Carrying out claim audits in Continental Europe requires an understanding of cultural differences, which may not be perceived as big but can be significant.

Continental cedants like nothing more than a request for an audit by the reinsurer! The cedant has significant work to do in order to prepare for the audit and personnel are tied up in the process.

Whereas the inspection of records is a common and accepted practice in the US and the UK, it is much less common in Continental Europe and often leads to a feeling of unease on the part of the cedant. This has nothing to do with the fact that the reinsurance contracts are governed by Spanish, German, or French law or that an inspection clause is not included (it usually is), but rather that the cultural practice is different and hence the perception of an audit is less positive. This has its roots in the fact that:

• In the past, especially in Continental Europe, reinsurance was based upon trust and long-term business relationships, often without the use of brokers so that the relationship was personal. The concept of "pay back" meant that reinsurers were rewarded for any bad underwriting years.
  
• Looking back, reinsurance claims managers in Continental Europe were generally more liberal in their interpretation of wordings and more generous in claims payments, compared to their counterparts in the USA, who were attentive to the close adjustment of claims. The practice in England fell somewhere between these two extremes, with a growing tendency towards American-style adjusting. (This reflects the dispute culture and the readiness to engage lawyers rather than resolving problems between business partners. The social system, the tort system, and the contingency fee basis of lawyer's remuneration, as well as the aggressiveness of lawyers particularly in the USA, add to this picture).
• In the past, in some Continental European reinsurers, reinsurance claims were not considered to be of a sufficient magnitude or complexity to warrant a separate department focused on their analysis. Indeed, the payment of claims was regarded as a routine process irrespective of the size, type, or complexity of the claims at issue. This was more "claims processing" than "claims management". Claims specialists were seldom in the senior management of a reinsurance company. Claims were seen as a byproduct of the underwriting process and the more complex ones may have even been handled by underwriters since these people were regarded as coverage experts. Since claims were seen as being either covered or not covered - a black or white analysis - there was no imperative to carry out claim audits. In addition, reinsurers did not see the value of carrying out audits since they were predisposed to pay claims anyway and an audit was seen as an additional expense.
• Geographical spread compared to the UK- the market in Continental Europe is less unified than in the UK, with each cedant taking their own view rather than a market one. This means that audits are sometimes regarded as a personal affront.
• A few reinsurers, especially those in the emerging run-off market, have utilised the inspection clause simply as an indirect method of slowing down payment of claims; this gives the rest of us a bad name.

Despite the above, audits are being used more and more and their acceptance is slowly increasing in Continental Europe. However, despite this trend, differences exist in the process vis-à-vis the US/UK, as discussed below. Furthermore, some countries are less accustomed to it than others. If we were to roughly rank the countries in terms of familiarity, we may come up with the following:

• Less familiar - Spain, Italy, Portugal, Austria, Denmark, Switzerland, Holland, Belgium, Norway, Sweden, Eastern Europe.
• More familiar - France.

• Most familiar - Germany.

Cultural and market differences

These comments are generalisations only:

The Language

When it comes to conducting an audit in Continental Europe it is obvious that language might be a major obstacle for non-bilingual English speakers. Original documents are often in the local language, and it is often the case that the particular claims handler/reinsurancemanager has limited knowledge of English. French, Spanish and German companies in that order prefer to be addressed in their own language and Italians also find it constructive. Language skills smooth the path, especially in personal meetings.

Cultural differences

Probably the most subtle difference but the most influential - each country has its own idiosyncrasies on how it likes to do business. These may manifest themselves inter alia, in the timeliness expected in meetings; the way that they like to be addressed; and whether meetings in person are preferred to written correspondence. For example, Germanic countries tend to be more punctual and formal, accepting written correspondence. Latin countries are less formal especially with regard to time and prefer personal meetings. There is of course no right or wrong, just accepted practices in each country. Nordic countries, perhaps because of their small size and familiarity with the English culture and language, are perhaps the most adaptable in terms of accepting non-Nordic business cultures. Failure to regard cultural differences can create a very bad first impression - for example, turning up 30 minutes late with a German reinsurer and then addressing them by their first name is very bad form. Likewise, not drinking wine at lunchtime in France or Switzerland may be seen as unusual.

Terminology

In Continental Europe an inspection is often called a "claims review" since it sounds less intrusive and more focused. Certainly, so-called "fishing expeditions" are unloved everywhere!

Use of brokers

Traditionally, where brokers are used, they like to be involved in the arrangement of the audit and may even attend. Brokers often see cedants as solely their client, and like to protect them.

Country specifics

Spain
Inspections are rare and there is a significant reliance on the broker to supervise and arrange the audit. From the inspection request onwards everything is often channelled through the broker. In most cases, the broker will even be present throughout the duration of the audit in order to clarify any questions and to smooth the relationship. It is likely that the audit will be limited to one or two days for current reinsurers. In addition, office hours are somewhat different, so do not expect attendance at 9am and be prepared for lengthy discussions and lunches - on the other hand no one will force you to stop your work at 5pm.

Italy
The dependency on the broker is not so strong. However, the rareness of inspections may lead to a mistrust of the reinsurer's intentions in carrying out the audit and in some cases there might be limited willingness to co-operate with the inspector. Therefore, be prepared for extensive discussions about the why, when and how of the audit. However, meetings in person will certainly build the trust, which is necessary to develop relationships.

France
It is difficult to draw a picture here. Their responsiveness very much depends on the professionalism of each insurance company. However, inspections are not warmly welcomed in many companies simply because they are relatively unusual. Whereas the staff at most larger companies speak English, those at smaller ones tend not to, calling for a more than rudimentary grasp of French.

Germany
They are usually prepared to receive auditors, although it might be regarded as a form of distrust in their claims handling. All reinsurance managers can communicate easily in English. However, as original documents will be kept in German, language skills will be required.

Generally speaking, you should consider the following issues if you plan to conduct inspections in Continental Europe:

• Be aware of substantial cultural differences.
• The ability to speak (and read) the local language is a distinct advantage and helps foster good relations, even if not always required.
• Be prepared to explain the full background to the audit.
• Shorter audits are the norm - 2 to 3 days.
• Scheduling the audits takes time - avoid the renewal season of January 1st.
• Southern European countries are on holiday in August; Scandinavia is on holiday in June.
• The best time for audits is probably March to June and September to October.

Tips for coping with cultural differences

• Be open.
• Apply common sense and try to understand the viewpoint of the inspected party - audits are time consuming!!
• It is the reinsurer's task to understand and respect the wishes of its cedants so long as the reinsurer's contractual rights are not severely hindered. Conversely, the cedant has to try to understand the viewpoint of the reinsurer - in many cases it is just the process of obtaining greater clarity in respect of the claims ceded.
• In the event that the cedant and reinsurer cannot agree on the right to inspect, it is often the case that a commutation can be agreed at a mutually acceptable price.

The reinsurance environment has altered so much in the recent past. Nowadays, the relationships tend to be shorter. Although uncommon and unpopular in Continental Europe the trend towards the greater use of audits to satisfy reinsurers' legitimate concerns and to increase transparency and trust is bound to continue.

Some of the tips outlined above, such as understanding the other party's point of view, will enable companies to carry out audits with fewer problems.