, no consequential lossTo some extent more comprehensive insurance solutions for e. g. strike available. Normally sold on stand-alone basis.
Socio-political situationEvents such as electionsLocation of project: Major city vs rural areaInsured projects itself prone to protests? E. g. nuclear
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
Design errors
Text level
9
Underwriting Considerations
Description of Risk Market and Products
Defect vs damage,condition vs occurrenceMain risk drivers:
CAR: Designer’s errorEAR: Manufacturer’s error
DE1 – DE5LEG1 – LEG3Normally, full defects cover is not granted
(Sub-)Contractor’s experienceDesigner’s, Manufacturer’s experience, loss recordComplexity of projectPrototype technology involved?Does an independent technical inspector exist?
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
Subcontractor/Supplier Insolvency
Text level
10
Underwriting Considerations
Description of Risk Market and Products
Insolvency of subcontractor / supplierInvolves
Additional costsDelayContractual uncertaintiesQuality risk
Subcontractor default insurance
Detailed subcontractor prequalification processQuality assurance programSelection processInsurance on portfolio basis
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
Volatility of Commodity Prices, Interest Rates, Inflation and Exchange Rates
Text level
11
Underwriting Considerations
Description of Risk Market and Products
Fluctuation of commodity prices might affect project costLong term debt can be affected by changing interest rates, affecting profitImpact on cost and profit if foreign currencies involved
HedgingTo some extent implicitly insuredALoP, DSU losses can heavily depend on commodity prices
Economic environmentStability of currencyCap for commodity prices
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
Non-fulfillment of agreed specifications
Text level
12
Underwriting Considerations
Description of Risk Market and Products
Product specificationsEnvironmentalThroughputOutputQualityFinancialAvailability
Limited insurance market availableMainly via liquidated damages insurance
Type: Machinery, Plant, Structure, Fit-outClear measurement possible?Portfolio / Wholesale, no adverse selection
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
Cost overrun
Text level
13
Underwriting Considerations
Description of Risk Market and Products
Owner:Can often push risk to contractor
Contractor:Risk with lump sum projectsProject delay
Specific risk: Unforeseen ground conditions
Sponsor (now disappeared)Non-damage force majeure insuranceLiquidated damages insurance for contractorNon-damage delay cover for ownerNo direct cost overrun insurance products available.
Contractual agreements between owner and contractorClose relationship insurer – insured
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
Insufficient Supply Chain Management and Transport Delay / Disruption
Text level
14
Underwriting Considerations
Description of Risk Market and Products
Supply chain relations getting ever more global and complexInterruption of continuous construction processFailures can increase costs and/or cause delays
DSU/ALoP can include suppliers extensions. Applies for physical damage only.To limited extent available:
Supply chain insuranceTrade disruption insurance
Map critical supply chains and dependenciesAssessment of named suppliersExposure from political and economical perspectivesClear indemnity structure to be defined
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
Conclusion and Outlook
Traditional insurance markets “saturated”
Entrepreneurial types of cover can provide significant opportunities
Demand for non-traditional covers is vast
15
To move the boundaries of insurability significant investments need to be made in product development and new approaches
for risk assessment and pricing.
Benedikt Schermutzki – Cover of Entrepreneurial Risks 25/9/2012
Workgroup members
16
Chairman:
Benedikt Schermutzki (Munich Re)
Sponsor of the Executive Committee:
Max Benz (XL Group)
Workgroup Members:
John Forder (Willis)
Thomas Gebert (Zürich)
Karl-Christian Hertenberger (HDI-Gerling)
Stephan Lämmle (Munich Re)
Katia Luz (Odebrecht)
Federico Pereira (Hannover Re)
Daniela Reia (Odebrecht)
Carl-Johan Silfwerbrand (Allianz)
Darren Smart (Liberty)
Peter Tailby (ACR Retakaful)
John Timothy (Infrassure)
Francisco Triviño (XL Group)
Marina Zyuganova (Renaissance)
Dieter Spaar (HDI-Gerling)
25/9/2012Benedikt Schermutzki – Cover of Entrepreneurial Risks
THANK YOU VERY MUCH FOR YOUR ATTENTION
Benedikt Schermutzki
© 2
010
Mün
chen
er R
ückv
ersi
cher
ungs
-Ges
ells
chaf
t © 2
010
Mun
ich
Rei
nsur
ance
Com
pany