The customer is always right

Consolidation in Germany has risk managers worried

The German risk management community is worried about the ability of its industrial insurance sector to meet its complex needs.

This fact was made clear at the Deutscher Versicherungs-Schutzverband e.V. conference in Munich when the association's chairman Ralf Oelssner, risk manager with Deutsche Lufthansa A.G., said that he does not like the look of the current process of consolidation.

Mr. Oelssner pointed out that the number of employees within the German insurance industry fell to 233,000 in 2005 from 240,000 in 2004. He identified six major German insurers that are shedding a further 10,000 jobs as they seek to cut costs.

He fears that as German insurers seek to meet the ever-higher needs of their investors, they will lose touch with their customers' needs.

The takeover of Gerling-Konzern Versicherungs A.G. by Talanx A.G. is used as a case in point by many German insurance buyers who fear that the long and proud technical service-based culture of the Gerling group will be lost post acquisition.

Talanx says that it merely seeks to bring the Gerling industrial operations into line with its own, low cost model. It would appear to have a point.

There is also no doubt that the German insurance sector does have some serious structural problems.

The sector was protected from true competition much longer than most other European sectors and has paid the price for that in recent challenging years for the German economy.

According to analysts, Germany still has too many under-captialized and high cost insurance firms that appear to exist to serve the needs of customers and employees first, and investors second.

The modern, international capitalist business model that is increasingly dominated by global—and often unregulated—capital, demands a less forgiving approach.

But while increasingly web-based and low cost so-called "insurance factories" may well work for mass personal and even more standard commercial lines, the industrial risk market surely remains sufficiently complex enough to merit a more bespoke approach.

It looks like a compromise will be required.

Those insurance companies that dare to offer complex and volatile coverage for industrial risks must clearly invest the time and effort required to make it viable for the customers.

At the same time, the buyers must surely accept that the luxury service offered by the much-loved, but arguably discredited Gerling business model.

If the argument cannot be rectified, then the buyers will have to seek hard to find alternatives and more premium will be lost to the commercial insurance market.