Еженедельник «Commercial Risk Europe» о Форуме РусРиска
Russian companies ill-prepared for new environmental and reputational risks
Viktor Vereshchagin, President of the Russian risk manager association RusRisk
Russian companies and risk managers will increasingly have to deal with environmental risks but many are not prepared to adequately deal with the challenge, according to Yuri Markin, liability manager at insurer Chartis, speaking at the X. International meeting of the Russian risk manager association RusRisk in Moscow this week.
One reason is that liability insurance and holding companies to account is a relatively new concept in Russia. For example, it was only at the beginning of 2012 that the Russian government passed a federal law that obliged owners of hazardous production plants to buy liability insurance in order to protect third parties from damages caused by production processes.
However, companies remain reluctant to buy the cover. “In Russia, companies do not have confidence in the legal system and therefore are reluctant to go to court in order to enforce their claims,” Andrey Sedov of insurer Zurich said at the event in Moscow.
Chartis’ Mr Markin warned that this reservation towards liability insurance may have severe consequences in cases of an environmental loss. A likely lack of cover is made more likely by the fact that some environmental claims are excluded from standard liability cover and have to be insured with a specialist policy. “Companies should know that there are gaps in their insurance, as some of the costs for environmental pollution are excluded,” he said.
For example, general liability insurers will not pay for cleanup costs or measures to minimise any damage. Also they often do not cover damage resulting from gradual pollution or damage to flora and fauna.
Companies should be aware of these gaps and close them with special environmental liabilty cover, Mr Markin said. But many companies are not experienced in dealing with such risks and only a few companies in Russia have purchased the extended liability cover.
This might also have to do with the fact that insurers demand complete transparency from companies before they provide such cover. Before signing a policy, insurers want statistical data about the environmental risk exposure of a company, as well an overview of potential historical risks. This is especially delicate in Russia as many companies cannot judge the extent of environmental pollution caused in the times of the Soviet Union. “When it comes to historic claims, the insurance problem is critical,” Mr Markin said.
As well as grappling with new environmental risks Russia risk managers and their companies are increasingly having to deal with the threat of reputational damage and brand image issues.
German Gorshkov of Russian energy supplier Rus Hydro gave some reasons for that development. “In the past, Russian consumers did not attach importance to quality when buying products for daily life,” he said. But this situation is changing. “As the quality of life is improving, consumers have the opportunity to travel around the world and compare the quality of Russian products with their international counterparts,” he said. "As a consequence their quality requirements of consumer goods are increasing.”
There are several examples that illustrate the increasing demands made by Russian consumers from within the energy sector alone. For many years energy companies have held monopolies in their respective regions. “Very often the consumer service is very bad or even non-existent,” Mr Gorshkov said. “For a long time people did not even consider changing the supplier as there was no alternative in their region.” Industrial companies, he said, even had to pay compensation to their energy supplier if they intended to change provider. Once these barriers disappear certain energy suppliers will have an enormous image problem, he believes.
Rus Hydro, Mr Gorshkov explained, has attempted to prepare for the new environment and has already made considerable efforts to become more customer-friendly. The company, which mainly provides energy to households and companies in the Krasnoyarski, Bashkir and Rjasanski regions, has centralised its client service operations in order to provide standard rules for dealing with consumers. It has also established a single risk management department, which is responsible for the complete holding.
Another reputational risk stems from the lack of competition between the Russian phone operators.
“Due to the technical reasons, currently customers in Russia can’t retain their mobile phone numbers after switching their mobile operator” Igor Mikhailov, risk manager at MTS said. “Ex-president Dmitry Medvedev has recently called for the implementation of new rules in order to change the situation.”
Mr Mikhailov believes that introduction of mobile number portability (MNP) may require significant technological investments from the mobile operators and affect the financial results of these companies.