European companies increasingly are turning to self-insurance and captives as risk management becomes more sophisticated and takes a higher management profile, according to a new survey.

The latest Biennial Risk Financing and Insurance Survey conducted for Alexander & Alexander Services Inc., now a member of Aon Group, also found increasing concerns about crime, particularly computer crime, as well as fears about stress-related claims.

In addition, despite few premium increases, risk managers reported difficulty buying some types of insurance, including environmental liability insurance.

Of the 171 companies that responded to the survey, conducted for Aon by London-based Underline Communications Ltd., the majority are U.K.-based. Nearly 60% have annual revenues exceeding 1 billion pounds ($1.62 billion).

The group includes companies in materials production and mining, engineering, transport and general manufacturing, with 78% of their revenues from Europe. The remaining revenues were split between the United States and the rest of the world.

The number of companies retaining their own risks to a "significant" extent has increased markedly since the survey first was conducted in 1991. Now, 92% of companies retain their own risk to a significant extent. The survey did not define the term significant. In 1995, 85% of the companies said they retained their own risk to a significant extent, and just 56% did so when the first survey was done in 1991.

Retentions also are rising. For example, 30% of respondents now have a retention level of 250,000 pounds ($405,000) or more per occurrence for property losses, compared with 20% of respondents in 1991.

And liability retentions are at 250,000 pounds or more for 34% of respondents, compared with 24% in 1991.

The growth in retentions is expected to continue, despite the current soft insurance market. By 1999, 41% of the respondents expect property retentions of 250,000 pounds or more and 36% expect liability retention levels of 250,000 pounds or more.

An increasing number of companies-79%, compared with 68%

in 1995 and 51% in 1991-are using higher retentions to bring about attitude and behavior changes in managers.

"The increased use of risk management techniques coupled with better records of historical losses have undoubtedly contributed toward higher retentions," according to the survey report.

"Just as important, however, are past restrictions placed on cover by insurers and the huge swings in the cost of cover between hard and soft markets, which has undermined long-term confidence," the Aon survey report continued.

The use of captive insurance companies also has grown to 65% of respondents from 57% in 1995.

Captives also are funding a larger percentage of companies' risks and are providing broader coverage. Among companies with captives, 54% of total premiums are being channeled through their captives, compared with 39% in 1991.

The survey also showed that 80% of respondents used cost-benefit analysis to select retentions, as compared with 48% in 1991.

Similarly, 71% of businesses conducted loss forecasting studies, compared with 52% in 1991.

While retentions are increasing and more companies are using captives, finite insurance products are not as popular. For example, 9% of respondents said they have finite risk programs, while 65% said they may consider them in the future.

The survey clearly reveals a growing band of specialized risk and insurance executives and managers responsible for risk and insurance in larger companies, with 72% of companies surveyed noting that the importance of risk management is increasing within their organizations.

Nearly two-thirds of risk management and insurance departments now report through finance/treasury and 14% report directly to the chief executive. Final decisions on corporate risk management and insurance issues are now, in 66% of cases, settled by the main board or a special committee reporting to the board.

Of the top 10 risks perceived to be the greatest threats to companies, fire remained the most important worry. Business interruption meanwhile moved into second place, up from fourth in 1995. Environmental risks moved up to fourth feared compared with sixth while computer crime jumped to fifth place from 12th. Other crime, fraud and theft also moved up to seventh place from 10th.

However, the report also noted that a significant number of businesses continue neither to perform risk audits for major risks nor institute business plans to cope with such incidences.

The most difficult lines of insurance to buy were identified as environmental, terrorism, employers liability, business interruption and computer crime.

New areas of claims causing concern for companies are repetitive strain injuries, with claims received by 54% of respondents, and stress and psychological disorders, with 31% of respondents already receiving claims.

The 1997 survey reflects the current soft market with the majority of respondents experiencing no premium increases and more than a quarter seeing reductions of more than 10% in both property and casualty classes.

The survey showed an increase in companies favoring global insurance program, with 79% citing it as beneficial compared with 71% in 1995. More than half of respondents organized their property and casualty coverages under a full global program negotiated centrally with global insurers.

While companies' concerns about U.K. insurers' solvency have declined markedly, concern about U.S. insurers' solvency remained high. Fifteen percent of respondents said they are worried about the solvency of their U.K. carriers, while 29% remain worried about the solvency of their U.S. insurers.

Company satisfaction with their insurers, meanwhile, had increased with more than three-quarters of respondents expressing general satisfaction.

Copies of the 1997 Fifth Biennial Risk Financing and Insurance Survey are available for 45 dollars from John Trayhern at Aon Risk Services, 10 Devonshire Square, London EC2M 4LE; 0171-621-9990; fax: 0171-621-9950