Marsh Report on Europe Transport Highlights Regulatory, Liability Concerns

February 19, 2008

A new report from Marsh’s London office focuses on the increasing problems of transport and logistics firms across Europe in coping with new categories of liability and an increasingly complex regulatory landscape.

“Liability Insurance Buyers Report Europe 2007”, analyzes “the issues, trends and aspects of the transport and logistics industries that will influence insurance buying and risk management strategies of companies in this sector in 2008 and beyond,” said the bulletin. “The report also examines the prices paid for, and the volume bought of general and product liability for 139 companies in the transport and logistics sector across Europe.”

Marsh points out that, while “most European transport and logistics firms take professional advice about risk management, much of it is not targeted at the areas companies know can damage them the most, such as contractual risk, regulatory risk and reputation/brand risk. Together, these three categories were cited by about two-thirds of all survey respondents.”

The report highlights the following “Emerging risks:”
Environmental risks – For transport and logistics companies, much of the concern focuses on carbon emissions from vehicles. This issue, and new environmental legislation, is expected to have insurance implications. The ‘polluter pays principle’, enshrined in the Maastricht Treaty, was further strengthened by the introduction of the European Environmental Liability Directive in April 2007.

A transport and logistics company that causes damage to the environment can now be found liable to pay compensation, regardless of whether it has been negligent or caused harm an individual or other third party. The directive has wide application across the transport sector on land, at sea and in the air, and does not place any limit on the amount of damages that can be awarded.

Terrorism – The threat of injury, damage and disruption resulting from terrorism continues to affect insurance premiums. The European Union (EU) introduced an Authorized Economic Operator (AEO) program on 1 January 2008 as part of a worldwide initiative to secure the global supply chain, ensuring a safe, regulated and fair flow of trade across national boundaries, and from 1 July 2009, it will be mandatory for traders to provide customs authorities with advance information on goods brought into, or out of, the customs territory of the EU. While the AEO initiative will undoubtedly help the EU to protect supply chains, it will place an additional burden of administration and expense upon transport and logistics companies, adding another element of risk to their operations.

Threat to reputation – Half of the European transport and logistics companies questioned in Marsh’s survey said that reputation/brand was one of the three areas with the highest potential financial impact on their businesses. Adverse events are reported in almost real time, so the damage to a company’s reputation can be immediate, allowing little or no time to prepare a considered response to criticism. The Internet provides a forum in which dissatisfied customers can air their grievances with little fear of comeback, and a home for other unfavorable comment. Clearly, reputation and brand management are now key to any successful risk-management strategy.

Brian Sullivan, Transportation and Logistics Industry Practice Leader for Marsh in EMEA, commented: “Any transport or logistics company that avoids a serious loss in the course of a decade is likely to be either lucky or adept at risk management and mitigation, with the nerve and knowledge to turn an apparent threat into a business opportunity.

“Companies are certainly acutely aware that risk is a crucial aspect of their business planning. However, new risks are emerging, risk profiles are changing and becoming more complex. A series of high-profile transport disasters in Europe have focused attention on safety, which have contributed to greater awareness of risk, a tighter regulatory environment and more stringent insurance conditions.”

“In parallel with growing concerns for safety, other factors such environmental awareness and regulation; employment law; contracts; public-private partnerships; collective litigation; and terrorism have all helped to increase risk and led to a shift in liability towards transport and logistics companies, who have been required to accept responsibility for many of these new and emerging risks.”

Marsh’s research also found that “as pricing drops, companies tend to buy more coverage, as seen most dramatically for transportation companies with revenues of between €201 million and €500 million [$296 and $737 million]. For this group, the average limits purchased went up by 70 percent, as prices came down by over 50 percent.”

Marsh also determined that “European companies with large loss experience purchased five times more liability coverage in 2007 than companies without large loss experience. The companies with significant loss experience have consistently bought the same coverage year on year, demonstrating that decisions on liability insurance coverage are based on more than just the price.”

In Central and Eastern Europe, companies without large losses purchased limits of €28 million ($41 million) on average, while those with significant claims histories purchased limits of €202 million ($297.6 million), or seven times more, while in North Western Europe this gap closed to €66 million and €83 million ($97 and $122.3 million) respectively.

The highest limits purchased by a transport and logistics firm in Europe in 2007 was €1.48 billion ($2.187 billion), purchased by a UK business. The most expensive country for limits purchasing was Spain, where the average price per million limits purchased was €25,160 ($37,060). Marsh notes, however that the “17 Spanish firms in this survey buy relatively small amounts of protection so the average price reflects the fact that these companies do not benefit from economies of scale buying.”

Sullivan concluded: “The risk landscape for transport and logistics companies in Europe is becoming more varied and complex, so the need for companies to have comprehensive, evolving risk-management programs has never been greater – not least to minimize the impact of insurance premiums.

“As these changes gather pace, operators who use risk management to distinguish themselves from poor or standard risks in the sector can transform potential threat into opportunity. Transport and logistics will always be inherently risky, but well-advised companies will similarly always find ways to turn this to their advantage.”

Source: Marsh, – www.marsh.com

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