SOME GERMAN INSURERS REWORKING OPERATIONS

COLOGNE, Germany -- As a result of deregulation and heightened competition, some of Germany's top insurers are restructuring and planning to write more direct coverage to better serve commercial clients.

Among the insurers revamping their industrial risk operations are Allianz A.G. Holding, Gerling Holding A.G. and AXA Colonia A.G. Each recently announced plans to revamp commercial and industrial business with "dedicated structures" to service commercial clients. Specialized units will take the initiative in offering solutions -- directly and through brokers -- to all commercial risks.

Market leader Allianz has announced plans to merge domestic marine, aviation and cargo insurance business, including marine and aviation liability, into one unit. Allianz already has segmented industrial business, with separate units targeting commercial clients with revenues of less than 1 billion deutsche marks ($562.8 million) and those with higher revenues.

The insurer is looking to better coordinate lines of business, bundle capacity and integrate know-how for commercial risk financing solutions. Allianz is getting into non-traditional programs, such as capital markets products.

Gerling A.G. also is in the process of overhaul. Juergen Zech, Gerling Holding A.G.'s chief executive officer, said dedicated structures will help the company decentralize decision-making, speed up service and heighten product flexibility. Winning large industrial and commercial clients is vital to Gerling, which earns most of its revenues with German industry.

The battle for commercial clients has been heated by deregulation, globalization and cross-border benefits of the euro. The result is an increase of foreign insurer strength in Germany. The most recent example is the French AXA Group, which by acquiring Hamburg-based Albingia A.G. became Germany's second-largest property insurer, behind Allianz.

Claas Kleybold, chairman of Cologne, Germany-based AXA Colonia Holding A.G., the group's German arm, contends mergers and acquisitions are driven by "synergy potential" outside product lines and national borders. "Consolidation, convergence and globalization are dictating the rules," he said. "Brand names transcend language and cultural differences. They link countries under a single philosophy."

AXA Colonia is revamping its structure around a new company, AXA Global Risk, a Paris-based international network created to serve large multinational companies.

AXA focuses on industry sector solutions. One manager is responsible for each sector, such as transport or amusement parks. AXA Global Risk will market directly to large companies. A spokesman for AXA Colonia pointed out, however, that German insurers have a long tradition of direct contact with captive brokers of large German companies.

Risk managers in Germany generally are pleased by the moves toward segmentation and more direct contact.

"We've wanted this for a long time," says Peter Ramb, risk manager of Frankfurt-based chemical giant Hoechst A.G. "The market needs a segmentation into commercial, industrial and large industrial risk. The moves make the insurers "more in tune with the needs of the 20 to 30 largest German corporations," he said.

Mr. Ramb sees several benefits, including better insurance products. "The old structures simply could not handle complex solutions," he says. "Integrated solutions deal with high deductibles and financial risk. That is too big a job for a local liability insurance branch."

Another primary benefit of dealing directly with large insurers, regardless of what risk is being discussed, is cost, admits Mr. Ramb.

"I don't mean to say we don't need brokers. But it is important to deal directly with the insurer. After all, they are the ones carrying the risk. We know the market. We know what we want. We still need the broker for advice and as support for risk management efforts. But in many cases direct contact (with insurers) is better."

Brokers are not particularly happy with efforts to circumvent them.

"Brokers are potentially threatened by these new structures, but no more or less than in the past," contends Ralf Geck von Kaenel, managing director of German broker Aon Jauch & Huebener in Muelheim. "In some cases, our standing will in fact improve. Gerling's new structure is two-tracked. One track is for the broker and the other for direct contacts." He said that insurers are cooperating more with independent brokers and giving them new avenues for income. For example, brokers now are doing risk assessment work for insurers. "We now have more room for additional (consulting and risk management) business." Still, the threat to brokers is real, as insurers who work directly with clients will be competing with the brokers.

"The threat to brokers may be more imagined than real," said Guenter Schlicht, head of VDS, the Bonn-based German risk managers association. "We shouldn't forget restructuring follows a trend to larger mergers and acquisitions, which is placing power in the hands of a few. In AXA's case, for example, two mid-sized insurers were swallowed by a large insurer. Buyers want more choices," Mr. Schlict said.

Alois Markmeier, risk manager of Gutersloh-based publishing giant Bertelsmann A.G., said the measure likely will help the insurance companies more than the buyers. Restructuring will help insurers reduce their costs, "but it remains to be seen if it helps the client," he said.

"What I want is a good product," Mr. Markmeier said. "I want to see the costs involved. We will have to see if these (restructuring) measures actually help. I fear it is more a cost-cutting measure for insurers. In any case, the independent broker is essential for the market and provides the overview. If my (main) insurer can't give me everything I want, I rely on the broker."

In some cases, German insurers have agreements that brokers do risk assessment work for them in a fiduciary capacity. German insurers have a long tradition of direct contacts with industrial clients. Leading corporations, such as Hoechst, BASF, Volkswagen and BMW, have captive brokerages that earn commissions for business with insurers. But they also deal with independent brokers, like Aon Jauch & Huebener, which has expertise in risk management and foreign markets that profits both insurer and corporate client.

Mr. Geck sees less obvious -- and for brokers less dangerous -- motives in segmentation. "I believe the main thrust comes from shareholders and regulators, looking to curtail cross-subsidizing of business lines," he says. "Shareholders are increasingly unhappy with the transfer of revenues from profitable private lines -- private health insurance -- to subsidize others."

Market analysts agree. "Growing pressures on profitability make the weakness in cross subsidies apparent," said Frankfurt insurance analyst Michael Drepper. Mr. Drepper believes segmentation will make underwriting losses more visible to the buyer, with loss statistics being more segment-specific.

Mr. Geck said insurers could soon use "clean statistics," or loss figures broken out by segment, to push for higher commercial insurance rates.

The bottom line for brokers is that clients will continue to seek an "overview" of an increasingly "oligopolistic" market, said Mr. Geck. "The need of alternatives will overweigh other considerations. Behind it all is the desire to have independent advice."

Mr. Geck said he doubts that buyers really trust the advice of insurers, because they provide the capital. "Those who provide the capital are not good consultants," he said.

Of course, brokers must be consultants for both sides, he says. "You have to be better -- more innovative, reliable and simple -- faster and cheaper than the other guy." It's a view insurers share and want to emulate.