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John Pearce takes direct, streamlined approach to insuring risk

John Pearce takes direct, streamlined approach to insuring risk

Fonterra Co-operative Group Ltd.'s philosophy of managing insurance is straightforward: None of the individual businesses within the Auckland, New Zealand-based milk processing company is allowed to buy its own insurance without approval from either the chief financial officer or John Pearce, general manager, policy and risk.

“That way we can keep control of what’s going on, including control over the total insurance costs,” said Mr. Pearce.

Property and business interruption in Australia and New Zealand are under one program, Chile is a separate program, and manufacturing operations in Saudi Arabia, Sri Lanka and Malaysia are all separate programs, he said.

Mr. Pearce said Fonterra has a global liability program led by Allianz S.E., adding “they have been our business partner in this area for a number of years now.” ACE Ltd. has led property and business interruption since the formation of Fonterra, and “I believe we have an excellent working relationship with them,” he said. American International Group Inc.’s Chartis Inc. unit also is a major business partner on several lines.

“We stuck with AIG though their troubles, and I think that has assisted the development of our relationship with Chartis,” said Mr. Pearce.

He added that Fonterra has a captive insurance company, but “it has remained relatively dormant.” Under New Zealand law, Fonterra recently obtained a license for the captive insurer, and “we are now looking at the present market trends and evaluating whether we should take some real risk to our captive in the future,” he said.

Fonterra has a global arrangement with Marsh Inc., which is Fonterra’s sole broker in all except for one market for one particular cover.

“The philosophy of our insurance has been to retain risk where it is sensible to do so and where we are comfortable to do so,” he said. “For example, for property and business interruption risk, we doubled our deductible last year, and the primary reason we did that is because we’re comfortable with the management of that risk, so we’re taking more of the risk to our own account.”

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