Coca-Cola Is Leading the Way in Risk Management Thanks to Director Paul Berkemeier
The Coca-Cola Company, one of the world’s largest beverage companies, had a problem.
The company’s risk transfer program had become increasingly costly and wasn’t working as efficiently as it should over the last 10 years, and it was in need of an overhaul to meet Coca-Cola’s new business strategies.
For example, premiums for excess coverage on top of large retentions without insurance recoverables needed to be reviewed and tested against Coca-Cola’s capital management objectives.
As part of the company’s overall strategy to increase earnings per share, it also needed to cap retained losses on a per occurrence and aggregate basis, while making better use of its captives to cover most of the frequency layers of its property and casualty risks.
In the past, it had bought coverage on a line by line basis, but this failed to reflect the company’s view of its overall risk exposure and make value savings in other areas.
Step in 2019 Risk All Star Paul Berkemeier, director of global risk finance at Coca-Cola, who completely rebuilt the program from scratch around compliance, risk tolerance and a more efficient use of capital.
To do so, Berkemeier and his team, working alongside insurance broker partner Beecher Carlson, used analytics to quantify the company’s retained risks and understand the correlation between those risks, to identify alternative sources of risk capital beyond traditional insurance and to track all retained losses for those lines insured by its captives.
They also used the data gathered to streamline the company’s policy language for its captives.
“We were trying to rethink the way Coca-Cola approaches risk and to make sure that we had the most efficient coverage available,” said Berkemeier.
“What we have created in effect is an aggregate insurance program that goes across a whole portfolio of risks, using our capital in the most efficient way.”
Starting out at the end of 2017, first they needed to establish the company’s risk appetite. They also needed to ensure that the new program was fully compliant with both U.S. federal, state and overseas regulatory insurance requirements.
Despite considerable pushback, thanks to his perseverance, Berkemeier was able to harness the company’s captives to better handle and retain risk in the space of just 18 months.
He procured aggregate excess reinsurance coverage, thus lowering the company’s total premiums. In fact, he managed to reduce Coca-Cola’s overall cost of risk transfer by more than 50%, as well as securing additional capacity in the program’s second year.
“There were a number of insurance markets that pushed back because they felt that they couldn’t accommodate the program,” said Berkemeier.
“But luckily we found a couple of them that understood what we were trying to achieve and once we got them on board others followed.
“Coca-Cola is fully committed to building this market and we knew that it would be a long-term play, so we were willing to take on more risk from the outset in order to get the program up and running. However, that said, it’s still very much a work in progress and will take another year to fully build.”
An additional benefit, Berkemeier said, was that by utilizing captives the company has also been largely protected from the current hardening insurance market and subsequent rates increases.
Such is his passion for the new program that Berkemeier now shares his methods and insights with stakeholders from other companies to help them to form their own risk strategies.
“I was only able to achieve this vision with the support of Coca-Cola’s executive leadership team and our external partners,” he said.
“Another key factor is having the right risk modeling and people in place to carry it out so that you get the data you need.”
A market leader in the soft drinks industry, Coca-Cola is now leading the way in risk management techniques, too. &
Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.