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DUSSELDORF, Germany -- Competition, cost and innovation are altering Germany's broker market, says Aon Jauch & Huebener Executive Director Jochen Scheele.

After its acquisition last year by Chicago-based Aon Group Inc. (BI, Sept. 22, 1997), Germany's largest broker hopes to spearhead market change by expanding the range of products and services available for German buyers.

"Globalization of markets provides new opportunity," said Mr. Scheele. "Clients can expect better service and better products. In today's market there's a solution for even the most difficult risks. Any risk can be tamed."

In Dusseldorf, at the first general meeting of its clients since the September 1997 merger, Mr. Scheele underlined the necessity of the Aon deal to expand service.

"We chose Aon because the company has a broad range of expertise in risk management, risk financing, insurance, reinsurance and company pension plan consulting. We can tap resources in over 100 countries -- for the good of the client."

Deregulation also helped open the door to global markets, said Aon Jauch & Huebener's Paul Grothaus, managing director of the Muehlheim branch office. "There's been a shift in product supply and demand -- often a result of legal changes. Insurance competition is strengthening a trend to unique solutions with more self-insurance, especially when it supports high-risk retention."

Mr. Grothaus conceded that large commercial clients still talk more than act when it comes to alternative risk financing and captive models, but ART is gaining ground due to what he called "unacceptably high" premium taxes.

Companies in Germany are subject to a 15% premium tax and other levies, which can raise insurance costs by 30%. As a result, Mr. Grothaus said demand is growing for multiline policies, which have lower premiums than buying separate policies would in total.

Many of Germany's "new" insurance products actually are crossovers from Great Britain and the United States, said Mr. Grothaus.

"A prime example is product tampering insurance and product recall insurance," he said. Another example is environmental impairment liability insurance, which covers pollution cleanup costs -- with a deductible of 100,000 deutsche marks ($55,200) -- on a company's property after an accident. Aon Jauch & Huebener introduced the product last year in cooperation with American International Group Europe.

In most cases, Mr. Grothaus contends industrial clients have left traditional insurance in key areas and have built up systematic risk management systems. "And if a corporation doesn't want or can't carry a risk itself, it now looks at risk financing as an alternative."

Product recall and product tampering insurance have gained ground with German clients largely due to spectacular recall and product tampering cases and legal changes. Last Aug. 1, Germany introduced a new product safety law that affects new and used products that consumers use and sell in the market, Mr. Grothaus said.

"A product is only safe when manufacturers consider all possible health hazards," said Ernst-Henning Heinsius, regional liability director for Aon Jauch & Huebener in Hamburg. "For the first time authorities have the power to recall products."

While Mr. Heinsius doesn't expect an increase in government recall activity, he sees a growing need for higher safety and quality control measures as consumers become more aware of the law, which makes it easier for them to sue. "Not only do companies need to check their production and distribution channels, they need to look at suppliers and those selling product right down to the consumer."

Among the necessary measures, Mr. Heinsius counts reworking of emergency recall plans for product tampering and extortion cases, in which products must be removed so the threat cannot be carried out. Aon Jauch & Huebener is focusing service and consulting efforts on working out contingent action and insurance cover for corporate clients.

Product recall coverage in Germany was initially developed for car manufacturers. Policies for a wide range of industries -- that take the new legislation into account -- have been available in Germany since 1997.

Demand has increased for product tampering insurance for the food industry, said Mr. Heinsius. In Germany there are more than 200 cases of attempted extortion, primarily against food companies, each year.

"While the product itself has not changed much over the years, the increase in extortion cases has been dramatic. Underwriters are also more willing to cover risks with higher capacity and a variety of conditions, including advertising costs and costs for rebuilding image," Mr. Heinsius said.

Depending on the solution, recall insurance can cover costs for publicizing recall notices, transport and intermediate storage, checking and sorting operations, replacement, or other financial cost infringements. The newest improvement is kidnap and ransom insurance, now available in Germany in anticipation that regulatory insurance authority BAV in July will lift its ban on such coverage in the country (BI, March 2).

Other legal changes affecting the German insurance industry include a new transportation law that takes effect July 1. After the law takes effect, there will be uniform liability for the transport of goods via all transportation methods, said Uwe Rathjec, director of the Hamburg branch of Aon Jauch & Huebener. In the past, different transport methods had different liability levels. "The reform means greater liability for transport and shipping companies," he said.

Aon Jauch & Huebener developed new insurance with a liability of 10 million deutsche marks ($5.5 million) per kilogram of transported goods with a 2 million deutsche mark ($1.1 million) limit per claim. The policy offers transport and shipping companies coverage for personal liability and property insurance for damaged goods and related damages based on an all-risk policy, including certain financial losses. It will be available July 1.

One of the fiercest battles for clients is raging in property insurance with some of the softest rates in a decade. New products are seen as a key for expanding business of many insurers. Brokers, too, see new avenues. New Aon-brokered products include strike insurance, which covers financial business insurance losses when suppliers are shut down by strike. The product applies only to Western European companies. The coverage is the first of its kind available in Germany and previously was offered only at Lloyd's of London.